How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 10: May 3rd
Updated: 3 days ago
High U.S. deaths continue but slowly subside after peak; 12 U.S. states ease lockdowns; U.S. force-fed another huge helping of bitter unemployment; Many unemployed can't collect unemployment pay; Unemployment appears to be spreading to industries once thought immune; Majority of U.S. citizens would do contact tracing to get out of lockdown; 4,000 volunteer to put lives on the line to give world a shot at a faster vaccine; NABE survey suggests quick V-shaped recovery highly unlikely; Health coalition claims vaccine may be available as soon as September; Remdesivir may speed recovery from Covid-19; Chicago hospital announces effective alternative to deadly ventilators.
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As usual, a multitude of things that affect investors happened this week. Before jumping in, here's a quick summary of the series so far:
High US Deaths Continue but also Slowly Subside after Peak
This week, U.S. deaths from Covid 19 passed the 65,605 mark. And the disease continued to be the leading cause of death for the 4th week in a row. At the same time, the country continued to bend down the curve. The death doubling rate (the time for deaths to double) dropped from 2 weeks (14 days) to 3 weeks (21 days).
And daily deaths continued a slow downward trend, after peaking about 2 weeks ago.
Sweden has opted for a lockdown-lite policy. So if they're successful, it would be great news for countries like the U.S. that are looking to exit lockdown without having to rely on the more severe measures being used by South Korea and China.
About two and half weeks ago, they appeared to be doing very well, but were hit by a sudden setback and second wave of accelerating deaths. This week, they began to improve. They again appeared to have peaked and to be headed down.
But their data is unusually noisy and currently trending up. So another week will be helpful to see if they can sustain a clear improvement. South Korea uses an aggressive mixture of the Three T's (testing, tracing and treatment) to exit lockdown and beat down the curve. This week, they had some ups and downs. But the differences were relatively small versus their overall success. They continue to lead the world in squashing the virus, protecting public health and minimizing the economic damage.
12 U.S. states ease lockdowns
Some states continued their lockdowns, while others loosened restrictions or planned to do so. As of Friday, 12 U.S. states have loosened restrictions to allow reopening of some businesses: Alabama, Alaska, Colorado, Georgia, Idaho, Maine, Mississippi, Montana, Oklahoma, South Carolina, Tennessee, and Texas. Each state is handling things differently. In Alaska, restaurants are reservation-only and can operate only at 25% capacity. South Carolina's retail stores are permitted to operate at just 20% capacity. And workers in Georgia will be screened for fevers before their shifts and still have to stay 6 feet apart.
Other states, like Florida, announced that they will be reducing severity of lockdowns shortly. Critics noted that reopening prematurely could spark a Second wave, and White House guidelines require the state to clearly demonstrate two weeks of declining cases before loosening restrictions. And some have singled out Georgia as the most susceptible. Here's a chart of the latest deaths in Georgia from the University of Washington:
On one hand, the highest number of deaths recorded clearly happened in the first week of April. And while there have been several large spikes since (including two that were especially large)... none have gone as high as that first early April peak. So a legitimate claim can be made that they have gone more than two weeks since peak.
On the other hand, the state-level data swings up and down a lot every day (because the numbers are relatively small). And with the current pattern, it's easy to picture that one bad day could easily cause a new peak. This happened to Florida on April 23. So making a call from the data provided is difficult. The University of Washington model also makes its own projection that factors in what has happened in other states and countries, as well as the state's current lock-down status. As a caveat, they admit in advance that the latter is highly uncertain because it's difficult to ascertain which lockdown features are essential and which ones aren't. But if accurate, then Georgia will be hitting another peak in about one week. In the end, there's no way to tell for sure what's right...other than to wait and see. We'll know better in two weeks.
U.S. force-fed another huge helping of bitter unemployment
It's starting to feel like we're sitting at a really bad buffet and not allowed to leave. For the sixth week in a row, millions more were laid off. This week, it was a brutal 3.8 million. And this brings the 6-week jobless total to over 30 million. Bloomberg economists estimate the current unemployment rate is 22% (up from 20% last week). That's more than twice as bad as the worst of the Great Recession (10% in 2009). And this is only a few percentage points away from the worst of the Great Depression (24.9% in 1933). Unfortunately, the consensus continues to say this won't be the last bad report. On the plus side, the trend is definitely down from the peak a couple of weeks ago:
However, even this silver lining was slightly marred because the slope of the drop was less steep than the week before. Let's hope that next week's report shows a much larger drop. On Thursday, another report came out from the U.S. Commerce Department. It reported that household spending (which accounts for a hefty two thirds of the economy) plummeted 7.5% in March from the previous month. This was the largest drop ever seen since the Commerce Department started keeping records back in 1959.
On Wednesday, Federal Reserve Chairman, Jerome Powell, took the unusual step of recommending that the government provide additional stimulus to the economy. To date, the government has set an unprecedented $2.2 trillion+ in stimulus in motion. Still, the chairman believes this will not be enough to guarantee a quick recovery. He said the "depth and duration are extremely uncertain" and "will depend on control of the virus as well as government aid".
Many unemployed can't collect unemployment pay
Reports continue to come in this week that state unemployment systems are still overloaded. Antiquated computer systems and understaffed phone lines haven't been able to handle the crush from the newly jobless. So we know the official statistics are probably under-counting the severity of the problem. But, no one knows exactly how badly. On Tuesday, researchers at the Economic Policy Institute announced a creative solution to this. They did their own survey of 25,000 people, and if the results are accurate they're startling. They found that for every 10 who applied for unemployment, a startling three to four could not get through. So official counts could be drastically understating the damage. Even more troubling, they found that an additional 2 out of 10 didn't even bother applying because it was too difficult. When people fall through the unemployment safety net, it can badly damage their household finances and their consumer confidence. And if it happens to enough people, then it could make a quick recovery unlikely. Guggenheim Investments pointed out that before the crisis hit, roughly half of Americans had less than $500 in savings. And the brunt of the layoffs are affecting young households in low-paying hourly jobs. So many, arguably, have even smaller cushions.
Unemployment Appears to Be Spreading to Industries Once Thought Immune
The farther unemployment spreads, the more challenging it will become for the economy to recover quickly. So it's important to know which industries are being hit and how much. But the Labor Department doesn't release jobless claims by industry. So a team at the Economic Policy Institute (led by economist Ben Zipperer) has come up with an novel way to consider the problem. They analyzed the 14 states that do provide this information (Alabama, Kansas, Massachusetts, Maine, Michigan, Minnesota, Iowa, Nebraska, North Dakota, Nevada, New York, Georgia, or gone, Texas, Washington and New York). The data goes only through mid-April. And, it's possible that the 14 states are not representative of all 50. But if they are, then the results are both fascinating and troubling. Here are the industries they found were hit the worst in each week:
Week 1, March 15 to 21: The first week, the shutdown hit the types of businesses that most people would intuitively guess to be most affected by this crisis: hospitality, accommodation, and food services, arts and entertainment, recreation, and hairdressers. Also, auto mechanics and laundry workers were hit hard.
Week 2, March 22 to 28: In week 2, the pain started spreading to industries that are not customer-facing but that require in-person interaction with large crews of workers. Manufacturing, construction and retail all suffered mass layoffs.
Week 3, March 29 to April 4: in week 3, the pain moved up the supply chain. This week, wholesale trade, retail trade and administrative management were hammered, Also hit hard were sales representatives, truck drivers, waste management and freight laborers.
Week 4, April 5 to 11: in week 4, white-collar work, which many consider to be "safe", started getting hammered the worst. This included management, finance and insurance, and also public administration. Technically, all of these have been shedding jobs since mid-March. But, the industries that suffered more losses in the earlier weeks had now at this point subsided, while these continued.
Week 5, April 12 to 18: in week 5, the contagion spread to oil and gas, areas decimated by the severe oversupply situation in oil. This part was not much of a surprise. Mining was also pummeled. However, educational services and the public sector for cities and states also continued to be beat up.
Some believe there could be millions of further job losses and furloughs in cities and states without drastic financial assistance from the government.
The state data ends at this point. So for the moment, the researchers can't see any further. But if the information is accurate, then the damage appears to be spreading wider than many may realize.
Majority of US Citizens Would do Contact Tracing to Get Out Of Lockdown
As we discussed in previous weeks, South Korea currently leads the world in defeating the virus. They have exited lockdown and are still managing to beat down their curve to a level others can only dream about now (including the U.S.). And they do this with aggressive use of the Three T's (testing, tracing and treatment). The tracing uses cell phone technology to notify people when they have come in contact with anyone infected. However, the personal location tracking required to do this is controversial in the West. And many believe that people in the U.S. would never accept it. To find out, the Kaiser Family Foundation did a survey in late April and released the results this week. The results were very interesting. Initially, only 45% said they would download a contact tracing app that would share their information with public health officials. The younger the person, the more likely they were to want to do this, and vice versa. And 53% of 18 to 29-year-olds were willing while only 36% of those 65 years and over were. Also, political affiliation mattered. Only 29% of those associated with one of the major political parties said they would use this app . However, the researchers then changed things up. They asked people if they would feel differently, if using the app meant they'd be allowed to go back to work/school as well as allow businesses to reopen and restart the economy. Under those conditions, the number who were fine with it skyrocketed to 66%. Hopefully, the states' current lockdown exits will be successful. But if they are not, then the numbers in favor of contact tracing may ultimately go even higher. As a side note, the poll found that an overwhelming majority of the public (80% of Americans) agreed with "strict shelter in place measures are worth it in order to protect people and limit the spread of coronavirus". In the last couple of weeks, there have been several high-profile protests against these measures in several state capitals. If the poll data is accurate, it suggests that, contrary to protests, the general public still heavily believes the lockdowns are important for health and supports them.
4,000 Volunteer to Put Their Lives on the Line to Give World a Shot at a Faster Vaccine
Many health advocates say a vaccine for the disease may take 12 to 18 months to create from start to finish. There are three phases, and it's because of the typical requirements of phase 3 that the process normally takes so long. In phase 1, scientists test the vaccine on a small group of people to verify that they hopefully aren't killed or harmed by it. Then in phase 2, they test a larger group in artificial conditions to see that it (hopefully) remains effective. In phase 3, the vaccine is tested on an even larger group in real world conditions to see how it goes. The problem with phase 3 is that mimicking the real world takes a long time. The volunteers receive the vaccine (or a placebo) and then scientists wait to see what happens. This usually takes many months. The scientists do not deliberately infect the volunteers with the virus, and only a small number of people may be expected to be exposed to the virus in their everyday lives. So, it takes a lot of people (usually tens of thousands) to reach the numbers to make the testing work. These are serious impediments in a situation where many people are dying from a pandemic and need help urgently. But, there is a way to speed this up: "human challenge trials". Instead of waiting for the phase 3 volunteers to hopefully run into the virus at some point in the future, they are deliberately exposed to it. This dramatically reduces both the time and the number of volunteers required. The catch is that this is exponentially more dangerous for the volunteers. And in the case of Covid-19, volunteers face the real risk of death. Despite this, there are still some who are willing to put their lives on the line to do this. The health advocacy group 1 Day Sooner claims to have 4000 volunteers from 52 countries who have said they are willing to do this. The name of the group comes from the concept that even if their efforts make the vaccine come just one day sooner, they may save tens of thousands of lives. In the past, some ethicists have said that human challenge trials are ethically unacceptable. But more are coming around to the idea that in group situations (like a pandemic), these trials can be acceptable so long as the volunteers truly understand the risks they are taking and give true consent.
NABE Survey Suggests Quick V-shaped Recovery Is Highly Unlikely
The million-dollar question for investors right now: what form or shape will the upcoming recovery take? Many people believe we'll have a strong and quick "V-shaped" recovery. The idea works like this. We've already fallen very quickly (which is the left side of the "V"). If we rebound and recover just as quickly, we will then follow the pattern upward (of the right side of the "V"). And if we do, that would put us right back where we were in January. If this happens, the economic damage would be minimal, it would be great for the country, and investors in virtually every major asset class would end up fine. So if this is what's going to happen, the best strategy right now is to be buying/deploying into investments. On the other hand, others ("U-shapers" and "Nike-swooshers") believe the above scenario is too rosy. They believe the damage to the economy and country will be more severe and require longer time for recovery. A "U-shaped" recovery would happen if it takes longer to bounce back. A "Nike swoosh" would happen if the recovery itself happens in stages rather than all at once. And it's possible it could even be a combination of the two. Others ("W-shapers") believe we will have a double dip recovery because of a significant backslide. This could happen if we don't get good control of the virus and it comes back. Or knockoff effects cause a delayed wave of economic pain like bankruptcies, defaults and/or job losses. Or it could happen if policymakers make fiscal mistakes, similar to the Great Depression. If any of these non-V shaped recovery scenarios happen then the situation will be more dire. The longer it takes for a full recovery, the worse it will be for investors in certain asset classes. At the same time, past severe recessions (like the Great Recession), created opportunities also. Patient investors with cash have been able to pick up once-in-a-decade or once-in-a-generation opportunities. So that could also happen with these scenarios as well. So which one will it be? In order to have a "V-shaped" recovery, the companies shut down right now need to get back online relatively quickly. Some "v-shapers" predict that this will be happening anywhere in the next 1-2 months (through July 1st) as the country reopens. Non-v-shapers claim this is too optimistic and predict it will take longer. This Tuesday, the National Association for Business Economics (NABE) weighed in. They interviewed 107 businesses across numerous industries (manufacturers, services, infrastructure, finance, real estate, insurance etc.) and of varying sizes (from single person to more than 1000 employees). Unsurprisingly, NABE businesses (which ranged from large to small and across numerous industries) reported some of the worst results since the Great Recession. The report also contained the usual predictions by economists for end of the year U.S. GDP and unemployment. But the economy is so complicated, and in times of high uncertainty economists are not very good at making these types of predictions. So I personally did not dwell on these too much. But, in my opinion, there was also a hidden jewel buried deep in the report. One of the questions asked was: "When will your firm resume normal operations?" People in business tend to know their own industry very well. And many times, they can make fairly accurate predictions about it. So how they answer this question provides, potentially, very useful information. Here's what they said. On one hand, manufacturing businesses were pretty optimistic with 71% saying they would be back to normal in 3 months or less. This makes sense since their employees don't face the public and can turn their assembly lines back on relatively easily. On the other hand, many finance, insurance and real estate businesses do face the public. And these were much less optimistic. Only 46% of these felt 3 months would be enough. Services tend to be even more public-facing and the situation here was worse. Only 35% of these said the 3-month time would be enough. And transportation, utilities, and information communication responded with an almost depressingly low 8%. Presumably, this includes oil companies, which are currently getting hammered, and are badly unprofitable at today's low oil prices. (See last week's article). Taken altogether, here are the final results. Only 30% of businesses felt they would be resuming normal operations in 3 months (i.e. August 1) or less. Of the 45% of businesses that said it would take longer, 20% said 3-6 months (August 1 through November 1), 16% said 6 months (after November 1) and 1% said "never". An additional 16% said they had no idea. These results could be wrong. It's also possible the 107 firms surveyed were not representative and/or something will change in the next couple months that will make their projections inaccurate. On the other hand, if these predictions are reasonably accurate, then these are not the kind of numbers that would be likely to support a V-shaped recovery.
Vaccine Might Be Available As Soon as September
Most health experts say a vaccine will take 12 to 18 months to develop. And the Coalition for Epidemic Preparedness Innovations (CEPI, a health coalition that's funding 9 different vaccine projects), initially said the same thing. However, this week, they announced development has actually been moving along much faster than expected. Richard Hatchett, the head of the Oslo-based organization, says that progress was accelerated by companies working more closely together than expected, human trials enrolling people faster than they had hoped, and other factors. They now see several promising vaccines entering phase 2 of human trials in late spring or early summer. If successful, than the first could be available in 2020. Initially, there would be only limited production, so they would be limited to healthcare workers and those at risk. Another team, led by a professor of vaccinology at the University of Oxford (Sarah Gilbert) says they have already begun human trials of a potential vaccine. They expect to have the efficacy results available as soon as September. They have already begun manufacturing so that if the results are positive, then the vaccine would be available immediately. At the back of everyone's mind, though, is the ghost of 1976 and how catastrophically wrong things can go when a vaccine is rushed out prematurely. In 1976, much of the American public was panicking over a novel virus called the Swine Flu. Experts incorrectly believed it was closely related to the Spanish Flu, which caused the pandemic of 1912 and killed 100 million people globally. And this Swine Flu originated in Fort Dix, New Jersey, which was the same origin point as the Spanish Flu. So many believed a coming pandemic was inevitable. Even as some health advocates warned there was no real proof, the U.S. administration in charge became intent on vaccinating every citizen to avoid the believed emergency. A vaccine was quickly rushed out and put into production without adequate testing. And the administration put on a full-court-press publicity campaign that included celebrities proudly proclaiming they were vaccinated. In just 10 months, 25% of the American public had been vaccinated. Ultimately, it turned out that the health advocates were correct, and the disease was just a mild illness. But, due to a side effect from the rest of vaccinations, 450 people ended up being paralyzed with Guillain-Barré syndrome. Discover Magazine called it the "most expensive US health initiative ever" and a "fiasco" over "a pandemic that never was". The head of the CEPI claims that the drug developers today are well aware of the times when rapid vaccine development "unfortunately led to bad outcomes." He further said, "We take it with the utmost seriousness. We cannot cut corners. It’s absolutely critical that we ensure safety and efficacy."
Remdesivir May Speed Up Recovery From Covid-19
The National Institute of Allergy & Infectious Diseases (NIAD) has been testing the antiviral medicine, Remdesivir against the virus. And on Wednesday, it announced promising early results. The trial involved 1000 patients across 68 hospitals in the U.S., Europe and Asia. And unlike previous studies, it was a large, randomized double-blind study. This is the gold standard for drug research.
NIAD said that those who took the drug recovered in an average of 11 days versus 15 days with a placebo. That sounds like a very promising improvement. However, there were a few caveats. A significant number of people in the study (485 patients or almost half) have neither recovered nor died, yet. So the study itself has not yet been released. And that number of patients, missing from the data, seems large enough to sway the results one way or the other. So the results appear to be preliminary. Despite this, the FDA authorized emergency use of Remdesivir for Covid-19 patients. Gilead, the manufacturer of the drug, expects to make 1.5 million doses by the end of May. This would be 210,000 treatment courses if most patients are treated for five days. The company said it would donate the supply free of charge up to that late-May time. (It declined to say if it would continue to abstain from charging after that point or not). The FDA had previously authorized emergency use of the antimalarial drug hydroxychloroquine after preliminary results had looked promising. But so far, the drug has disappointed when confronted with larger studies. (See study from last week). More recently, the FDA issued health warnings against using hydroxychloroquine outside of clinical trials due to discoveries that the drug causes increased risk of serious cardiac complications in Covid-19 patients. Meanwhile, the clinical trials for it and other repurposed drugs continue.
Chicago Hospital Announces Effective Alternative to Deadly Ventilators
Ventilators are considered to be the standard treatment for severe Covid cases. But a recent study (which we discussed last week) found that they're actually horribly ineffective. Disturbingly, 88% of people put on a ventilator die anyway. And the number rises to a brutal 97% for those who are 65 and over. Those who are lucky enough to survive often have permanent side effects including cognitive impairment and physical movement impairment. These unacceptable outcomes suggest we may need to strongly re-examine our procedures and the assumptions behind them. This week, doctors at the University of Chicago announced a "truly remarkable" result. The emergency room took in 24 very sick covid-19 patients who normally would've been placed on an invasive ventilator in other facilities. But instead, the hospital put them on a non-invasive alternative. They gave them high flow nasal cannulas (HFNC), which are nasal prongs that sit below the nostrils and blow low volumes of warm, humidified oxygen into the nose and lungs. They also positioned patients on their stomachs to improve breathing and oxygen levels. The results were impressive. Patient oxygen levels were elevated from a distressed 40% to 80 to 90%. According to the hospital, "The patients all fared extremely well". Even better, after 10 days, only 1 of the 24 ultimately required invasive intubation. "Avoiding intubation is key," said Dr. Thomas Spiegel, the Medical Director of University of Chicago's Medicine Emergency Department. "Most of our colleagues around the city are not doing this, but I sure wish other ER's would take a look at this technique closely." This approach does require significantly more hospital preparation and precautions by the staff than ventilators. HFNC's blow air which potentially converts Covid-19 into a fine spray (aerosol), which can spread it to others. So the staff must have proper personal protective equipment (PPE). And rooms must be equipped with negative pressure and ante-rooms (where staff can change in and out of protective gear to avoid contaminating others). University of Chicago's hospital was arguably much more prepared than most. It got an early preview of Covid-19 treatments from hospital affiliates in China and Italy and made good use of extra foreknowledge. By the time the disease arrived, the hospital had doubled its anterooms and added negative pressure rooms on two floors in the main hospital. Their strategy was anecdotally backed up by a small Chinese study of 138 patients at two Chinese hospitals, published at the end of March. Unlike U.S. hospitals, the Chinese hospitals did not have a policy of putting patients in respiratory distress on a ventilator right away. They instead used noninvasive devices (similar to the cannula). This very small study found that 71% were successfully treated this way and did not require an invasive ventilator. As early as April, some doctors in the U.S. were sounding the alarm about the dogma surrounding ventilators, insisting that they were actually grossly ineffective. And as we discussed in last week's article, growing evidence suggests Covid-19 does not appear to primarily be a respiratory disease.
US continues slow progress against virus but also shows disturbing signs of stalling; More states exit lockdown, including 11 that fail minimum White House guidelines; 78% of Americans uncomfortable eating at a restaurant and majority don't want other businesses open yet either; US takes another economic punch with millions more laid off; Watchdog says SBA bungled stimulus rules and left hundreds of thousands of desperate small companies out to dry; France discovers Coronavirus was already around in December 2019; Disneyland Shanghai will reopen Monday after selling out tickets in minutes; Regeneron antibody treatment for Covid 19 could be available in fall. And many other firms working on similar time frames; Pfizer may have vaccine ready for use in high risk groups by the fall. Click here to read more