How Will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 21: July 18th
Updated: Aug 16, 2020
U.S. death rate continues to move in the wrong direction for second week in a row; Calling "time" on the Swedish experiment; Second virus wave gets more intense; Georgia's economic reopening continues to unimpress; Leaked White House coronavirus report marks 10 states as "red zones" for failing to the control virus; Another weekly pummeling on unemployment; Retail sales come roaring back... but is the lion about to run out of breath?; CDC says pandemic in the U.S. could be over in eight weeks if everyone wore a facemask; U.S. virus control efforts "rendered useless" by yet more testing snafus; Why your favorite local restaurant may not survive the pandemic; Study finds many suffering from Covid-19 months after being infected; Study suggests Covid-19 antibodies don't stay around for very long; Your chances of surviving the Covid-19 ICU are improving; Moderna again releases a partial and incomplete study that causes the stock market to swoon; Construction costs decrease for the first time in a decade; Update on my portfolio.
(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.).
Quick Summary: Forever 21
When I wrote the first article in this series back in May, I never pictured that I'd be still hard at work in mid-July. Yet here we are at article number 21, and the new information is coming in just as fast and furious as it did early on in the crisis. Once again, a lot happened this week that affects investors. There were lots of new developments regarding the second virus wave, the use of masks, and information about the virus itself.
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. Death Rate Continues to Move in the Wrong Direction for Second Week in a Row
For the 18th week in a row, the United States battled the coronavirus called SARS-CoV-2, which causes the Covid-19 disease. By Saturday morning, the death toll had climbed to 142,080 (versus 136,716 last Saturday morning).
Typically, the first thing we look at is the national doubling rate (how long it takes the US death rates to double). This started off at a doubling rate of every three days in the beginning of the pandemic. And slowly, it dropped down to a more sustainable two months. However, in the last several weeks, it stalled there while many other countries continued to push theirs significantly lower. And the concern about this trend has been that it might give the country much less health- and economic- headroom, should a second wave hit. So it's been a very useful metric to monitor.
Unfortunately, for the second week in a row, the doubling data from Johns Hopkins University is not available. Let's hope that it shows up next week. If not, then we may have to find another way to monitor this trend.
Meanwhile, let's take a look at the U.S. daily death numbers. For the second week in a row, these continued to move in the wrong direction, up modestly from the previous trough (low point in deaths) about 10 days ago. (As discussed in previous weeks, the "hump" around day 102 was not an actual increase in deaths, but was caused by an update to the statistical method used by the CDC and can be safely ignored).
Some had hoped that the rapidly escalating infections would not show up as second wave deaths (due to improvements in care, a younger population being infected versus earlier in the pandemic, and X factors such as warmer weather). So far the signs are not encouraging (see state-by-state data below). But we'll continue to monitor this.
How did different countries do this week? We'll look again at the countries that we've monitored in the past: U.S., Australia, Canada, Sweden, Germany, South Korea and Japan. And to do this fairly, we'll examine deaths per million. This places large countries like the U.S. on equal footing with smaller countries like South Korea, which will automatically have a lower raw death rate due to their lower population. What does this show?
Again, the U.S. and Sweden remained in a fight for the unwanted "first place" positions of being worst at fighting the virus.
The second tier remained a world ahead of the first tier with Canada at 8.5x fewer deaths than the U.S. and Australia at 22x fewer deaths.
And in the third and best tier, Germany and South Korea have blown away the laggards with 137x - 274x fewer deaths than the U.S. In fact, Japan's deaths per million rate is so small, it almost becomes "infinitely better". And if it were able to be listed, Taiwan would also be in this tier. (As mentioned in previous articles, Taiwan does not show up in any U.S. or E.U. CDC data, because China has pressured most countries to not recognize it as an independent country).
All of the countries in the best tier have aggressively adopted some combination of the 3 T's of pandemic control: testing, tracing and treatment.
Calling "Time" On The Swedish Experiment
How is the Swedish experiment going? They've gone with a lock-down lite strategy. And the hope was that this unusual approach would provide an alternative model to keep the economy open (and that would not involve the extensive contact tracing and testing done in Germany, South Korea and others, which some in the U.S. find overly intrusive).
However, Sweden has continued to have a much higher death rate per million than its Scandinavian neighbors (3x to 7x more). And despite many of its unique advantages in fighting the virus (including a much younger population and larger number of single households), it's continued to perform much worse than countries like Germany and South Korea that have followed a more traditional strategy (i.e., the "3 T's" of pandemic control).
Additionally, Sweden's economic experiment has also continued to fall short, with the country 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 not very impressive considering all the unique, built-in demographic advantages it has over the E.U.
It's still possible they may turn things around, and I'll continue to check in on them from time to time. But since they haven't had any significant weekly progress to report in a long time, I'm dropping them from the weekly analysis.
Second virus wave gets more intense
For the last three weeks, we've talked about a second wave of virus infections that have been sweeping the South and West. How are those states looking this week?
Let's look at Texas first:
Unfortunately, Texas is seeing a continuation of last week: increasing infections and deaths.
About three weeks ago (on June 26), Texas Gov. Greg Abbott reversed the previous reopening by closing bars and reducing restaurant capacity from 75% to 50%.
Then, about two and a half weeks ago, Abbott reversed his previous position on facemasks and put in place a statewide order requiring them to be worn in all businesses and public places.
This potentially makes the state a useful guinea pig to show us what impact that action might have had. And Dr. Rajesh Nandy, who teaches epidemiology and biostatistics at UNT Health Science Center in Fort Worth, has been watching the data closely for just that.
On Friday, he announced the current results. Infections (while still high) appear to have flattened in North Texas:
Nandy said, "There is clear evidence that whatever people have been doing worked to an extent. There is little doubt that the mask mandates have been effective."
Previously, Texas education officials had mandated that public schools open up within three weeks. But they were hit by a strong backlash from health officials, educators and parents. And on Friday, they backtracked from the previous order.
School districts there will now be allowed to delay on-campus instruction for at least four weeks, and ask for waivers to continue remote instruction for up to four additional weeks in areas hard hit by the coronavirus pandemic. However, during the second four weeks, districts must educate at least a small number of students on campus as well as tell the state what public health conditions would allow them to bring more students into classrooms.
How is Florida looking?
This week, it looks similar to Texas: increasing infections and deaths. Previous hopes that the second wave of infections would not show up as increasing deaths (due to better treatments for the disease, younger people being infected versus before and X factor's like warmer weather) have turned out to be overly optimistic. The state is now clearly in a second wave of deaths. On Thursday, the state of Florida announced it had to shut down its emergency operations center (which had been functioning as a command center for the pandemic response) after 12 employees were found to be infected with the disease. All were asymptomatic and were not caught by mandatory questionnaires and temperature checks. Director Jared Moskowitz said that staffers will work from home while the center undergoes a deep cleaning.
Despite the week's events, Florida Gov. Ron DeSantis continued to resist a mandatory mask ordinance or to rollback reopenings. And he currently claims there are no plans to change either.
How is South Carolina looking?
Unfortunately, this is starting to sound like a broken record. The state of South Carolina is clearly also in a second wave of both infections and deaths, as both are increasing.
On Friday, South Carolina Department of Health And Environmental Control (DHEC) began a statewide campaign called "Mask Up", encouraging youth and adults to wear a face mask. Currently, the state has no mandatory mask law, but 30 municipalities have passed one.
How about California?
California looks similar to the rest, but at least deaths this week plateaued rather than increased.
Twelve days ago, California Gov. Gavin Newsom requested that six counties shut down several public venues, including restaurants, bars, wineries, movie theaters, zoos, museums and card rooms.
On Monday, Newsom issued that same rollback across the entire state. Thirty counties were also required to close fitness centers places of worship, offices for noncritical sectors, personal care services, hair salons, barber shops and malls. Additionally, the state's two largest public school districts (Los Angeles and San Diego) announced they would not return to in person classes in the fall.
We will see how that affects the numbers in the coming weeks.
How does Oregon look?
Oregon looks similar to California, with infections increasing and deaths increasing, but deaths are perhaps plateauing (although the data is noisy).
Note, Oregon put a mandatory mask requirement in place on July 1. Anyone older than the age of 11 is required to wear a mask in all public indoor spaces.
How about Georgia?
Clearly, Georgia is also now in a second wave of infections. And while deaths have come up from the previous trough showing they are also in a second wave, at least these have not yet hit first wave highs. This is very different than some of the other states we looked at above, which have already gone way over their previous highs.
However, on Wednesday, Georgia hospitalizations reached a new high. And in other states, this has been a precursor to increasing deaths in the subsequent weeks. So we will keep an eye on this.
Despite this, Gov. Brian Kemp (R) broke from the general trend, and signed an executive order this week explicitly banning cities from enacting their own mask mandates. This had the effect of voiding existing mask mandates in over a dozen cities and counties.
Georgia is one of the 10 states in the country that a leaked White House Coronavirus Task Force document claims is a failing Covid-19 "red-zone" and should be rolling back reopening and mandating the use of masks. (More on this below).
Georgia's Economic Reopening Continues to Un-Impress
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 could run into problems. (See part 14 for more information on the possible "recovery shapes" and their ramifications).
To monitor the evolving situation, we've been watching Georgia very closely. It was one of the first states to reopen. So we expected this to make it a useful early indicator of what could be in store for some other parts of the nation.
Back on April 24, Georgia Governor Brian Kemp reopened nail salons, hairdressers, bowling alleys and gyms (as long as they followed state protocols). Then three days later, restaurants and theaters were allowed to reopen. So they've effectively been open for almost four months.
How are they doing? Since there's no official government or state data on this, we've been looking at Placer.ai. This is a service which tracks mobile phone usage to different types of businesses to measure foot traffic.
Here are the statistics for the current footfall for Georgia's Covid-19-sensitive industries (versus the same week one year ago):
Apparel: -29.59% (versus -29.53% and -15.73% one and two weeks ago respectively)
Dining: -24.91% (vs. -24.17% and -24.47% one and two weeks ago respectively)
Fitness: -37.78% (vs. -32.4% and -39.53% one and two weeks ago respectively ago)
Hotels / Casinos: -30.14% (vs. -39.90% and -34.18% one and two weeks ago respectively)
Shopping Centers: -26.39% (vs. -32.31% and -22.91% one and two weeks ago respectively).
Every industry continues to operate at brutally unhealthy, unprofitable and unsustainable looking levels. This aspect is no different than previous weeks.
On the plus side, hotels/casinos and shopping centers improved (by nine percentage points and eight percentage points respectively). But apparel, dining and fitness all stayed about the same or got worse (up to five percentage points of deterioration).
Overall, there appears to be few signs of the quick, V-shaped recovery that would be necessary to facilitate a quick economic recovery for the state.
This week, let's also take a detailed look at one restaurant. Denny's is not known for takeout, so is probably more Covid-19 sensitive than, say, a McDonald's. How is it doing?
This is an ugly graph at -49.24% footfall from the same week last year. At least, Denny's showed some modest improvement from last week, but even that has not taken it to where it was four weeks ago. They seem very likely to be suffering from the second wave.
We'll take a look at Georgia next week and see how it evolves.
Leaked White House Coronavirus Report Marks 10 States As "Red Zones" For Failing To The Control Virus
Yesterday, a local Texas news station (along with many other media outlets across the nation) published the results of a 359 page White House coronavirus task force report. It was dated July 14, but its contents were not shared with the general public and has only become public knowledge after it was obtained by the nonpartisan, non-profit Center for Public Integrity. The White House Coronavirus Task Force does not deny the accuracy or the content of the alleged report. Additionally, several state governors' offices confirmed they also received the same report.
The report shows that ten U.S. states' statistics reveal they have failed to control Covid-19 adequately. It designates the states (and specific counties) as "red zones" and recommends rollbacks (including closing bars and restaurants, limiting groups to 10) and mandatory mask requirements.
The criteria for being designated a red zone were:
10% or higher of virus tests with positive results ("positivity rate") above 10%. The U.S. CDC had previously set this threshold as a bare minimum standard for a state reopening back in May (although many states have ignored the recommendations since). The World Health Organization (WHO) recommends that positivity rates should be no higher than 5% for 14 days before reopening. And a goal of 3% is considered ideal by many health experts for suppressing the virus.
More than 100 new infections per week per 100,000 people. (By looking at the infections compared to the size of the population, rather than raw infections, this puts states of all sizes on an even playing field).
The ten states that are in the red zone for both criteria are Texas, Alabama, Florida, Georgia, Idaho, Louisiana, Mississippi, North Carolina, Nevada and South Carolina.
Additionally, Nevada, South Carolina and Washington are considered red zones for the positivity test alone:
And Arkansas, Arizona, California, Iowa, Kansas, Oklahoma, Tennessee and Utah are considered red zones for the new infection rate alone:
Another Weekly Pummeling on Unemployment
For the 16th week in a row, the Thursday job report showed the U.S. was hammered by previously unheard-of levels of new unemployment. An additional 1.3 million people reported they were out of work, which was barely changed from the 1.31 million last week.
As we've talked about in the past: at this stage of the crisis, the "continuing claims" is an even more useful statistic to look at in this report. That's because jobless claims give us only half of the picture: how many jobs have been lost. The continuing claims number removes the people who have been rehired from this. And so, that tells us how many are unemployed right now.
This week, the continuing claims were 17.3 million, which was down a little from the 18.1 million last week. But it still reflects an enormous number of people out of work and not much of an improvement. So, for another week in a row, those expecting a rapid V-shaped rehiring surge were disappointed.
So far, many companies are getting by on temporary stimulus and coronavirus aid. But much of this is expiring in the next couple of weeks, and so far Washington has failed to extend it. So, economists are watching carefully and bracing themselves for the potential for more bad news if the nation's capital fails to act.
In the meantime, more companies in the private sector had bad news to announce this week concerning hiring:
JCPenney announced it plans to lay off 1000 people as a part of closing 170 stores.
American Airlines announced it will tell 25,000 employees (making up 29% of its workforce) that they are at risk of losing their jobs later this year, unless federal aid is extended.
In the meantime, understaffed states with outdated equipment and overwhelmed processes, continue to be overloaded and unable to handle the flow of newly incoming jobless. And, even at this late stage, tens of thousands of unemployed workers still report that they've not gotten the payments they desperately need.
In recent weeks, scenes somewhat reminiscent of the Great Depression have been reported across the country. Unemployment offices are seeing hundreds of unemployed workers camping out in front of them (often overnight) to try to get a shot at benefits. Videos and photos of these lines have gone viral across media outlets and social media in states like Oklahoma:
Retail Sales Come Roaring Back. But Is the Lion about to Run Out Of Breath?
On the other hand, there was also some positive economic news. The U.S. economy is driven primarily by consumers. And they came out strong from May to mid-June, causing retail purchases to jump by 7.5%. This, along with the upwardly-revised record surge of 18.2% the previous month, brought spending almost back to the point where it was before the pandemic hit:
So this was very encouraging to see. Ten of 13 major categories increased and showed solid gains, including: furniture, electronics and appliances, clothing and sporting goods. Purchases at apparel shops jumped 105.1%, while electronics and appliances outlets saw a 37.4% gain.
How is it possible to see this kind of strength, when tens of millions are unemployed?
Economists believe much of the spending was supported and driven by one-time corona-virus stimulus checks and the temporary $600 per week given to the unemployed in additional benefits. If so, this is was what that legislation was intended to do, and it would be good to see the strategy had a significant positive effect.
On the other hand, the unemployment data is now showing this recession will almost certainly be deeper and longer than the original legislation anticipated. And yet so far, Washington has not come up with a new stimulus plan to provide additional aid.
If new aid is not forthcoming, a wide consensus believes that retail's impressive gain will quickly collapse.
Additionally, as discussed above, a significant number of U.S. states have not been able to control the virus. If this doesn't improve, it's also expected to depress spending by people with health concerns. Also, states that are forced to roll back reopenings would be expected to further depress spending.
Perhaps some or all of these factors contributed to a shaky-looking U.S. consumer confidence poll that was posted on Thursday. After posting a 5.9% gain last month, it surprised many this week by posting a significant drop. Confidence was depressed by 4.9%, creating a W-shaped recovery pattern, and giving back pretty much all of the previous gains made.
Additionally, a report put out this week by OpenTable (which monitors restaurant reservations) also showed similar backtracking. For the second week in a row, fewer diners were seated versus a year ago (after what had been an initial surge):
This also appears to be showing the unwelcome start of a W-shaped recovery pattern.
CDC Says Pandemic in the U.S. Could Be over in Eight Weeks If Everyone Wore a Facemask
Over the past weeks, we've looked at a growing body of evidence that strongly suggests that a $5 facemask could be key to preventing a second wave of infections. And Goldman Sachs estimated that the savings from costly economic lockdowns would total approximately 5% of GDP or $1 trillion. (See a summary in part 19, "Were Face Masks Improperly Maligned by U.S. Health Officials and Experts? And Could They Be Key to Saving the U.S. Economy from a Second Wave?")
This week, the director of the U.S. Centers For Disease Control (CDC), Dr. Robert Redfield, weighed in. In an interview by the Journal of the American Medical Association, he claimed:
"If we could get everybody to wear a mask right now... in four, six, eight weeks we could bring this epidemic under control.... Broad adoption of cloth face coverings is a civic duty."
The results were immediate. Within hours, the governors of four states announced that mask-wearing would be mandatory: Alabama, Arkansas, Colorado and Montana. As of this moment, more than half of U.S. states now have mask mandates.
And this week, a wave of U.S. companies also said they would require customers to wear masks or face coverings in their stores. As of yesterday, all nine of the largest brick-and-mortar retail companies were requiring masks, as announcements on masks were issued by Apple, Walmart, Kroger, Target, Best Buy, CVS, Home Depot, Lowe's, Rite-Aid, Game Stop and others.
At the same time, enforcement at the business level is expected to be challenging. Even before this week, videos have spread across media outlets showing certain customers reacting in a verbally and physically abusive manner to employees requesting them to wear a mask. As a result, at least one company, CVS, said that they will be relying on their customers to obey the requirement.
Marc Perrone, the president of United Food and Commercial Workers International Union said, "a mandate is meaningless without enforcement". Seven out of ten members say they have seen their employers not enforcing mask mandates in stores. And he says they're concerned, because 30,000 of their members have either been sick or potentially exposed to Covid-19, and 278 have already been killed.
Will Americans wear masks? As we discussed previously, an April Gallup poll showed that only 51% of Americans said that they had worn one in public in the last week. But this has been increasing as the pandemic has spread.
This month, they released their latest poll (which ran from June 22 to June 28) and showed that the number had climbed to a record 86% who claimed they had worn a mask in public in the past week.
Also, for the first time, a majority of Americans (54%) said they are worried about inadequate social distancing in their local area.
The survey also showed that a record 64% believe the Covid-19 disruption will last through the end of this year (or longer):
U.S. Virus Control Efforts "Rendered Useless" By Yet More Testing Snafus
As we discussed in previous weeks, outbreaks in the Sunbelt have strained many test labs beyond capacity (see part 20). And this has been exacerbated by what was already a shortage of testing staff, testing equipment, swabs, and crucial chemical reagents necessary to run tests. As a result, tests in the U.S. across the nation are taking longer and longer to come back.
Public health experts say it can now take 5 to 7 days or more to get a result from some sites. Jason Mahon, a spokesman for the Florida Division of Emergency Management, said: "Some labs have indicated that their turnaround time could be as long as 10 days."
Health experts overwhelmingly agree that this is grossly inadequate. By the time a patient knows whether they are positive or not, they will most likely have spread the disease to others. And it is also making it impossible for officials to use contact tracing to locate and eliminate clusters and control the spread.
Crystal R. Watson, a public health expert from Johns Hopkins University, warns bluntly that the testing bungles have made "contact tracing almost useless". “Instead of going from one step to the next, it’s like you’re already stumbling right out of the gate. By the time a person is getting results, they already have symptoms, their contacts may already have symptoms and have gone on to infect others.”
Scott Becker, chief executive of the Association of Public Health Laboratories, says the issues are widespread. "It’s not shortages of any one thing. It’s now spot shortages of all of them. Clinical labs need more swabs, chemical reagents, viral transport media, test kits, machines to process the tests, staffing to run the machines.”
Jennifer Nuzzo, a senior scholar at Johns Hopkins University’s Center for Health Security, says that in the absence of a federally coordinated plan, the U.S. state-by-state response is “kind of like a junky flotilla that is put together with gum and duct tape.”
Many of the U.S. labs are well aware of the problem. This week, eight organizations, representing them, sent a letter to the Vice President asking urgently for help with obtaining difficult to find test supplies.
David Grenache, president-elect of the association and chief scientific officer of a lab in New Mexico, says that federal coordination is needed to prevent wasteful state-by-state bidding. "We’re all still competing against each other like the Hunger Games for critical supplies".
Why Your Favorite Local Restaurant May Not Survive The Pandemic
The restaurant industry plays a crucial role in U.S. economic growth and jobs. It was expected to generate a gargantuan $899 billion of revenue (before the pandemic hit). And it's 15.6 million workers made it the second largest industry in the country.
So, the health of restaurants is critical to the economy's success. And this week, the National Restaurant Association released a detailed report talking about the finances of its members. Unfortunately, the news was bleak.
Even before the virus hit, restaurants were never a high profit-margin industry. The average restaurant profit was a skimpy 5% of revenues. And as a result, the typical restaurant owner had only built up a tiny 16-day buffer of cash for an emergency.
Then, from March to May, that emergency arrived, and the industry lost $120 billion in sales. This was a brutal 13% of its entire year's revenue, which chewed up 2.6 times more than the expected profit for the entire year.
As we discussed in past weeks, Congress recognized this ruthless reality. And as part of the $3 trillion coronavirus stimulus packages, they created grants that were intended to save the restaurants and tide them over until the recovery. This was called the Paycheck Protection Program (PPP) and was supposed to give restaurants billions of dollars of aid. But due to bureaucratic bungling and the enactment of extra rules by the Treasury Department that went against the intention of Congress, millions of restaurants didn't qualify for aid they were intended to get.
As a result, the National Restaurant Association revealed this week that even with reopenings, 25% of restaurants have already gone out of business permanently.
How are the remaining 75% doing? The survey found that three out of four of them say they don't believe that they will be profitable for at least the next six months. And most say they don't have the resources on their own to keep going for that long.
Why is this? Sean Kennedy from the National Restaurant Association explained their dilemma. Many municipalities require restaurants to run at a fraction of their former capacity (such as 50%). However, unlike other businesses, a restaurant can't just scale down and reduce its costs by that amount. True, it can lay off some staff and save some money from buying a little less food and beverages. But the majority of its costs (like rent) stay the same no matter what capacity they're at. So this puts owners in a huge financial squeeze.
Additionally, the pandemic has forced restaurants to take on substantial new costs. They now have to pay for extra protective gear for workers and significantly more sanitation supplies for tables and restroom. And they have to hire extra employees to implement the health measures as well as handle carry-out orders. This subtracts an additional 10% from the already meager post-pandemic revenue.
And unfortunately, that's not all of the bad news. The shift to home-delivery has also increased costs. For every $5 in sales that the typical restaurant makes via third-party deliveries, $1 (or about 20%) goes to companies like DoorDash and Uber Eats. So this also reduces revenues and profits.
As an example, Clyde’s Restaurant Group is a large collection of 13 restaurants in Washington, DC, and was recognized as one of the top 150 places to work in the city. It says it needs a minimum capacity of 75% (which is above the allowances in many places) just to break even.
Based on even the rosiest projections, the outlook looks dicey for many. The typical restaurant spends one third on overhead (like rent), one third on staff (employees) and one third on inventory (food). At current 2020 projections, the industry's previously projected $45 billion profit is expected to transform into a negative $220 billion loss:
And as mentioned earlier, most restaurants don't have the deep pockets to be able to run at such a deficit for long. The Independent Restaurant Coalition predicts that without additional stimulus, 85% of non-chain eateries will permanently close.
So, like the jobs market, the future of a significant portion of the industry depends almost entirely on whether the U.S. government passes new stimulus or not. So all eyes will be on Washington over the next several weeks.
Study Finds Many Suffering from Covid-19, Months after Being Infected
The typical person believes that if they get Covid-19 and survive, it's a "two weeks and done" experience, similar to the flu. But as we discussed in part 16, a growing body of evidence suggests this isn't the case for a significant number of people. Thousands of so-called "long haulers" report that even months later they are fighting debilitating symptoms that make a return to their former lives difficult or impossible.
Issues include extraordinary weakness and fatigue while performing even the most basic activities (like taking a shower or going to the store), an inability to catch their breath, hallucinations, short-term memory loss and an inability to concentrate. And surprisingly, large numbers of these so-called "long-haulers" had no previous health issues, and claim to have formerly been avid exercisers.
This month, an Italian medical study of 143 Covid-19 patients was published and weighed in on this issue. It has not yet been peer-reviewed.
Patients were assessed about 60 days (two months) after they first noticed their symptoms. This put all of the patients well beyond the typical two week timeframe that many people believe is the upper limit for how long symptoms typically last.
And startlingly, even at that late date, only 12.6% were completely free of all Covid- 19-related symptoms. One-third (32%) had at least one or two symptoms and a stunning majority (55%) still suffered from three or more. Amongst patients with the most reported issues, 53.1% still reported fatigue, 43.4% reported dyspnea (difficult, labored breathing), 27.3% reported joint pain and 21.7% reported chest pain.
All in all, 44.1% were observed by the researchers to have a worsened quality of life than before they were infected, two months earlier.
Dr. Michael Zappa, is Chief of Emergency Services at a hospital in hard-hit North Carolina. He claims this dynamic isn't a surprise since "the virus attacks almost every major organ in the body and causes severe vessel damage during infection and long after".
He believes that "those who were very sick and often in ICU for weeks could wind up with problems with their kidneys that could lead to dialysis, chronic cardiac problems or chronic problems with their brain".
If accurate, this would sync up with what we know about the after-effects of other viruses. For example, the virus that causes SARS (Secure Acute Respiratory Syndrome) is called SARS-CoV and is a close cousin of Sars-CoV-2 (the virus that causes Covid-19). And a study of 233 SARS survivors found that three years later, 40% still suffered from chronic fatigue and 27% from myalgic encephalomyelitis/chronic fatigue syndrome.
Study Suggests Covid 19 Antibodies Don't Stay around for Very Long
One of the biggest mysteries about Covid-19 is the role of antibodies. These are the proteins that the body produces to recognize and fight invaders. Do people who are infected with the virus tend to produce antibodies reliably? If so, how long until they show up? Do antibodies protect a person from being reinfected again? And how long does that immunity last?
The answers to these questions will drive major decisions about testing and vaccines and may ultimately dictate how successful we end up being in dealing with the virus. But currently, there's a lot we don't know.
This week, our collective knowledge may have moved forward significantly. Kings College of London published the first study to directly examine the longer-term antibody response of Covid-19 infected patients. It monitored 90 patients between March and June and the report has not yet been peer-reviewed.
The study found that, on average, antibodies peaked 23 days after onset of symptoms.
Interestingly, there was a wide range of antibody responses. Levels varied considerably from a low of 98 to a high of 32,000.
This is again consistent with what has been observed in the disease caused by covid-19's coronavirus cousin, Secure Acute Respiratory Syndrome (SARS).
The researchers also found that the more severe the disease, the higher the chance a person had more neutralizing antibodies (nAb). However, mABS (monoclonal antibodies) were different and weren't affected by the severity.
The study deemed 60% of the patients as having a "potent" level of antibodies at the peak of their battle with the virus. However, three months later, only 17% were able to sustain that amount. In some cases, antibodies had decreased by 23 times. And some people were completely depleted of all antibodies at that point.
While the study is not definitive, it seems to match up to two previous preliminary Chinese studies released in June.
One study of 1500 Covid-19 patients found that 10% of them had undetectable antibodies within weeks of symptoms. Another small study of 74 patients found that they typically lost their antibodies 2 to 3 months after recovering from the infection. This is especially true of those who tested positive but had no symptoms.
In contrast, SARS and MERS antibodies have been found in infected patients up to a year later.
Dr. Mala Maini, professor of viral immunology and consultant physician at the University College London, said,
"Even if you're left with no detectable circulating antibodies, that doesn't necessarily mean you have no protective immunity because you likely have memory immune cells (B and T cells) that can rapidly kick into action to start up a new immune response if you re-encounter the virus. So you might well get a milder infection.
"But this study does reinforce the message that we can't assume someone who has had COVID-19 can't get it again just because they initially became antibody positive. It also means a negative antibody test now can't exclude you having had COVID-19 a few months ago. And it suggests vaccines will need to be better at inducing high levels of longer lasting antibodies than the natural infection or that doses may need to be repeated to maintain immunity."
Your Chances of Surviving the Covid 19 ICU Are Improving
A systematic analysis of two dozen studies involving more than 10,000 patients in three continents (North America, Asia and Europe) came out this week. And it concluded that the overall mortality rate of Covid-19 patients in ICUs (intensive care units) has improved quickly. The death rate of 60% back in March had fallen to 42% by May.
Surprisingly, mortality rates didn't differ significantly across regions despite what many consider to be significant variations in treatment.
The authors also pointed out that after the study concluded, the inexpensive anti-inflammatory dexamethasone was found to reduce deaths by 1/3 in those receiving mechanical ventilation. So they conjectured that this should improve survival rates even further.
The researchers also found that contrary to popular belief, some Covid-19 hospitalizations are brutal marathons. For example, about 1/5 of ICU visits in the U.K. lasted more than four weeks. And 9% lasted more than 42 days.
Health experts noted that even at the lower, improved rate of 42%, the chance of an ICU Covid-19 patient dying is almost twice as much as with other viral pneumonias (which typically have a 22% death rate).
Moderna Again Releases a Partial and Incomplete Study That Causes Stock Market to Swoon
As we've discussed in previous weeks, Moderna is a company which has an experimental mRNA vaccine for Covid-19 and is beginning final stage III human trials on July 27. And as we discussed in part 14, they drew criticism by some medical experts at the end of May for releasing very incomplete stage one data. Nonetheless, the news capped off a skyrocketing of their stock by 4 times, giving a company with zero successful products for sale an overnight valuation of $29 billion.
Simultaneously, key insiders took advantage to sell significant portions of their stakes (which some pointed out would normally be inconsistent with a belief that a successful stage III payoff were imminent). And the timing has caused multiple former regulators to speculate that the company may be under SEC investigation (see part 19).
Back in May, Moderna claimed they would be releasing full phase 1 results in a few weeks. This week (and more than a month and half later), the firm finally released more information. Again it is still incomplete, but this didn't prevent the stock from shooting up an additional 18%.
The new data covered 45 people in the younger test group (from age 18 to 55). Still missing was all the information about the older cohort, which would be the ones of most concern, since they are the most susceptible to being killed by the virus). The missing older group would presumably be more susceptible to the significant side effects that were also reported (more on this below).
All of the subjects received at least one shot and the majority received two. The first shot created antibodies but disappointingly, none of them were capable of neutralizing the virus in laboratory tests.
However, all 42 people who got two shots were able to produce antibodies that neutralized the virus the second time around. So this was promising. At the same time, in the past, laboratory tests have not always translated into human success. So the phase 3 human trials will be crucial.
The antibody levels were equivalent to the upper half of what's seen in patients who naturally get infected with the virus and recover. However, as we saw above, it is also not known if the natural response is strong enough to prevent reinfection. So this also will also be tested in the final stage trials.
The data was not trouble-free and there were notably high side effects. About 40% of all participants who got a second vaccination experienced a fever. And 3 of 14 patients given the highest dose experienced "severe side effects" (which possibly explains why that dose will not be used in the final trials). Half of those who got the middle dose (which is the one that will be used in the human trials) also experienced side effects ranging from mild to moderate fatigue, chills headache and muscle pain.
Some health experts wondered if this might translate into more severe side effects for the older cohort (whose data was not included).
Tony Moody, a doctor and researcher at the Duke Human Vaccine Institute commented, "That is a lot of adverse events” and said it was "unusual" for a vaccine to have this rate of side effects.
William Haseltine, a former Harvard Medical School researcher who chairs Access Health International, said the levels of neutralizing antibodies produced were “respectable” but that “the jury is out” on the vaccine’s safety.
Construction Costs Decrease for the 1st Time in a Decade
For the first time in a decade, commercial real estate construction costs fell. The Turner Construction Company's quarterly Building Cost Index declined by 1177 points (corresponding to a 1% drop) from the first quarter of the year. This was the first drop since the second quarter of 2010.
Turner Vice President Attilio Rivetti said the drop was caused by increased competition among trade contractors. And he claims that, many are trying to nail down work amid uncertainty about future opportunities.
Update on My Investment Strategy
Every week I take a look at the latest developments and data and reevaluate my personal outlook on the possible economic scenarios and my personal investment strategy. This week everything is essentially the same as last week.
Treatment: I believe chances are good we'll have an effective medicine for Covid-19 (i.e. antibody treatment, vaccine, etc.) by fall or winter of this year. And with some luck we could even have more than one. Unfortunately, it's also unlikely it can be manufactured and distributed in large enough quantities to immediately treat everyone who wants and needs it. If that happens then it will not be enough to super-charge the economy right away. And there may be potentially huge quality-of-life difference between the treatment-haves and treatment have-nots. This will be divisive and exacerbate already strong tensions in our society and between rich and poor countries.
Recession? We've already had one quarter of negative growth in Q1 (-4.8%) and Q2 will be record-breakingly bad. So a technical recession (2 consecutive quarters of negative GDP growth) is inevitable.
Shape of the recovery: In part 14, we talked about how the shape of the recovery (V-shaped, U-shaped, swoosh-shaped, W-shaped, L-shaped, combo-shaped etc.) will have a huge effect on the ultimate outcome of many different investments. So far, pretty much everything that's happened has been much worse than the consensus expected. Pretty much no one saw the lock-downs coming back in February. More people have been killed than originally projected. Many more than expected have lost jobs. The stimulus and unemployment aid was enormous but has too many unexpected holes and isn't getting to millions who need it the most. States are starting to reopen but most individuals are still choosing to stay at home anyway. So unfortunately, I don't think a quick, V-shaped recovery is going to happen. I would love to be wrong. I'm getting more and more concerned about a very damaging "W", which could come from a second wave of the virus and a second lock-down. Unfortunately this is looking more and more likely. The one slim hope is that for now it has not shown up very strongly in the national death stats. So I'll continue to monitor the data very closely. Currently, I believe we will have a 3 stage combo-shaped recovery that starts off (1) quick as the first "easy" industries and companies come back online (i.e. v-shaped). But (2) this will peter out as the more difficult ones are unable to and a slow swoosh will become apparent. If we get a second lock down then this step (2) will become W-shaped and more painful Then in fall/winter, (3) I believe we will probably see a treatment and/or vaccine. And if we do, then that would be the trigger for the 3rd stage and an accelerated recovery. But this most likely won't be a straight-V up recovery because it will probably take time to ramp up production and delivery to enough Americans to get herd immunity. (And that will depends on which treatment makes it that far...which we don't know at this point). So it will be a slower boost. But we also could get a little lucky (for example, if the successful vaccine treatment is of a newer type that can be scaled up more quickly). If so the 3rd stage boost would be faster. If I'm wrong, and we don't get a treatment or vaccine this year, then the economic damage caused by long-term job loss and wage cuts will most likely be severe and further exacerbate (and slow down) whatever type of recovery we do get. That would probably be ugly for the majority of all investments. So let's hope we don't have to find out how that scenario would play out.
Investments: If the above is roughly correct then it will unfortunately be painful for many individuals and some investors. And some subsectors of alternative investing (like certain real estate classes) will come under heavy stress. Many may fold in the coming months. At the same time, I think there will also be an opportunity to purchase dislocated and distressed assets at very favorable pricing and significant discounts. And I believe that patient, discerning investors may be able to take advantage of once in a decade or once in a generation opportunities.
Strategy: 1) Invest in assets that are corona-virus resistant (and uncorrelated with the business cycle). That includes: - 1a) Music royalties (which can actually do better in lock-downs due to increased streaming). 1b) Life settlements (which actually perform better when people are dying faster and in any event isn't directly tied to the business cycle) 1c) Litigation finance (which performs based on winning or losing cases and also isn't directly tied to the business cycle). 2) Continue to hold cash and be patient for dislocated and distressed opportunities. The worse the economic damage, the more chance there will be for once-in-a-generation or once-in-a-lifetime opportunities.
My opinions and strategy will change if we get some better or worse news on the science side or some of the other X factors. For example, the stimulus bill being debated in Congress is one that could shift things in a more positive direction. And, as I mentioned above, the virus getting out of control again in large areas and forcing large lock-downs a second time, could easily make things worse.