How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 44: December 26th

Updated: Feb 8, 2021

Third U.S. death wave slows, but continues to rise; Crystal ball: Third infection wave continues to flatten, but may not last as Americans ignore health advice and set pandemic record for holiday travel; World round up: Crisis intensifies in South Korea, Belgium and the United Kingdom. State Roundup: "We are running out of options. If people don't stay home for Christmas it will break our hospital"; Georgia’s bellwether economic recovery: Revisited next week; Unemployment: "The beatings will continue until morale improves"; Financial cliff: After conclusion of epic struggle to compromise, rug pulled out from under both parties at 11th hour by White House; CBRE report predicts commercial real estate’s pandemic pain is only just beginning; Experts suspect new highly contagious UK variant mutation may already be in the U.S. Update on my portfolio strategy.






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Quick Summary


This week there was the usual flood of new information on virus spread, economic impact, investment repercussions, as well as about the virus itself.

This article is part of a multi-article series that's been published weekly since the pandemic began, back in March 2020. It started with three introductory articles on the virus and its effect on the economy and on alternative investment classes. Then it moved on to weekly updates on the latest and greatest developments (along with weekly updates on my evolving personal portfolio strategy). You can see the links to every article in the series here.

Third U.S. death wave slows, but keeps rising.


For the 33rd week in a row, the United States battled the coronavirus called SARS-CoV-2, which causes the Covid-19 disease. And as of Saturday morning, the official death toll had climbed to 338,263 (versus 322,186 last Saturday morning). Here's a quick summary of what's happened so far:

  • 1. The first U.S. death wave started in early March. It was overwhelmingly in urban areas (like New York City in the Northeast). It peaked on April 21st and the country fought it down until July 6th.

  • 2. The second death wave started on July 7th. This ran predominantly through urban areas in the Sun Belt. It peaked on August 1st, before falling until October 8th.

  • 3. Then the third death wave began on October 9th and is currently tracking upwards. Unlike earlier waves, this was led by rural areas (although now it is spreading across the entire country and surging in all areas).


How did things go this week?


This week was a little bit odd, because some sources didn't report data due to the Christmas holiday. So that probably artificially depressed some of the numbers at the end of the week. As a result, I'm going to ignore that portion of the week on this graph (and others later in this article).


So, ignoring that: deaths slowed versus last week, but still rose. And yet again, they set new records which shattered early pandemic highs.


Unlike the two previous waves, this third one is widely distributed throughout the country, which many experts say will make it much more difficult to contain and to fight. And as we discussed in late October, this has already caused acute shortages of critical drugs and key medical personnel needed to fight the disease and limit deaths. On the other hand, many states have enacted varying lockdowns which may start to kick in and change the trajectory. So we’ll be watching this very closely to see what happens.


Crystal ball: Third infection wave continues to flatten, but may not last as Americans ignore health advice and set pandemic record for holiday travel

If we're unable to make clear progress and deaths remain high, then the overwhelming consensus of economists is that this would sabotage hopes of a quick, V-shaped recovery. Instead, the recovery would assume a different shape (W-shaped, U-shaped, etc.). This would be slower, involve more long-term damage to both health and economy, and potentially cause problems for some or many consumers, businesses and investments. (See part 14 for more information on the possible "recovery shapes" and their ramifications).

Since this is potentially so important, let's take a look at one of the leading indicators of upcoming deaths: virus infections. Virus infections tend to lead deaths by anywhere from 2 to 8 weeks (depending on how long it takes someone to die and how long it takes their particular location to report the information). These case numbers are not completely reliable due to testing labs' difficulties, in many parts of the country, with getting results back on time. And some states are not reporting all of the positive tests (specifically, the antigen tests). But they can still provide a clue of what might lie ahead with deaths.


How did virus infections look, this week?

Again, we'll ignore the end of the week, since the data is incomplete due to the Christmas holiday. On one hand, infections rose slightly, and this once again set new pandemic highs. On the other hand, the increase was much slower than a couple weeks ago. So this could indicate infections might soon be reaching a top.


At the same time, epidemiologists have repeatedly expressed the fear that many Americans would be likely to ignore health advice and mingle with family and friends outside of their homes during the holidays. And if this happens, we would expect to see another surge.


And sadly, that scenario, of another surge, appears to be playing out. Earlier this week, the U.S. Transportation Security Administration announced that pre-Christmas travel had surpassed 1 million daily passengers for three consecutive days. This was the most travel that's happened during the pandemic. And it broke the previous record set over Thanksgiving. These actions were in direct opposition to the guidance issued by the Centers for Disease Control and health officials who had all discouraged holiday travel.


World round up: crisis intensifies in South Korea, Belgium and the United Kingdom.

How did other countries do this week? As we discussed in part six, South Korea uses an aggressive mixture of the Three T's of epidemic control (testing, tracing and treatment). And through most of the epidemic, it has been one of the world leaders in both minimizing deaths (one of the lowest per million) and also minimizing economic damage (their economy is now mostly open and growth is projected to barely shrink this year, while in comparison, the U.S. still has significant closures and is projected to take a -5.9% hit to GDP). This week, South Korea looked like this:


Unfortunately, this was the second bad week in a row for South Korea. Not only have they accelerated into a third death wave, but they have now exceeded the peak of their first wave.


On Saturday, South Korea's prime minister said:

"The country is at a crossroads of the third wave. ... how we stop the spread hinges on how we spend this year-end and New Year period."

Previously, the government had closed night entertainment venues, including nightclubs and karaoke bars, as well as banned on-site dining after 9 PM. With the latest bad results, they’re now considering shutting down 1.2 million stores and allowing only essential workers into offices.


How is Sweden doing? We used to look at Sweden’s stats in depth every week, because it was following an unorthodox lockdown-lite strategy. And the hope was that it might prove itself as a successful alternate model for other countries to follow. But after a recent surge of infections, hospitalizations and deaths, they’re reversing course and their strategy is becoming much more similar to others. And so far, lockdown-lite has resulted in worse economic damage and a stratospheric death toll (versus the top countries). So we are now switching to a one-month schedule (and we will look at their stats in detail in two weeks).


Meanwhile, the other nations in Europe have been hit by a brutal second wave of deaths. Initially, the continent was bruised badly by the first wave, but used aggressive lockdowns to drive infections and deaths to extremely low levels. So then, countries loosened travel restrictions and reopened schools (despite warnings from many health experts). And, as colder weather hit, the death toll has skyrocketed. So authorities were forced to enact a variety of new lockdowns (which we've described in detail in previous weeks). So how are things going? First, let’s look at Spain. The country is a popular travel destination and was one of the first to get hit by the second wave. And, in the last two months, they've been battling an increasingly bad situation. But in the last month, they finally peaked and deaths mercifully dropped off a little bit. This gave hope that they might finally be getting control of things and turning the corner. How did they do this week?




This week brought more progress and they continued their streak. Let’s hope this continues. How did some of their neighbors in Europe do? Let’s look at the U.K., France, the Netherlands and Belgium. Just a few weeks ago, all of them appeared to be turning the corner simultaneously. But more recently, they’re news has been looking more mixed. What happened this week?



France did the best and had a slight drop. Of this entire group, they’re the only ones that appear to be still turning the corner.


The Netherlands was essentially flat, and higher than their peak a couple weeks ago. So they look like they could be on the verge of losing control again.


On the other hand, both Belgium and the United Kingdom have recently lost control. Deaths accelerated in both countries. And as we discussed last week, the U.K. is fighting a new, mutated strain of the virus which appears to be much more contagious. This makes tackling the crisis in the country even more challenging than before.


State Roundup: "We are running out of options. If people don't stay home for Christmas it will break our hospital"

For the last several months, we've watched individual U.S. states to get insights on what might happen next at the national level. And here's what we saw:


  • 1. Second Wave: After the Memorial Day weekend (in May), we saw the second wave of infections (and eventually deaths) start in the Sunbelt and then spread to the Midwest and Northeast. And the people getting infected were significantly younger than those afflicted by the first wave (many of whom were going to parties and bars). In response, many states put in place virus control measures, including reinstatements of key portions of lockdowns and rules mandating the wearing of masks (in more than 50% of states). And the Sunbelt states made huge progress and fought the wave back down.

  • 2. Third Wave: Then after the Labor Day weekend (in September) the U.S. also reopened schools and cooler weather began in the north. Almost immediately, a third wave began. While this started in just the Midwest and Northeast, it then spread across every major area of the country. And while earlier waves hit mostly urban areas, this new wave was led by rural places Also, since the wave is spreading much wider spread than before, there are now chronic shortages of 29 of the 40 most crucial drugs needed to treat Covid-19 as well as crucially needed medical personnel in many areas.


What happened this week?


Unfortunately, both Covid-19 hospitalizations and ICU usage continued to rise. Once again, the country shattered previous records. And both are now almost double the worst numbers of previous peaks.




As a result, many already overstressed hospital systems were forced to take on even more of a burden. And as of Friday, the Department of Health and Human Services reported that one in five U.S. hospitals were reporting a critical staffing shortage.


Unsurprisingly, statistics showed that non-metro areas were hammered the hardest. More than a dozen small counties, including Burke (North Carolina) and Hale (Texas) reported at least 90% of their ICU beds filled by Covid-19.


Meanwhile, despite the vaccine rollout, many healthcare workers are still bearing unsustainable work and emotional loads. Ann-Marie Alameddin, president and chief executive officer of the Arizona Hospital and Healthcare Association, warned:


“We can’t really downplay the emotional strain. I think there’s going to be lasting effects that we’ll be navigating for months and years to come.”

Let’s dive down to the state level to see how things are going. And let’s look at California first.


In previous weeks, California has implemented automatic lockdowns as ICU capacity deteriorated. How does it look this week?



California’s infections and deaths both dropped at the end of the week. But that may not be real and just due to the holidays (and lack of reporting). Either way, hospitalizations still rose. And once again, they increased to set new pandemic highs.


Back in November, Gov. Gavin Newsom warned that hospitals could be filled up by Christmas Eve. And sadly, on December 24, the state reported an average of 0% ICU capacity in hospitals statewide.


This week, California Gov. Gavin Newsom said:


"We are experiencing a modest decline in the rate of the growth. It doesn't necessarily make a trend ... but it's a modest indication of a possible sign of some good news."

On the other hand, Los Angeles mayor Eric Garcetti reminded citizens of how things got to this point and the danger of complacency:


"There's a straight line between the surge happening now and the gatherings that happened at Thanksgiving. If you gather for the holidays, our hospitals will be overrun."

Patrick McMillan, a physician in Fresno County, agreed, saying:


"If people don't stay home for Christmas this year, we're going to see something that's, it's hard for me to even imagine. I think it will break the health care system if people don't stay home."

Meanwhile, how’s North Carolina looking?




Infections and deaths rose in North Carolina, and then dropped at the end of the week. But the latter could just be due to lack of Christmas reporting so it’s hard to read anything more into it at this early point. And unfortunately, hospitalizations soared and hit a new pandemic high.


How did Tennessee do?





Like the other states, Tennessee saw apparent drops near the end of the week in infections and deaths. But this could be just due to the holidays. Ignoring the end of the week (for lack of reporting), both sets of numbers grew this week.


Hospitalizations also were higher at the end of the week than the beginning.

As a result, Tennessee now has the unwelcome title of the worst state in the U.S. at controlling the virus (highest infections per capita).


And this week, Tennessee Health Commissioner Lisa Piercey said that the healthcare worker shortage has gotten so dire that they would have to relax some of the usual safety precautions. Workers testing positive for infection will now be allowed to continue working in long-term care facilities. The risk with this change is that the patients in these facilities are elderly and most at risk of dying from the disease. But Piercey said the state has no choice:


“I tell you this because we are looking under every rock. We are turning over every stone to help hospitals. We are running out of options.”

Piercey also warned that:


"If we have another surge over Christmas, it will break our hospitals,”

Meanwhile, Tennessee Gov. Bill Lee had previously ignored health advisors and refused to order a statewide mask mandate. But this week, Tennessee First Lady Maria Lee tested positive for the virus (which also caused the governor to go into quarantine as a precaution). And after the press conference by Peircy, some hoped that that Governor Lee might do an about-face. But they were disappointed, as Lee again refused to implement a mandate. Instead, he doubled down on the strategy of relying on personal responsibility and local government.


“Many think a statewide mandate would improve mask-wearing, many think it would have the opposite effect. This has been a heavily politicized issue. Please do not get caught up in that and don’t misunderstand my belief in local government on this issue. Masks work and I want every Tennessean to wear one.”

He did, however, announce an executive order to limit indoor gatherings to 10 people. And he asked people to volunteer to keep all their gatherings to just those in their household.

Medical workers and advocates were less than impressed.


Dr. Aaron Milstone, a critical care pulmonologist treating COVID-19 patients said:


Gov. Lee, we still need you to do your partTennessee needs a statewide mask mandate, and other interventions, to get COVID under control so that Tennesseans can safely stay at work, provide for their families, and keep their kids in school — and most importantly, to save lives.”

The Tennessee Medical Association, a nonprofit advocacy group for state physicians, agreed, saying:


“We believe all Tennessee counties should be under mask requirement orders at this time. We plead with all Tennesseans to stay safe, stay apart, wear masks, and stay home to protect their families and friends from this deadly virus.”

Georgia’s bellwether economic recovery: revisited next week


(Note: Georgia’s economy is now being reviewed only once a month, as described below. Normally, that week would be this week. But due to the holidays causing reporting issues with some of the data, we’ll wait until next week to cover Georgia in more detail).


One of the most important questions for investments (as well as for the health of the country) is "what will the shape and speed of the recovery be?" If it's V-shaped and quick, then many investments will be just fine. On the other hand, if it's one of the other shapes (U-shaped, swoosh, etc.), then some or many investments could run into problems. (See part 14 for more information on the possible "recovery shapes" and their ramifications).


To monitor the evolving situation, we've been watching Georgia very closely. It was one of the first states to reopen. So we expected this to make it a useful early indicator of what could be in store for some other parts of the nation.


Back on April 24, Georgia Governor Brian Kemp reopened nail salons, hairdressers, bowling alleys and gyms (as long as they followed state protocols). Then, three days later, restaurants and theaters were also allowed to reopen. So they've effectively been open for about 6 months.


How are they doing? Since there's no official government or state data on this, we've previously looked at Placer.ai. This is a service which tracks mobile phone usage to different types of businesses to measure foot traffic. And we've watched them week by week across all of Georgia's four primary Covid-19 sensitive industries: restaurants, retail, fitness, and hotels.


How’s that gone over the last six or seven months? We've seen different sectors moving back and forth during that time, as well as different individual businesses in those sectors. But overwhelmingly, results have ranged from disappointing to dismal. And while there have been occasional spurts of improvement to celebrate, these have almost always been quickly followed by disappointing backtracking.


So at this point, the Georgia experiment has failed to achieve its goal of a V-shaped recovery. This is why I’ve called a halt to the weekly monitoring of the state and will only be checking in monthly. We will look again in one more week.


Unemployment: "The beatings will continue until morale improves"


Unemployment has historically been one of the most reliable indicators of when the U.S. has entered a recession and when its left one. So that's why we examine it very closely, every week. And unfortunately, over the last 29 weeks, the economy has been hammered week after week by massive levels of new unemployment. This week was no different, with 830,000 people newly unemployed. This was barely improved from last week (885,000):


Unfortunately, at eight months into the pandemic, we’re still getting weekly job losses that are more than three times the pre-pandemic level. Back in June, virtually no one expected the continuing damage to last this long.


Meanwhile, as we've talked about every week for the last several months: "continuing claims" are also a useful statistic to look at within this report. Jobless claims only tell us who lost jobs over the last week, but continuing claims removes the ones who have been rehired. On the other hand, this statistic isn't perfect, because people who stay unemployed for a large number of weeks lose state benefits and fall off of the statistic.


However, these people then show up in the Pandemic Emergency Unemployment Compensation (PEUC) stat. But this number also has the same problem (people lose this benefit after 13 weeks of unemployment). And at that point, these people have nowhere else to go and simply fall out of both statistics and “disappear”. This can cause the numbers to give the appearance of improvement, while the underlying situation is not actually improving. Also, as we talked about in early December, the U.S. Government Accountability Office (a non-partisan government watchdog) found that statistical issues are causing both under- and over-counting of the PEUC stats. So they should not be viewed as individual people. Still, virtually all economists agree that over time, many of the inaccuracies tend to even out and the trend is still useful to look at.

So how did continuing claims look this week? This week, continuing claims also declined by 170,000 to 5.34 million.


Diane Swonk, chief economist at Grant Thornton in Chicago, said:


“We are losing momentum at a critical time. Consumer spending is pulling back or slowing down at a time when we should be ramping up, and that’s because of the surge in Covid cases.”

Later, a separate report was released by the Commerce Department on consumer spending. This type of spending drives the vast majority of the U.S. economy, so it's closely watched. And unfortunately, it showed a 0.4% drop last month.


This was the first decline since April. Personal income also decreased by 1.1% which reflected the wind-down of several pandemic aid programs (see “Financial Cliff” in the next section).


Financial cliff: Another near-death experience for stimulus but the bill is now law.

As we've discussed over the last several months, there's a huge, but invisible problem with the economy, that's largely unrecognized by the general public. But an overwhelming consensus of economists, analysts (across the political spectrum) and policymakers at the highest levels (including the Federal Reserve) all agree that it's essential we find a solution to it. And if we don't, millions of Americans and businesses are destined to fall over a financial cliff with devastating long-term consequences. If this happens, then we may suffer a debilitating double dip recession (the dreaded "w-shaped recovery"). And investors in many alternative investment asset classes (including certain real estate sectors) could be caught up in a world of hurt.

This financial cliff is caused by several things:


  • 1. Impending collapse of crucial safety nets: On December 26, 10-12 million people who lost jobs due the crisis are scheduled to lose critical benefits they're currently depending on. These were provided by two government programs created by the stimulus package passed by the government earlier in the year. The first is the Pandemic Emergency Unemployment Compensation (PEUC), which gives workers, who've been unemployed so long that they've exhausted state unemployment benefits, an additional 13-week lifeline. The second is the Pandemic Unemployment Assistance (PUA) for workers in the gig economy who are otherwise unable to get the same benefits that traditional workers receive when they lose their jobs. If they don't get any additional help, the damage to the economy will be severe, immediate and potentially long-lasting.

  • 2. Foreclosure and rental eviction tsunami: in January 2021, moratoriums on evictions and foreclosures are scheduled to expire. If this happens, then a tidal wave of 8 million delinquent homeowners are set to be foreclosed on and lose their homes (dwarfing the worst of the Great Recession). And 12 million more delinquent renters (owing an average of $5850 in back rent and utilities and $7.2 billion in total by the end of the year) will be evicted, as well. If the tsunami is allowed to occur, then it will have a devastating effect on real estate and the wider economy.

  • 3. Student loan resumption: The CARES Act suspended payments and interest on $1.7 trillion in student debt during the pandemic. And the Federal Reserve estimated this saved borrowers from paying about $7 billion a month. But on January 1st, this protection is scheduled to be lifted and payment will become due. If this is allowed to occur, it has the potential to exacerbate the other two issues.

All of these things could be solved if Congress and the President could agree to pass a new stimulus law. However, over the last several months, efforts to do that have been stymied by enough twists and turns to write a novel. Here’s the very quick summary:


1. One political party (which we’ll call the "large stimulus party") controls the House of Representatives and passed a $3.5 trillion stimulus bill in May. They later downsized it and passed a $2.2 trillion bill in October. In early December they dropped further and agreed to a $908 trillion baseline compromise plan created by a group of senators in both parties.


2. The other party (which we'll call the "small stimulus party") controls the Senate. Its leadership proposed a $1 billion plan, but could not get enough support from its own members to pass a bill. This was downsized to $500 million, but had insufficient internal consensus to pass a bill. Then in December, some small stimulus party senators contributed to the bi-partisan compromise plan for $908 trillion dollars. And last week the small stimulus party put their backing behind the bill.


3. The White House has held a variety of positions, from less than $1 billion to higher than $2.2 trillion. After the election it temporarily withdrew from negotiations but more recently returned.


4. The President-elect is from the large stimulus party and is scheduled to be sworn in on January 20. He expressed his support for the compromise plan as a “down payment” for further action later.


5. Control of the Senate will be determined by two January 5th Senate seat runoffs in Georgia. If the small stimulus party wins at least one seat, then nothing will change and they will retain control. On the other hand, if the large stimulus party wins both seats, then additional stimulus is expected to be a slam-dunk. Currently, analysts believe the most likely scenario is that seats will be split between the two parties which would result in no change in the lack of new stimulus. However, this is unpredictable and we'll continue to monitor it.


So what happened this week? Early in the week, stimulus seemed to be in the bag. After months of white knuckled negotiation, both sides had finally agreed on significant compromises and a package both could live with. And amazingly, a bill passed both the House and Senate and was sent to the President to sign. Most assumed the signing would be a nonevent, since the president's own personal representative (Treasury Secretary Stephen Mnuchin), as one of the main parties at the negotiating table, helped shape the agreement. Sec. Mnuchin seemed to support that assumption, telling the press on Monday:


"This is a very, very fast way of getting money into the economy. Let me emphasize: People are going to see this money at the beginning of next week.'

However, on Tuesday night, the president posted a bombshell four-minute video. And in it, he declared the bill was a "disgrace" and demanded significant changes, including $2000 direct payment checks to individuals. However, as discussed earlier, this concept (the $2000 checks) is a nonstarter with the vast majority of the President's own political party. And that's the reason the large stimulus party had dropped it from their previous bills. So after the President posted his video, the entire process was thrown into doubt and there was no longer a clear path forward.

Then on Wednesday, the large stimulus party (which controls the House) attempted to amend the bill by including the $2000 direct payment demanded by the White House. This was promptly blocked by the small stimulus party from going to the floor.


After the defeat, the large stimulus leader in the House called on the President to break the logjam with his political party. She also said:


“On Monday, I will bring the House back to session where we will hold a recorded vote on our standalone bill to increase economic impact payments to $2,000. To vote against this bill is to deny the financial hardship that families face and to deny them the relief they need.”

Many analysts noted that putting congresspeople on record as opposing the change would put many of them in a difficult political position with many of their constituents. And this might cause some to flip their vote in favor of it. But most analysts felt the odds of this happening in large enough numbers to bridge the gap are probably very low.

UPDATE: But on Sunday night, the president surprised everyone and signed the bill, making it law. Next week we will go into detail on what it entails, including some of the criticisms and potential economic consequences.

CBRE report predicts commercial real estate’s pandemic pain is only just beginning

As we discussed a few weeks ago, the Federal Reserve singled out commercial real estate (CRE) as a potential point of concern in its Financial Stability Report. The reason is that problems in CRE can easily ripple out way beyond just investors and their tenants. Most cities depend on commercial properties to support their tax bases. And so, a downturn in CRE could pummel their budgets. And this, along with loan losses, could put considerable stress on the entire banking system.


So far though, this is just a concern rather than a prediction. Still, many are watching CRE very closely. And this week, several companies put out eagerly anticipated reports.

Early in the week, Trepp, a real estate analytics company, released the latest statistics on how the largest commercial real estate loans are doing. These are called commercial mortgage-backed securities (CMBS), and in the past, these kinds of loans have been considered some of the safest. But over the last several months, some have taken staggering losses. Retail delinquencies are currently at a very painful 14%. And hotels are even worse of a bloodbath at 20%.


And, many analysts have pointed out that these numbers may significantly understate the underlying problems. That’s because many tenants have been able to use forbearance and other means to avoid defaulting. But, these techniques can only last so long. And so some are worried that we may be on the cusp of a wave of problematic loans. Wendy Silverstein, a former executive with Vornado Realty Trust and WeWork, says:


“That period of ‘let’s just put a Band-Aid on it’ is more or less coming to a conclusion. There’s a lot of collateral damage that’s going to be hanging around for a while.”

What effect will this have on commercial real estate prices? CBRE (a real estate analytics firm) posted their projections this week. Ominously, they believe that commercial real estate’s pain has really only begun:


For example, they expect apartments, offices and retail to decline further than they are today into the middle of next year (2021). Apartments and offices are expected to rebound first and recover to pre-pandemic levels in 2022. On the other hand, retail is expected to take a painfully long time to regain its footing and will probably not fully recover until 2024.

On the other hand, industrial real estate (which underpins the growing "delivery economy") is projected to continue to outperform. Dave Bragg, a managing director at real estate research firm Green Street, essentially concurred, saying:

Retail will remain just a mess, hospitality will have a very challenging year, and, in more isolated instances, office will be problematic."

Experts suspect new highly contagious UK variant mutation may already be in the U.S.


As we discussed last week, British authorities have detected a new mutation of the SARS-CoV-2 virus that could have significant health and economic repercussions, not just for the U.K., but the entire world.