Our Thoughts on the Balance of 2021 and Beyond – Living and Working in An Ongoing COVID World

We at Jefferies never get “everything right,” and our thoughts are not ironclad facts, but we hope the perspectives we’ve shared over the last year or so have demonstrated enough credibility that people will thoughtfully consider our further insights and perceptions. They are based on the best common sense we can muster after listening to a wide variety of people much smarter and more directly knowledgeable than us. For this month’s note to you, our employee-partners, we would like to share the possibilities and implications for what may lie ahead. But first, we would like to remind you of what we have expressed in real time to all of you these past 18 months:

1. In mid-February 2020, in anticipation of the pandemic becoming a global reality, we began an extensive technology implementation to better enable all of us to operate from home and remote offices. We stopped travel and encouraged remote work for everyone’s health and safety.
2. We continued to provide best execution and access to liquidity for our trading clients and facilitated the necessary support capital for our investment banking clients to help them extend their companies’ runways as many of them experienced real and severe cash flow downturns.
3. We shared with the world our constructive whitepaper describing the speed, breadth and magnitude of the stimulus governments needed to implement. Fortunately for all of us, smart plans were generally implemented in rapid time by governments which understood the pressure and prioritized doing the right thing.
4. We set everyone’s expectations up front that we did not believe we could really consider a return to the office in a meaningful way until sometime in the second half of 2021 at the very earliest so people could best manage their lives.
5. We also recognized that mental and physical well-being would be one of our biggest challenges and implemented as many positive programs as possible to help mitigate the pain.
6. We were one of the very first to encourage, and then mandate, only those fully vaccinated to be allowed in our offices. We insisted on not forcing people back to the office, and we pushed out the date when we could potentially get there en masse until October 2021. This brings us to today, September 1, 2021.

Each of you during this period of time did all of the hard work by banding together, focusing as a team, and enabling our clients’ businesses to not only survive but, in most cases, thrive through this challenging period. The result thus far is that Jefferies has more than doubled as a firm in terms of revenues and earnings; our clients have for the most part prospered and rewarded us with consistently higher market share; we have been able to share the financial rewards fairly with each of you; our shareholders have been appropriately rewarded; and we have grown the number of employee-partners by more than 600 great new people. Our human capital has never been better. Our brand has never been stronger, and our opportunity ahead has never been bigger. Our sincere thanks and appreciation goes to every one of you.

All this said, the world is still very complicated and messy, and the path forward in the near and intermediate term will not be easy, predictable, without setbacks or quickly resemble the normalcy we all remember, and many may yearn for. While we remain optimistic that together we will successfully navigate this next phase of the pandemic, we would like to transparently share with each of you our thoughts about what may be coming ahead. Again, these thoughts are our best perspectives from having the good fortune to speak exhaustively and frequently with many remarkable people who are clients and friends. As we enter the last quarter of Jefferies’ 2021 fiscal year, we felt this was a good time to share our current state of mind about what we may face and what will help us continue to maintain our spirit and momentum in the best way possible:

1. Perseverance. There is a real possibility of a very challenging final few months of the year. For example, of the 85 million people still not vaccinated in the U.S., it is very possible that most of them will become infected by Thanksgiving. Delta went from 3% to 95% of all U.S. cases in ten weeks and is the reason why we are likely on the cusp of another great wave of infections. Hospitals will continue to swell primarily with unvaccinated people, and this will create an even greater strain on our medical system and already exhausted healthcare workers. We believe there will be increased vaccine mandates throughout the government and private sector, and this will be met with much anger by people who believe it is a violation of their rights. Insurance companies and private employers may be forced to make real financial decisions about who will bear the cost of caring for the unvaccinated. This will have societal implications as well. The schools will most likely have a very hard time containing the virus as the divide between parents who want to protect their children with mask mandates clashes with the parents who believe the psychological harm of masking is worse. We will get through all of this, as we have with everything to date, but the early optimism that there would be a quick return to normalcy after the summer seemingly has been derailed by Delta. It is better that we all set our expectations that things may not be smooth from here so we can best come together, support each other and our clients, and continue to grind it out. Nothing would make us happier than to be wrong about this (and we could be), but the math and science seems to paint a challenging picture. While we greatly hope some of you will be working in the office in September with the goal of being at some reasonable critical mass in October, we will continue to closely monitor all the data and transparently share our thoughts with you as this develops.
2. Innovation. The vaccines are a miracle, but much more work needs to be done regarding sustained immunity. We have figured out how to protect ourselves, but we have not figured out how to teach our bodies to maintain that protection indefinitely. Boosters will play a significant role in providing some level of protection until there is further innovation, which will come. It is also highly likely that testing will get a lot better, faster, and cheaper by mid-2022. The virus likely will continue to spawn variants, and quick and accurate testing is critical to having a real defense against these variants. There is immense work being done by brilliant minds, all of which is needed before we truly have a chance to get back to whatever the eventual new normal will be. We may need to accept that even when the worst of this fight is over, it could still take some significant time to put this completely in the rear-view mirror. We hope that the silver lining will be that because of all this pain the world will be much better prepared for the next pandemic. Genetic sequencing technology has made an enormous difference and the future of this work along with mRNA technology will be the true green shoots of this tragedy that will greatly benefit generations to come. On a practical level, with the recent formal FDA approval, we implore everyone at Jefferies to get vaccinated and to get a booster at the appropriate time (in all cases, after consulting with your medical professional and assuring that there are no unique circumstances you face that suggest otherwise). Being vaccinated and being able to enter a Jefferies office when you are comfortable will allow you and us to continue to build together. We will continue to expect those who are not vaccinated to work from home.
3. Stimulus Withdrawal. There is little doubt that the record stimulus packages, combined with an incredibly smart and accommodative Fed, has greatly eased the burden of those most in need, while having the perhaps unintended consequence of supercharging the investment performance and growth trajectories of those with assets and businesses. Even as the world continues to reel from the Delta variant, the beginning of the end of this flood of liquidity will surely have consequences, particularly for those most in need. This may not be an easy transition, as the eventual realities affecting unemployment benefits, foreclosure and eviction rules, as well as the skills needed for the new economy are sobering, particularly when compounded by the continuing reality of Covid-19. We don’t have the solution to ease this transition. However, it is all but certain that those in a position of strength will have a much easier time than those who have been experiencing the toughest of times. This means that there will need to be smart, appropriate, and effective sequencing to bring everyone along. It will be up to all of us to be aware of these sensitivities and help assure the best eventual move to the new normal, and it must be done with a lot of smarts, awareness and compassion.
4. We are all connected. As we power through the process of getting to the other side of this fight, the U.S. and other developed countries will need to work together to get the rest of the world there with us. For example, in India alone, there are still an estimated 400 million unvaccinated people. If you think about the entire world and how this virus truly knows no border, it shows the scale of work yet to be done. The project here will be to assure a global coordination of mass vaccine production, manufacture enough safe syringes and make sure we have enough qualified medical workers to keep everyone safe. The good news is that each of these initiatives are being worked on with incredible focus and urgency. It is a wonderful lesson to all of us that isolationist agendas really don’t work in the modern world. Diplomacy, coordination, trust, and economic subsidization for those less fortunate will be critical to improving the way of life for every person on the planet. This has the spillover effect of understanding the need to protect the environment, raising the living standard for all to an acceptable minimum and finding our way to a greater sense of equality and inclusion for all.  Often it takes a powerful common enemy to bring everyone eventually together, and Covid-19 appears to be exactly that incredibly strong foe. It is not going to be an easy path to establish that unity and we may be smack in the middle of what feels like the opposite of it today, but eventually we will all get to the right answer. We always do.

Being an informed realist does not mean we are not incredibly optimistic – we are! In fact, the only time an optimist can be credible is when they are realistic. Together we have powered through a crisis the likes of which have not been seen in a century. Very few of the people who were truly informed when this started ever expected we could be in as strong of a position as we find ourselves today. That said, this is very hard on everyone. Across the board, there has been sacrifice, illness, loss, sadness, isolation and pain. It is not just acceptable for us to acknowledge this, it is vital that we do. If we could hope for one thing that everyone at Jefferies could focus on as we enter the final chapter of 2021, it is that we all continue to support one another with kindness, compassion, understanding and empathy. We will all keep doing an incredible job for our clients, we just don’t know any other way. But let’s also prioritize focusing on bringing the more than 4,000 of us at Jefferies safely to the other side. There is much to be thankful for and even more to look forward to.

With continued perseverance, awe and appreciation,

Rich and Brian