How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 16: June 13th
Updated: Feb 8, 2021
U.S.'s mixed progress against the virus may be slowing; Georgia's muted reopening appears to stall; "Houston We Have a Problem" -- signs that a second virus wave is swelling; Economy pinned to the mat by yet more massive unemployment; Almost $1.5 trillion of crucially needed stimulus funds sitting idle due to bureaucracy; OECD expects U.S. recovery will lag behind top-performing countries; The stock market's triumph of optimism over experience; Thousands of "long haulers" claim debilitating symptoms of Covid-19 can last months; Type O blood may be protective against the virus; More unexpectedly fast progress in the race for a treatment; Update on my investment strategy.
(Usual disclaimer: I'm just an investor expressing my personal opinion and not a registered financial advisor, attorney or accountant. Consult your own financial professionals before making any financial decisions. Code of Ethics: I/we do not accept any money from any sponsor or platform for anything, including postings, reviews, referring investors, affiliate leads or advertising. Nor do we negotiate special terms for ourselves in the club above what we negotiate for the benefit of members.).
Many things happened this week that could affect investors. This week the news was tilted toward the economic repercussions of the crisis, and included a bit more about the virus than it has for the last 2 weeks.
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.'s Mixed Progress Against The Virus May Be Slowing
This week, the U.S. continued to battle the coronavirus that causes the Covid-19 disease. And this week, more than 5,000 additional people died as the death toll climbed to 117,141 (versus 111,627 last week).
For the second week in a row, the country's overall progress fighting the virus stalled-out. The national death doubling rate (the time it takes for deaths to double) remained unchanged from two months.
Before this, the U.S. had experienced seven consecutive weeks of success in bending the curve (since April 11 in part seven of this series).
In contrast, the U.K. reduced its doubling rate to three months and Italy to eight.
On the other hand, the U.S.'s daily death rate did improve slightly. Last week, it showed a troubling spike and then leveled off. This week, it dropped a little bit below that plateau.
So this was good to see.
Meanwhile, South Korea continued to lead most of the world for another week in minimizing deaths (one of the lowest per million) while also minimizing economic damage (growth is projected to barely shrink this year, and without needing to borrow trillions of dollars for stimulus). It started the week with a large decrease and then bounced back to where it was originally (that is, still in one of the best positions on the planet).
As we talked about in part six, South Korea uses an aggressive mixture of the Three T's of disease control (testing, tracing and treatment).
Japan has gone with a similar strategy, and this week continued to experience similar success:
Meanwhile, Sweden has opted with a lockdown-lite strategy (see part 8). The hope has been that if this works well, it might provide another workable model for other countries looking to deal with the virus.
However, Sweden has been plagued with uneven performance and multiple waves of infection. This week, the country perhaps turned a corner by beating back its fourth wave:
This is potentially promising, but in the past, Sweden has done this only to relapse with another wave. Hopefully, we'll see them successfully sustain this trend into the next week (and beyond).
Sweden's death rate continues to be three to seven times higher than their Scandinavian neighbors (see part 12). And lockdown-lite continues to appear to have failed its main economic objective. The country is still expected to plunge into a severe recession (their GDP is projected to be -5.6% in 2020, versus -5.9% for the U.S.). This is a bit better than the average -8.1% projected for the Euro Zone, but isn't the large benefit many hoped to see.
Georgia's Muted Reopening Appears to Stall
One of the most important questions for investments (as well as 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 might 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 this makes it one of the most useful early indicators of what may be in store for the rest of the nation.
On April 24th, Governor Brian Kemp reopened nail salons, hairdressers, bowling alleys and gyms (as long as they followed state protocols). Then, restaurants and theaters were allowed to reopen three days later on April 27th. So they've effectively been open for about a month and a half.
How are they doing? There's no state agency that publishes weekly data on this kind of statistic. But, fortunately, we can get the info from other places. For example, Placer.ai tracks mobile phone usage to different types of businesses to measure foot traffic.
In the past, we've looked at McDonald's, Applebee's, the Cheesecake Factory, Khols, Gold's Gym and IHOP. For the vast majority, progress has been slow (swoosh-shaped) and very unprofitable-looking (ranging from -41% to -48% foot fall versus the previous year).
The one exception was Kohl's. While still looking significantly depressed at about -20% (year on year) this was still twice as good as the others. Also, its pattern of improvement was much more rapid and arguably suggested a slow V-shaped recovery.
So let's take a look at Kohl's this week:
Unfortunately, it looks like Kohl's progress has stalled and foot traffic remains stuck at around -20.22% (year on year). If this continues, it might mean they are experiencing a combo-shaped recovery (V-shaped transitioning into a swoosh). But, one week is not enough data to determine a trend. So we'll continue to monitor.
Next, let's take a look at gyms. Last week, we looked at Gold's Gym, which was hurting pretty badly (-45% year on year). This week, let's look at another gym with a different model.
Anytime Fitness has an unusual "low-staff" model: no receptionist desk and no operating hours. Instead, members have a key to let themselves in and out at anytime. This should, theoretically, result in smaller crowds and less human contact, which might be an advantage in today's environment. Let's see what they look like.
Anytime Fitness has definitely been doing better than Gold's Gym, and last week were at -18.93% year on year. However, this week, they appear to have backtracked to -20.81%. We'll continue to monitor.
Next, let's take a look at sit-down restaurants. Theoretically, these should be having difficult time recovering, since many people say in surveys that they're unwilling to visit one. Here is Denny's:
This is an awful-looking graph that is currently at a very unprofitable -48.51% year on year. The shape is also a slow, painful swoosh shaped recovery.
So overall, this wasn't a great week for virus-sensitive businesses in Georgia.
"Houston We Have a Problem": Signs that Second Virus Wave is Beginning to Swell
As we talked about previously, a second, uncontrolled wave of the virus could be economically catastrophic. If we have to reimplement lockdowns, all of the progress so far could be lost. And the result would probably be a W-shaped recovery which would be painful. (See part 14 for more information on the possible recovery shapes and their ramifications)
So far, the U.S. has avoided using the more aggressive techniques that worked to control the virus in other parts of the world (See part 6 for the 3T's of disease control: testing, tracing and treatment).
And some epidemiologists had feared this avoidance might not be a sustainable strategy.
Others have been concerned about an increase in virus deaths this week and next, due to the two to three week lag from increased social activity on Memorial Day. An example is the "Zero Ducks Given" pool-party in Missouri, where hundreds crammed together without masks or social distancing (see part 13).
Also, since last week, hundreds of thousands of people have been gathering in cities across the country on multiple days to protest the conditions that resulted in the death of George Floyd by a law enforcement officer. Since speaking loudly is known to spread the virus, and there's typically a lot of shouting at protests, this also has some epidemiologists concerned.
But if another wave is happening, it takes time to see it show up in the statistics. So what are the numbers looking like this week?
Clearly, the number of new coronavirus cases has skyrocketed from 222 on May 22 to 1642 on June 12.
However, just because there's more new cases, does not necessarily mean the virus is spreading wider. That's because epidemiologists widely agree that many past cases of Covid-19 went undetected because of inadequate supplies of testing to identify them. And virtually all states have increased their testing now, to address this. So, when we see an uptick now, it could simply mean that more testing is being done, catching cases that would previously have been missed (and not that the virus is spreading wider).
Tom Frieden, former director of the Centers for Disease Control and Prevention, said that in some states, this increased testing appears to provide the explanation (like Michigan).
However, in Arizona, positive test rates are outpacing the increase in testing. So this can't entirely explain the huge surge.
Joe Gerald, the public health researcher at the University of Arizona, who provides projections to the state health department, agreed. He pointed out that, after an initial increase in testing, the last two weeks have actually been very stable. And yet infections have skyrocketed.
So this is not a good sign.
Arizona’s largest hospital system, Banner Health, announced last week that coronavirus patients had tripled in just the past three weeks. And this Tuesday, they said that ventilator use has quadrupled since mid-May and they have run out of extracorporeal membrane oxygenation machines (which are used when a ventilator isn't enough). On the plus side, they do have enough ventilator and ICU capacity for now.
Gerald forecasts that “at the current pace of viral spread, we risk reaching or exceeding our hospital capacity sometime in July. The preponderance of evidence indicates community transmission is increasing...Worse times are ahead."
We'll continue to monitor to see what happens.
Unfortunately, Arizona is not the only state experiencing a spike. In the last 10 days, there have been surges across the country, especially in Arkansas, Texas and the Carolinas, where cases have doubled or tripled.
North Carolina looks similar to Arizona: skyrocketing new cases and a death rate that has slowly risen from the past trough.
And unfortunately, as in Arizona, the North Carolina increase can't be dismissed as a statistical aberration due to increased testing. That's because the state is also seeing a large spike in the hospitalization rate.
On Saturday, the North Carolina Department of Health and Human Services reported the state's highest number of coronavirus-related hospitalizations in a single day. This was the fifth time the state had set a record in the past seven days.
“Our metrics have moved in the wrong direction,” said Mandy Cohen, the state’s top health official.
The graph of Texas looks similar to Arizona and North Carolina:
And on Saturday, Dallas County reported the highest level of hospitalizations ever seen in both the county and region.
Meanwhile, on Wednesday, Houston area officials warned that they are "getting close" to reimposing stay-at-home orders. They also said they are preparing to reopen a Covid-19 hospital in a football stadium that was previously established for this purpose, but never yet used.
Lina Hidalgo, the highest-ranking county executive, said “We may be approaching the precipice of a disaster. It’s out of hand right now. The good news is it’s not severely out of hand.”
However, efforts to reinstate local lockdowns may be legally thwarted, since Texas Gov. Greg Abbott issued executive orders that county and municipal officials cannot supersede his reopening orders. His reopening of the state superseded county and municipal directives.
Currently, Abbott says reopening is still going ahead at full speed. On Saturday, the state continued to loosen restrictions, and allowed restaurants and businesses to operate at an increased 75% of capacity.
Meanwhile, South Carolina's situation also looks similar:
Dr. Joan Duwve of the South Carolina Department of Health and Environmental Control (DHEC) confirmed the increase in test cases could not be explained away by any increase in testing.
The "percent positive rate continues to increase, as well, which tells us that we are finding more real cases -- not just cases that were asymptomatic and not otherwise diagnosed.”
The physician consultant for the South Carolina state health department, Dr. Brannon Traxler, said that public behavior was the cause. "We are starting to notice a lot of people across South Carolina are not doing the social distancing or not avoiding group gatherings and wearing masks in public the way, especially, that they were earlier on."
In total, eight states currently show hospitalizations increasing: Arizona, Arkansas, Mississippi, North Carolina, South Carolina, and Tennessee.
Economy Pinned To The Mat By Yet More Massive Unemployment
For the eleventh week in a row, over a million Americans lost their jobs. And this week, the jobless claims report showed there were 1.54 million more (which was down slightly from the 1.9 million last week). Those hoping for a large drop were again disappointed.
"Continuing claims" can be more helpful to look at than the raw jobless numbers, because it tells us not just who became unemployed, but also who's staying that way. And on the plus side, this week's data continued to indicate that we probably did indeed hit rock bottom two weeks ago at 25.1 million. So if that holds up, it's a welcome sign.
On the other hand, the data this week was also disappointing, because we did not see the bounce back of improvement, for which many had hoped. The total barely budged down to 20.9 million from 21.5 million last week (and 21.1 million the week before). So the economy is looking less like a rubber ball that bounces off the floor, and more like a person who's fallen to the floor and can't get back up.
The chief economist at Amherst Pierpont Securities, Stephen Stanley, wrote in a note to clients, “It is astounding to me that we are still seeing over 1.5 million claims in the first week of June."
On Wednesday, Federal Reserve chair Jerome Powell made a grim prediction. “My assumption is that there will be a significant chunk, well, well into the millions of people who don’t get to go back to their old jobs and there may not be a job in that industry for them for some time. It could be some years before we get back to those people finding jobs,” he said.
The Federal Reserve is forecasting a slow recovery for the economy, expecting unemployment still at a brutal 9.3% by the end of 2020 and lingering at an elevated 6.5% at the end of 2021.
The Fed also pledged to keep interest rates at near zero through at least 2022, and to continue its extensive bond-buying programs at the current pace for the foreseeable future.
Meanwhile, on Friday, a U.S. consumer sentiment survey reported that consumer optimism was up 5.5 points from record lows, but still remained at depressed levels. A startling two thirds of respondents said they anticipated unfavorable economic conditions in the year ahead, because of both the resurgence in the coronavirus and lingering weakness in the jobs market.
Also, the results of an NBC news/Wall Street Journal consumer poll showed that many consumers are souring on how long it will take to recover. This poll was conducted between May 28 and June 2, and found that only 22% of respondents thought the U.S. would return to normal in the next few months. This was down significantly from the 45% who believed this only last month. And the number who said the U.S. would not return to normal until next year (2021) or longer soared to 52% (from just 32% previously).
Almost $1.5 Trillion of Crucially Needed Stimulus Funds Are Sitting Idle Due to Bureaucracy
As we've discussed previously, Congress committed to dispense $3 trillion in stimulus over four separate coronavirus-response laws. The idea was to throw a lifeline to people and businesses on the brink, and enable the economy to recover more quickly. And we've also discussed how governmental snafus and bureaucracies have prevented millions of people from getting the aid intended for them.
This week, yet again more news came out indicating further problems. A bipartisan group from Congress complained that the following significant portions of the lifeline are still completely unspent:
All $100 million dedicated to help nursing homes certify compliance for infection control.
All $100 million to help give broadband access to rural Americans.
All $100 million to help FEMA purchase personal protective equipment for firefighters.
$450 million of the $850 million allocated for food banks.
$820 million of the $1 billion allocated for U.S. manufacturers to produce personal protective equipment (PPE).
$8 million of the $16 million allocated to bulking up critical medical supplies in the Strategic National Stockpile.
$8.75 billion of the $9 billion allocated to fund health facilities, childcare centers and services for seniors and homeless people.
According to calculations by the Committee for a Responsible Federal Budget, about half of the stimulus approved by Congress (a mindblowing $1.5 trillion) is currently sitting idle and unspent.
Agency spokespeople from the Pentagon, the Agriculture Department, the Department of Housing and Urban Development, and the Department of Health and Human Services defended the responses to date and claimed they were moving as quickly as they reasonably could.
OECD Expects U.S. Recovery Will Lag Behind The Top-Performing Countries
The Organization for Economic Co-operation and Development (OECD) is an intergovernmental economic organization, made up of the top 37 high income countries in the world. And on Wednesday, they put out their forecast on how each country will be faring by the end of 2021.
The OECD believes that South Korea will lead the world and also be one of the few economies to actually expand. And they expect Germany (which has implemented an aggressive, low-tech contact tracing program) to be in the second tier. The U.S. is expected to be in the middle, but, performance-wise, relatively closer to the bottom tier (which includes Italy, Canada and Japan).
The OECD also put out its global GDP projections. Laurence Boone, chief economist of the OECD, said they believe that the economic impact of coronavirus on unemployment, corporate bankruptcy and adjustments to normal life forced by social distancing would be large and would prevent a normal economic recovery that one would expect to see from recession. So, in one forecast, they projected a single wave pandemic. And in the other, a double wave. Here were the results:
The shape on both of these scenarios is essentially a combo shape: it starts as a quicker V-shaped recovery that transitions into a slower swoosh. (See part 14 for more information on these possible shapes and their ramifications)
I couldn't help but notice that this is the same combo shape I forecast for the early recovery last weekend (back in part 15). So, if anyone at the OECD wants some help putting out the next forecast a little sooner, I'll make time for you!
The Stock Market's Triumph of Optimism over Experience
In contrast to the OECD, many believe that the stock market has been anticipating a quick V-shaped recovery for several months.
After the S&P 500 hit rock-bottom on March 23 at 2,237, it bounced back and exploded like a rocket. This Wednesday, for instance, it leapt 44% to 3232. And amazingly, the index was within a whisker of its high, established back in January. During the buying frenzy, even the most Covid-19-sensitive investments (like airlines, hotels, energy and rental cars) were snapped up by eager investors apparently anticipating a quick recovery.
But some Wall Street veterans claim there are some unusual things going on in this rally. They've noticed that it's been predominantly driven by individual, retail investors rather than large institutions. And many of them are unsophisticated, first-time investors who trade via apps like RobinHood. Many come up with their investment strategies by comparing notes with other