How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 12: May 16th
Updated: Feb 8, 2021
U.S. regains footing and breaks out of plateau; Swedish miracle, Swedish massacre or a little of both?; South Korea continues to roll and thread the needle; Georgia throws re-opening party, but did anybody really show up?; Unemployment stuck in bad version of "Groundhog's Day" and millions unable to collect needed benefits; Retail sales crash through floor into basement; Paycheck Protection Program shoots small businesses it's meant to help in the foot (again); U.K. announces long-awaited accurate antibody test; U.K. blazes forward on contact tracing app; Apple and Google criticized for error-filled "contact tracing lite"; A video you should not watch if you ever want to enjoy buffets again; How to catch Covid-19 without even trying, or why the 6 foot rule probably won't protect you indoors; No coughing or sneezing required: mere human speech spreads virus-loaded particles up to 8 minutes; Kids are not immune: Covid-19 causes potentially fatal blood disorder in children; Secretive "Warp Speed" project aims to deliver 100 million doses of vaccine by November; Big Tobacco announces radical vaccine strategy ready for human trials in June; Update on my Strategy
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As usual, many things that affect investors happened this week.
By the way, this is one article in a multi-part series that has been published weekly since the pandemic began back in March 2020. The series started with three introductory articles on the virus, effect on the economy and alternative investment classes. And 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.
U.S. Regains Footing And Breaks Out Of Plateau
Covid-19 deaths continued mounting in our ongoing fight against the virus. As of Saturday night, 89,420 people had been killed (versus 79,645 last week). On one hand, earlier hopes that deaths would be on the low end of the official forecast (around 60,000) have been dashed. And, if current trends continue, the high-end of that forecast (about 100,000) will likely be shattered as well. On the other hand, the country also made encouraging progress this week. The U.S. death doubling rate (the time it takes for deaths to double) dropped even quicker than last week. It fell to an increasingly sustainable 6 weeks (42 days) from the previous 4 weeks (28 days).
Also, the U.S. broke out of the disturbing plateau in death reductions from last week. This week, the daily death curve not only held steady but showed some small progress in decreasing.
This helped the country finally shake the awful five-week streak of the virus being the leading cause of death. This week it fell from #1 to #3 (with 1,396 deaths per day for covid-19 versus 1,775 for heart disease and 1,641 for cancer).
Swedish Miracle, Swedish Massacre Or a Little of Both?
Meanwhile, Sweden has opted for a lockdown-lite policy (see Part 8 of this article series for more details). And 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. The country has been battling a second wave and their data is really noisy. But, this week, they appear to have perhaps established a renewed trend of stabilization.
So how are they doing overall? Here's their deaths versus their neighbors (who did strict lock downs). Note that this is comparing deaths per million, because comparing just raw deaths unfairly penalizes large countries over small.
Clearly lockdown-lite comes with a significant human life cost. Sweden currently has suffered more than 3 times the deaths of Denmark, more than 6 times the deaths of Finland and more than 7 times Norway. (And they've endured 72 times more deaths than South Korea, which we'll talk about in the next section). Some have countered that at least the country is still doing better than the wider EU... and most of those countries have done strict lockdowns. However, epidemiologists point out that Scandinavian countries have a lot of unique advantages, including more young, healthy and single-person households (a surprisingly large 39.2% in Sweden, which is actually down from a high of 60% in 2012). So that comparison probably isn't useful or fair. On the other hand, there's no doubt about the one major advantage of the strategy. The Swedish economy is more open than its neighbors, and so, projected to take less economic damage. Bloomberg Economics expects their economy to shrink only 5.6% in 2020, vs. 8.1% for the nations of the euro zone. Epidemiologist Johan Giesecke, who's advising the Swedish government, feels that in the end the death rates, between all, will end up being about the same. He argues that the countries that have done lockdown will see a lot more deaths when they loosen restrictions, while they, Sweden, will be relatively steady. But he believes that in the end, Sweden will have taken less economic damage.
This approach is popular with the Swedes. Two thirds approve and feel that the government is handling the epidemic well.
Giesecke further predicts that the capital city of Stockholm will reach herd immunity by June. However, his estimate of the 40 to 60% of infected needed to achieve this is considered low by some who point out that the actual rate is unknown and in other diseases can be as high as 70-90%. Time will tell who's right, and we'll continue to monitor.
South Korea Continues to Roll and Thread The Needle
Meanwhile, South Korea has used an aggressive mixture of the Three T's of disease control (testing, tracing and treatment) to exit lockdown and still beat down their death curve. This week, they again made strong additional progress.
Since its economy is fairly widely reopened, South Korea is currently projected by the IMF to be one of the strongest performers in the world for 2020 with losses (-1.2%) a small fraction of virtually everyone else's. For example, it's expected to do more than 3 times better than the US (-5.9%), and without requiring the government spending on an expensive $3 trillion stimulus package (like the U.S. has done).
And most of that small drop comes from global trade. In other words: it's mostly because other countries are handling Covid 19 so poorly, rather than because of South Korea doing bad domestically. So South Korea appears to continue to lead the world in threading the needle of simultaneously protecting public health and minimizing the economic damage.
U.S. States Exit Lockdown
So, the U.S. has multiple examples of how to deal with Covid-19. And with different states free to pursue different methods, they're effectively sampling a little of everything on the menu. But, increasingly, all states agree that a long-term lock-down is economically unsustainable.
As of last week, 21 states were exiting lock-down and ten had not met White House guidelines to do so. These states are Maine, Illinois, Tennessee, Mississippi, Iowa, Nebraska, Kansas, Oklahoma, Utah and Idaho. Since it generally takes about 2 to 3 weeks for a person to go from infection to death, that means it takes about 2 to 3 weeks before changes show up in the death count. So, since this is only week 1, it's too soon to say how these states are doing. But, there is one state that lifted restrictions much earlier and much more aggressively than the others and where we can now take a look...
Georgia Throws Re-Opening Party. But Did Anybody Really Show Up?
Let's take a closer look at Georgia, which began lifting restrictions a few weeks ago. On April 24, Governor Brian Kemp allowed nail salons, hairdressers, bowling alleys and gyms to reopen as long as they followed state protocols. Restaurants and theaters were allowed to open three days later. Some had predicted this would result in skyrocketing deaths. However, so far, new deaths do not appear to be increasing. Although the data is noisy, they appear to be trending down slightly.
So far, this is a very encouraging sign. And it's many times better than a scenario with escalating deaths and the risk of hospital overload. On the other hand, Robert Bednarczyk, an epidemiologist at the Rollins School of Public Health at Emory University in Atlanta noted that the decent numbers may have little to do with the state government's actions. That's because, contrary to what some had hoped, many of the state's businesses and restaurants have remained closed anyway. As an example, 50 restaurant owners representing 120 restaurants took out a full-page ad in the Atlanta Journal-Constitution explaining why they will stay closed for dine-in service (using the hashtag #GaHospitality). Although there are no official statistics yet, anecdotal reports say that many shops, churches and daycares remain closed. Bednarczyk also claims that much of the state's public does not seem to be venturing out. If so, the credit for the success in controlling the deaths, would go to these citizens, rather than to orders for reopening. And if true, this would also mean that a quick, V-shaped economic recovery for the state is still unlikely. So is his claim true? As a public service during the pandemic, Google has been producing free regional reports based on its mobile phone data. The current version of the report for Georgia is about five days old (April 9). So it's relatively up-to-date although not completely so. It currently shows that visits to retail and recreation are still very depressed and down -66% versus the baseline of January 3 to February 6.
While improved slightly from 2 weeks ago, they are also similar to where things were way back on March 28. So if this is an accurate picture, than many Georgia residents are indeed exercising a personal veto over the governor's actions. That seems fairly consistent with what we saw last week with a University of Maryland poll showing that 78% of Americans feel uncomfortable eating out at a restaurant (regardless of what state they lived in). On Friday, Gallup released a new poll on this subject. They saw similar results with only 13% of Americans saying they had visited a restaurant in the last 24 hours. This was essentially the same as the last two weekly polls.
Additionally, an overwhelming majority (73%) feel that it's better for healthy people to stay at home as much as possible. This was down slightly from 87% back on March 22, but also unchanged from last week.
Quick Service Restaurant announced the results of a new poll on restaurant usage on Thursday. They surveyed 1002 adults in early May (so the data is about a week old). They found that only 12% said they would be likely to dine at a restaurant. This particular study is projected to run another 8 weeks and hopefully they'll provide running updates.
All of this strongly suggests that the different state governors can order restrictions lifted, but they can't force people who don't yet feel safe to enjoy the newfound freedom. So it doesn't really matter what different state governors do or don't do, and what restrictions they do or don't lift. If the vast majority of the general public is still concerned about health risks, and are not willing to visit a restaurant or go to a retail store, then they are not taking their cues from government officials. Guidance from the CDC, WHO, and other medical and scientific authorities, as well as peer pressure and social media, may all be large factors. It's likely opinions will shift over time. And of course, we'll continue to monitor this each week.
Unemployment Stuck In Bad Version Of "Groundhog's Day" and Millions Unable To Collect Needed Benefits
In the movie, Groundhog's Day, the hero finds himself trapped in a strange time loop where he has to live the same day over and over again. And for the last 8 weeks, it's been the same thing for the U.S. economy. Every Thursday, there's been a brand-new jobless report. And every week, millions more are shown to be out of work. This week was no different. Another dismal report came out showing that 2.98 million more people are unemployed. This brought the 8 week total to a staggering 36.5 million.
Everyone knew that this report would be bad. However, the number was worse than the consensus estimate, as many were hoping to see more signs of at least subsiding damage. Unfortunately, this is almost certainly not the last bad report. Chillingly, Federal Reserve Chairman Powell predicted that the unemployment rate is likely to take another "month or two" to peak, before declining as businesses reopen slowly. Meanwhile, the state unemployment systems continue to be overloaded due to unprecedented volume, bureaucratic snafus, and antiquated systems. And because of this, tens of billions of dollars of promised unemployment relief has not been sent out on time. This has left millions of unemployed (many in precarious situations) completely high and dry. Bloomberg economists attempted to compile the exact statistics on this from all 50 states, but received responses from fewer than half the states. But even with that small data set, they found that a startling 5 million unemployed have not been paid. The total number is certainly significantly higher. Andrew Stettner, a senior fellow at the Century Foundation, estimates that about 40% of the 36.5 million people who have filed initial claims since March 15 have not been paid what they're owed. If accurate, this is a significant shortcoming in the system that was intended to protect livelihoods, and facilitate a V-shaped recovery. Federal Reserve Chairman Jerome Powell echoed this thought when he warned that "avoidable household and business insolvencies can weigh on growth for years to come." He also called on the government to produce more stimulus, saying "additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery". However, there currently is no political consensus for immediate stimulus.
Retail Sales Crash Through The Floor and Into the Basement
Meanwhile, other economic reports this week were similarly depressing. Retail sales fell a stunning 16.4%, the largest freefall ever recorded. This was after an 8.3% drop in March, which itself was the previous record.
The damage was widespread and brutal with food service and bars plummeting -50% and clothing stores taking a -89% wallop.
On the plus side, economists are hoping that this may be the bottom (barring any second virus waves). While embattled JCPenney's announced bankruptcy, Macy's and Gap announced aggressive plans to reopen stores. And American Eagle also plans to reopen 200 of its stores, this month. At the same time, it's much easier to open a store, than it is to convince large numbers of customers to visit. And that will be the key to restoring former profitability, which in turn will dictate the length and severity of the downturn as well as the recovery. As discussed in the previous section, currently many consumers aren't willing to venture into stores and restaurants. Placer.ai is a company that analyzes mobile data to estimate footfall traffic for these kind of businesses. Currently, here is what McDonald's looks like in Georgia (which has removed restrictions on restaurants for a couple of weeks now):
While McDonald's has shown some improvement over 2 months ago, it is still significantly depressed compared to normal profitability levels last year. Last week, it also suffered a small setback where footfall was a little lower than the previous 2 weeks. Note that this data runs through this past Tuesday. Interestingly, the national McDonald's trend looks amazingly similar to Georgia:
This mobile data reiterates the trend that we saw in polls in the previous section. U.S. consumers seem to be acting similarly overall in every state, regardless of how loosely or strictly that state is imposing controls.
Paycheck Protection Program Shoots Small Businesses It's Supposed to Help in the Foot (Again)
In late March, the U.S. government passed a huge stimulus package of $2.2 trillion to offset the economic pain of the lockdowns. A large part of that ($660 billion) was allocated for the small businesses hit hardest by the shutdowns (like restaurants, shops and salons). The idea was to give them free money to tide them through the shutdown so they could quickly reopen afterwards. This program was called the Paycheck Protection Program (PPP) and was designed to facilitate a V-shaped recovery. However, in update #7 we talked about how many companies could not get aid due to a string of problems caused by bureaucracy, snafus and questionable decisions by the Small Business Administration (SBA), the Treasury Department and others. Then in update #11 we talked about how an SBA watchdog determined that the agency has created rules that go against the intention of the law passed by Congress and effectively shut out tens of thousands of needy businesses from getting aid. This week it was the IRS's and U.S. Treasury Department's turn to unintentionally make things harder on struggling small businesses. They put out the guidance that small owners would be responsible for paying certain taxes on the money given them. This was surprising to many, because Congress intended that the money be given completely tax-free. Bruce Willey is CPA and an author for the financial publication Kiplinger. He initially praised the PPP program, but called the latest move "stunning", "stupefying" and warns it "could cost some small businesses on the brink more than they can afford". Willey claims a hypothetical small business owner who needs $600,000 to cover payroll for 10 weeks can now expect to see an increase in taxable income of a staggering $220,000. Or to put it another way: due to this change, the effective tax-free benefit of the loan is now only $378,000 rather than the $600,000 intended by the law. One U.S. senator called the new guidance a "gut punch" for small businesses. And on May 5th, a group of congressmen from both political parties sent a letter to Treasury Secretary Steve Mnuchin, asking him to reverse course:
"We are writing to express our concern with the position taken by Treasury and the IRS in Notice 2020-32, which is contrary to congressional intent. 1) The Notice 2020-32 provides that otherwise deductible business expenses are not deductible if the taxpayer is the recipient of a Paycheck Protection Program (PPP) loan that is subsequently forgiven. 2) We believe the position taken in the Notice ignores the overarching intent of the PPP, as well as the specific intent of Congress to allow deductions in the case of PPP loan recipients. " ... Providing assistance to small businesses, only to disallow their business deductions … reverses the benefit that Congress specifically granted by exempting PPP loan forgiveness from income.”
However, as of this time, the IRS and U.S. Treasury have not changed their position.
U.K. Announces Long-Awaited Accurate Antibody Test
Virtually all health and economic experts agree that antibody tests could be a game changer in the war against the virus. Traditional tests can only determine whether you're sick with Covid-19 or not. Antibody tests can tell if you've ever been sick or not. And so these kind of tests would reveal key parts of the disease that are still a mystery to us today. For example, we would finally know how many people have been infected, how quickly it's spreading and how deadly it is. And this information would be invaluable in developing the best policies to fight it. And antibody testing could also unlock dramatic economic benefits, too. If Covid-19 is like other coronaviruses, then people who've been infected will be immune for at least several months. And if so, anyone who tested positive could safely exit lockdowns. This means they could get back to work to provide for themselves and their families, as well as visit other businsses without fear. This could be an enormous boost in rebooting the economy. The U.K., Germany and some other countries have recognized the potential, and said they plan to issue "immunity passports" to people like this. The problem so far has been that many of the antibody tests have not been accurate. For example, back in April the U.K. announced they had purchased 4 million antibody tests (at a price of $20 million) from two suppliers. But, when government scientists got their hands on the tests, they found they were so inaccurate that they were useless. After the political debacle, the U.K. Public Health Department announced they were working to find a replacement very soon. On Wednesday, almost 2 months later, they finally made another announcement. The antibody test from Roche Holding (a Swiss pharmaceutical giant) had indeed passed their accuracy tests. (Although they haven't yet revealed the low-level details of what those tests found). The U.K. government is now in negotiations with Roche to manufacturer mass quantities of the test and Roche claims they can ramp up quickly. The company says it will produce high double-digit millions of the tests in June, and later this year, expects to be making more than 100 million/month. Meanwhile in the U.S., there's currently no nationwide plan to roll out any type of antibody testing. Despite this, the same Roche antibody test was authorized by the FDA last week under emergency authorization. However, as discussed in previous weeks, that means the FDA will not actually verify the accuracy of the test. And a result of this unorthodox policy, an independent U.S. lab found that the majority of tests that had been FDA-approved are highly inaccurate.
U.K. Blazes Forward On Contact Tracing App
Health experts universally agree that there are three essential steps to successfully control an epidemic. These are called the Three T's: Testing, Tracing and Treatment. As mentioned earlier, South Korea has had great success in both controlling the virus and keeping their economy open by aggressively pursuing these. And a key part of their tracing (the second "T") is a contact tracing app. This is a program that sits on people's phones and monitors with whom they come into close contact. If one of those people is later determined to be infected, it reports this. Then the person at risk can get tested and treated if necessary. And those who didn't come into contact, are put more at ease. This makes them comfortable visiting public places and businesses, which is essential if the economy is going to recover. This week, the U.K. announced fast progress on their contact tracing app. They've been beta testing it on a small population on the Isle of Man and expect to make it publicly available very soon (sometime "mid-May"). One challenge is that contact tracing doesn't work unless a lot of people use it. And people in Western countries are more leery about these apps because of privacy issues. So, many question whether Americans would ever agree to the idea of contact tracing or not. However, we did see, in a survey two weeks ago, that a majority of Americans said they would install such an app, if it enabled them to exit lockdown and return to work. Still, there is currently no nationwide plan in the U.S. to roll out a contact tracing app. So for now, all eyes are on the U.K. to see how they do. A recent University of Oxford study found that 80% of smartphone users need to participate in the program for it to be effective (which corresponds to 56% of the general population). The Isle of Man experiment did achieve more than 50% of the population, but it may or may not be more difficult to roll it out wider. Again we'll see what happens. U.K. ethicists also brought up a potential side effect of contact tracing. Not everyone can afford a smart phone (or has one) and 21% of U.K. citizens don't own one. These citizens (some of which might be arguably the most vulnerable) could find themselves quickly left behind in the future. And this could lead to growing inequality and social unrest. So some economists have proposed that governments might subsidize a stripped-down smart phone for such citizens. The enormous economic benefit of exiting lockdown might more than pay for the relatively small cost.
Apple and Google Criticized for Error-Filled "Contact Tracing Lite"
Back in Part 7, we talked about how Apple and Google announced a rare and potentially groundbreaking cooperative agreement to fight the virus. They claimed that in a two-step process, they would be opening up their phones for governments and health organizations to easily create contact tracing apps. Step 1 involved creating a way for outside entities to create their own apps to do it. And Step 2 would involve building this directly into the phones so it's done automatically (without an app). At the time, it was considered to be revolutionary and would potentially bring contact tracing to 1/3 of the world's population. But, governments have been complaining that the technology has not lived up to the hype and contains major, showstopping bugs. Singapore and the Canadian province of Alberta reported that apps built this way don't work on the iPhone unless users keep it running at all times. And since most users wouldn't do this, it makes the app useless. The state of North Dakota says they have struggled with accuracy problems on both platforms because of data restrictions imposed by the tech companies on apps that run in the background. Additionally, some governments have complained that both companies have put in unusable restrictions that prevent them from storing the data on their own centralized servers. And they say this is needed to allow health departments to accomplish contact tracing and without it, the companies are producing "contact tracing lite". So far, Apple and Google have refused to make any changes, on the grounds of protecting user privacy. But some feel this principled stance may ultimately backfire on them. The tech giants both wield monopoly-like powers in certain areas, and both are being watched by regulators for alleged antitrust activity and other business violations. And now they are effectively refusing to cooperate with the requests of health officials and their publicly elected governments that are trying to address a global health crisis. The French minister for Digital Affairs, Cedric O, said: "Apple could have helped us make it work even better. But a company that has never been in a better economic shape is not helping the government to fight the crisis. We will remember that." France plans to launch their Covid-19 tracking app in June.
A Video You Don't Want to Watch If You Ever Want to Enjoy a Buffet Again
The Japanese news agency NHK took a video of a health experiment to see how risky it might be to eat at a buffet in the Covid-19 era. They invited 10 diners to enjoy a typical, short buffet for 30 minutes. Then, they simulated a Covid-infected diner coughing into his hand by putting a special florescent paint on one person's hand.
The paint is invisible to the human eye except under ultraviolet conditions, so none of the participants could see how the virus particles might spread. At the end of 30 minutes, they "called time" and turned on the ultraviolet light so that everyone could see the results. It was startling. The paint had transferred to all 10 of the very surprised diners (100%). Even more disturbing, it ended up on the hands of several, and also on the faces of three (33%).
The agency also ran an alternative experiment in which they ran a "Covid-19 hardened" buffet. Diners were encouraged to clean their hands before, during and after the meal. Dishes were separated and the tongs were replaced frequently. With those precautions, the paint did not end up on any faces and spread 97% less than the first experiment. Some have expressed doubts over whether customers in the U.S. would agree to mandatory hand-cleanings before, during and after a paid meal.
How to Catch Covid-19 Without Even Trying: Why the 6 Foot Rule Probably Won't Protect You Indoors
The current CDC guidelines say that the risk of catching Covid-19 can be minimized by "staying at least 6 feet away from other people". So many people assume that as long as they stay 6 feet away from others they can safely visit restaurants, businesses, churches and indoor sporting events. However, scientists have recently released a slew of detailed autopsies of Covid-19 outbreaks in these kinds of places. And what they found leaves that common wisdom in question. If accurate, the disease spreads a lot easier than most people think. And those relying on the 6 foot rule to protect themselves from the virus, might be making a fatal mistake. Erin Bromage is a Comparative Immunologist and Professor at the University of Massachusetts Dartmouth. And she wrote a fascinating report on our latest understandings of the disease. In it, she talked about many things including these amazingly detailed Covid-19 outbreaks autopsies. Here's what was found:
1) Researchers in Guangzhou, China, did a detailed autopsy of Covid 19 outbreak that started in a restaurant. An infected person sat at a large round "10-top" table ("A" in the chart below) and had dinner with 9 friends that lasted between 1 to 1.5 hours. During this time, that person released low levels of virus into the air from their breathing and speech (see next section). Over the next seven days, a startling 4 out of 9 other people at the table (44%) got sick. This includes two people on the opposite side of the table who were about 6.5 feet away (and beyond the supposedly "safe" 6 foot rule). But the virus wasn't done yet. A disturbing 3 of the 4 people (75%) sitting at a completely different table ("B"), some feet away, also caught the virus. There was no known physical contact between the people at the different tables. As you can see from the diagram, table B was downwind of the virus, due to the air conditioning system. This is how scientists believe the virus spread.
But even that was not the end of it. Several feet away in the opposite direction, was yet another table ("C") with 7 additional diners. Again, there was no known physical contact between the different tables. And even though it was upwind, 2 of those 7 people caught the disease. Scientists theorize that the turbulence caused by the air conditioning system caused backflow that spread it. On the other hand, no one in tables E or F got infected. It appears that their "bad luck" in not getting a seat with direct air conditioning ended up being extremely lucky for all of them. 2) A business park call center in Korea with 216 employees experienced an outbreak where 94 of them (43.5%) caught the virus. Recent experiments have shown that people spread many more respiratory particles than originally thought when they speak loudly (see next section). And presumably, this means Covid-19 also spreads via loud talking. If so, since a call center is filled with people talking loudly, this might explain the extraordinary spread. And you can see how airflow and proximity both played a role, as one side of the office got hammered while the other side was relatively unaffected.