How Will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 23: August 1st
Updated: Feb 8
U.S.'s second wave of deaths accelerates to more than one per minute; Some states make progress fighting second infection wave, others show ominous hints of letting up too soon; Georgia economy remains stuck in a coma; Economy battered by more record unemployment as progress goes into reverse for second week in a row; Financial cliff update: Congress and executive branch can't close the deal; Study suggests more than 20%+ of people who have covid-19 are incorrectly told by tests that they don't; Study finds more than 20%+ of people who have covid-19 are incorrectly told by tests that they don't; U.S.'s hapless testing strategy may be getting a much needed booster shot; Why an effective vaccine may be -- not the end of the pandemic story, but -- only the beginning of a new chapter; Study finds infected children under five host 10x - 100x more corona-virus particles than adults and may be much more highly infectious; CDC releases study of Georgia YMCA summer camp that was overrun with corona-virus and infected 260 in about a week; Teachers union will strike if adequate school safety measures are not put in place for reopenings; New Johnson & Johnson Vaccine Protects Monkeys From Covid-19 with a Single Shot; Operation Warp Speed awards $2.1 billion more for vaccine from Sanofi and GlaxoSmithKline; Update on my portfolio.
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This week the news accelerated versus last week. Most of the information centered around the second virus wave, the financial cliff, the effects of the virus on children, school re-openings and vaccines.
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 Second Wave Of Deaths Accelerates To More Than One Per Minute
For the 20th 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 156,772 (versus 148,860 last Saturday morning).
Meanwhile, for the third week in row, the daily death rate moved in the wrong direction. Deaths continue to increase in what has clearly become a second death wave:
(Note, the small and temporary surge between day 104 and 110 was not an actual increase. It was caused by a statistical aberration produced when the CDC changed its accounting methodology and then worked through the backlog caused by the change).
On Wednesday, the second wave surge caused the nation to re-achieve the grim milestone of suffering an average of one death per minute. And the national statistics were accompanied by reports of record deaths in several states. On Wednesday, Florida, North Carolina and Idaho all set single day records. And on Thursday, new records were set by Florida (again by surpassing the previous day), Arizona and Mississippi.
On the other hand, virus infections tend to lead deaths anywhere from 2 to 8 weeks (depending on how long it takes someone to die and how long it takes their particular location to report the information). And at a national level, these have started to level off:
This could be a potentially promising sign. If declining case numbers end up proving accurate, then we might see the death statistics improve in future weeks.
It's important to note that looking at infections can give a less reliable perspective than would looking at death statistics, because case numbers rely on adequate testing. And in the U.S., testing suffers from shortages of critical reagents necessary to run them, as well as staff (see section below).
And, data from some states hints that they may be losing control of the second wave, which might ultimately negate the other states' declining case numbers (see state roundup section below for more). We will continue to watch and see how it evolves.
How did others around the world do?
As we discussed in part six, South Korea uses an aggressive mixture of the Three T's of epidemic control (testing, tracing and treatment). And through most of the epidemic, it has been one of the world leaders in both minimizing deaths (one of the lowest per million) and also minimizing economic damage (their economy is now mostly open and growth is projected to barely shrink this year, while in comparison, the U.S. still has significant closures and is projected to take a -5.9% hit).
This week, South Korea looked like this:
They made further progress fighting back their second wave which was good to see. However, the tiny size of their "wave", in the first place, renders it too minuscule to even be noticed by the majority of countries who are dealing with much more severe issues. And this week, the South Korean economy continued to remain predominantly open for business.
Meanwhile, Sweden has opted for a lockdown-lite strategy (see part 8). While they've enacted some lockdown measures (shut down grade schools, prohibited gatherings larger 50, instructed elderly people to stay home and young people to work remotely, enacting social distancing rules at restaurants, etc.), they never went into a full lockdown like many other countries.
The hope has been that if this works well, it might provide another workable model for other countries looking to deal with the virus.
It was good to see that this week they continued to make progress reducing their death rate:
Sweden's road to reach this point has been bumpy. The country enjoys a number of unique advantages in fighting the virus that most countries don't have, including an extremely large number of people who live alone, are young and have no children. Despite this, their death rate has been many times worse than other Scandinavian countries (with similar demographics) as well as other countries. However, the hope is that if they can continue to push down their death curve then eventually they might be able to make up this deficit.
How did they do this week? To see, we need to look at deaths per million. Unlike raw deaths, this puts countries of different sizes on an equal playing field. Here's how they did:
As usual they were a bit volatile. But they have clearly now surpassed the United States (versus just three weeks ago when they were doing worse). So they've made progress there.
They still have a long way to go to catch up with their Scandinavian neighbors, as well as best-in-class South Korea and Taiwan (who have approximately 40 times less deaths). But they're moving in the right direction.
It's important to note that if and when they do catch up, it would only be in the narrow time span of that one week. And a fair country comparison would have to also look at total deaths per million since the beginning of the pandemic. There they are still operating at an enormous deficit due to their previous inability to control their pandemic:
This is such a large deficit that some epidemiologists believe it may be insurmountable (at least if an effective vaccine or treatment arrives sooner rather than later).
But no one knows how all this will play out. For example, other countries could experience surges and they might not. Or a vaccine may not be as effective as some are expecting (see section below for more). So the balance could change and we will continue to monitor them and will see.
The other big issue that Sweden needs to overcome is that lockdown lite has thus far been a failure in its main goal: protecting the health of the economy. 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 is not the large benefit many hoped to see.
But again, if they continue to make progress on the virus, then that could improve as well. We'll continue to watch and see.
Some States Make Progress Fighting Second Infection Wave, While Others Show Ominous Hints of Letting up Too Soon
Over the last four weeks, we watched as the second wave of virus infections swept the Sun Belt (and then spread to other areas of the country over the last three). And we talked about all of the virus control measures that have been put in place, including more than 50% of states with mandatory mask requirements.
As mentioned above, we saw something potentially crucial, last week: infections in the Sun Belt appeared to be leveling off and dropping. If this continues then a drop in deaths would be expected to follow in two to eight weeks as well (since people can take different amounts of time to die, and different locations take different amounts of time to report the information).
How's it looking this week?
Let's start with Florida, which is currently the epicenter for deaths in the U.S.:
On one hand, deaths accelerated this week in an alarming fashion, setting new records virtually every day. And the state hospital system is creaking under the strain. On Wednesday, Florida's Agency for Healthcare Administration reported that ICU Usage at 51 hospitals across the state were at 100% capacity or above. Once a hospital goes over 100% capacity, it can tap into a limited number of general-purpose beds that it can convert.
According to a report from the Department Of Health And Human Services, ICU beds in Miami-Dade County hit 146% capacity.
On the other hand, infections are starting to drop, which is an encouraging sign for the future (with the limitations mentioned in the first paragraphs of this week's report, above).
Unfortunately, Mother Nature is going to make analyzing Florida difficult next week. The state initially announced that starting this Thursday, all public testing centers will be closed for approximately a week due to incoming Tropical Storm Isaias. This was later updated: testing centers on the Gulf coast were not closed, as the storm was projected to stay toward the east.
As we discussed last week, Florida has an unusually long delay in getting test results back (five days or more). So even though the closings in western Florida happened this week, it doesn't affect this week's data. But, for at least the next week, it will probably make accurate comparisons impossible.
How is Texas looking?
This graph is more disturbing. As in Florida, Texas's deaths are surging. But the leading indicator of new infections appears to have stopped improving and may be moving into reverse.
And the actual infections are almost certainly higher, because the state had to shut down some major testing centers starting last Saturday, due to Hurricane Hannah. So this suggests the state may be definitively backtracking.
If this trend continues next week, it could be highly problematic for the health of the population and the state's economy. We'll continue to watch them to see.
In the meantime, this week, in hard-hit Houston, the chief medical officer of United Memorial Medical Center, Joseph Varon, said he'd signed more death certificates in the last week of July than at any point in his career:
"I have been in the middle of earthquakes, in the middle of bombings, in the middle of tsunamis. I’ve been involved in every possible catastrophe that you can imagine. And by far, this is the worst.”
He also criticized the large number of Houston residents who were disregarding health guidelines.
“My motto has been, [that] at the present time I’m pretty much fighting two wars: a war against covid and a war against stupidity. And the problem is that the first one I have some hope about winning. But the second one is becoming more and more difficult to treat.”
How is Arizona doing?
They are looking like the best of the three states, so far. Deaths have leveled out, and infections are dropping. Let's hope they keep this up.
What about North Carolina?
This is more troubling. Deaths are accelerating in North Carolina, as in some of the other states. But, the early progress in reducing infections appears to have stalled and seems to be plateauing. We will continue to watch them closely to see what happens next week.
How about South Carolina?
Clearly, South Carolina is being hit unusually hard with more rapid acceleration of deaths than others. But their future currently looks more promising than Texas's and North Carolina's, with continued progress fighting down new infections.
How about Idaho, which last week was mentioned as a hotspot?
Idaho's graph is unsettling, because it shows both rapidly accelerating deaths and a stalling of progress on infections. And like in Texas, the Idaho health system is under seige. Last week, two intensive care units at hospitals in Idaho's largest healthcare system (St. Luke's Health System) maxed out at 100% capacity. And unlike larger hospitals, these smaller hospitals had little to no ability to surge beyond it.
Dr. Joshua Kern, Vice President of medical affairs for St. Luke’s Magic Valley said.
“In Nampa, they literally had no beds. It would be very difficult in our other facilities because they are big enough that usually the limiting step is more staffing for those beds as opposed to the literal number of beds. But in Nampa where it’s a slightly smaller hospital, we had gotten to the point where we basically had one bed left in the entire hospital at one point.”
So last week, both overloaded hospitals began transporting patients to the larger, main facility in Boise.
This week that larger Boise ICU is now running at 130% of normal capacity. To handle the extra load, the hospital itself is shipping in additional respiratory therapists from as far as two hours away.
Chris Roth, the president and CEO of St. Luke's Health System, said the situation is okay for now but by the end of the month could be dire with the current trend.
"We are taking care of everyone who needs care today, and we will continue to do that. But August will be too late, and we will find ourselves in a situation where that could very well change."
So looking at all the states together, progress has been mixed. Some states appear to be making progress battling down the second wave. Others appear to be stalled or even backtracking, and may have let up on precautions too soon.
Meanwhile, new problems may be surfacing in several new states. On Tuesday, the head of the National Institute of Allergies and Infectious Diseases (NIAID), Dr. Anthony Fauci, warned that percent rate of coronavirus tests is rising in Ohio, Indiana, Tennessee and Kentucky. He added, "That's a surefire hint that you may be getting into the same sort of trouble with those states that the southern states got into trouble with."
The next day, Ohio Gov. Mike DeWine announced limits on county fairs, barring grandstand events, rides and games. This week, Kentucky Gov. Andy Beshear also announced tightening restrictions with bars being shut down for two weeks and indoor dining restricted to 25% of capacity. He also recommended that schools postpone in-person classes until late August. (See later section on proposed school openings).
Georgia's Economy Remains Stuck in a Coma
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 over 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). And to see the trend, here are the same stats for every week over the last month.
Apparel: -32.62% (versus -31.72, -29.59%,-29.53%,-15.73% the past four weeks)
Dining: -23.03% (versus -20.92%, -24.91%, -24.17%, -24.47% the past four weeks)
Fitness: -37.02% (versus -38.24%, -37.78%, -32.4% and -39.53% the past four weeks)
Hotels / Casinos: -40.97% (versus -33.16% , -30.14%, -39.90% and -34.18% the past four weeks)
Shopping Centers: -25.5% (versus -20.07% ,-26.39%, -32.31% and -22.91% the past four weeks).
This is not a good report. Virtually every category shows backtracking and the numbers are moving the wrong way, getting worse, rather than improving. The one exception is fitness which barely improved by about 0.25 percentage points. And all of them continue to appear to be at grossly unprofitable and are at unsustainable levels.
If this is an accurate reflection of the economy, then it's not in good shape, and not experiencing a quick, V-shaped recovery.
How is Georgia doing fighting the virus?
On the one hand, deaths plateaued this week (although at a high level). On the other hand, the leading indicator of infections continued to rise slightly. So far this doesn't look likely to push the economic situation in much of a positive direction.
We will continue to monitor Georgia and see how things go next week.
Economy Battered by More Record Unemployment As Progress Goes into Reverse for Second Week in a Row
For the 18th week in a row, the economy was battered by previously unheard-of levels of new unemployment. This week, an additional 1.43 million people reported losing jobs:
The economy needs these unemployment numbers to drop way down (and sustain that drop) to have a chance to heal. But again that didn't happen this week. And for the second week in a row, the numbers moved in the wrong direction. The previous week, only 1.3 million jobs had been lost (and 1.31 million and 1.4 million the weeks before).
If this trend were to continue, it would mean business struggles are increasing. This would be potentially devastating to the chances for a quick V-shaped recovery.
Meanwhile, 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, continuing claims were 17 million. This number also moved backwards from the prior week (got worse by 867,000 more people). And this caused the largest increase in this metric since early May. On the surface, this seems to corroborate the idea that the economy has been hitting an inflection point recently. But, since this trend is even newer than the raw unemployment figures, we'll continue to watch it to see.
In the meantime, the parent company of Men's Wearhouse (Tailored Brands) reported this week that more layoffs are on the way. The company currently employs 19,300 people, but missed a bond payment and will be preparing to file bankruptcy in the third quarter. It expects to close 400 to 500 unprofitable stores. Even before the outbreak, it was experiencing financial pressure from changing consumer tastes and e-commerce. But just as with the three other retailers we've discussed, who declared bankruptcy in the last few weeks (JCPenney, J.Crew and Neiman Marcus), Tailored Brands was done in by Covid-19. The pandemic caused massive revenue losses and drove a stake through its heart.
On Thursday, the U.S. Commerce Department reported more bleak information. U.S. GDP in the second quarter shrunk by -32.9% on an annualized basis (which was a 9.5% drop from the previous quarter). This set a record for the worst drop in the history of the statistic, which started keeping records more than 70 years ago (back in 1947).
Personal spending, which makes up about two thirds of GDP, also plummeted the most that it ever has on record (34.6% annualized). Business investments in structures, equipment and intellectual property dropped the most since 1952, and residential investment slumped the most since 1980.
"The current economic downturn is the most severe in our lifetimes... The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check. Indeed, we have seen some signs in recent weeks that the increase in virus cases and the renewed measures to control it are starting to weigh on economic activity. Even if the reopening goes well -- and many, many people go back to work -- it is still going to take a fairly long time for parts of the economy that involve lots of people getting together in close proximity to recover. Those people are going to need support. It will take continued support from both monetary and fiscal policy to achieve that."
Note that the Federal Reserve can only implement monetary policy, and fiscal policy is the federal government's realm. And as we discussed last week, fiscal policy is now facing the danger of an upcoming financial cliff (which we'll talk about in the next section).
Meanwhile, as we discussed in previous weeks, closed businesses and restaurants have hammered the tax revenues of virtually every city and state government. And this is expected to cause interruptions and reductions of services (including Covid-19 response efforts, the responsibility for which lies predominantly with the states, not with the federal government). And it has caused increased layoffs and is expected to cause more, which will exacerbate the unemployment pain.
This week, the U.S. Commerce Department reported data showing the city and state Q2 damage. Sales tax revenue was the lowest ever recorded, and spiraled downward a gut-wrenching -12%+ to just $309.5 billion.
Financial Cliff Update: Congress and Executive Branch Can't Close the Deal
As we discussed last week, there's an upcoming financial cliff that's being eyed warily by consumers, businesses and investors in virtually every alternative investment asset class (especially real estate and private equity).
So far, the economy has taken unprecedented amounts of damage through record-setting unemployment. And normally, this would be devastating. But so far, the damage mostly hasn't shown up in the ways typically expected, in unemployment-sensitive areas like missed rental and house payments.
This is because, as part of the $3 trillion Covid-19 stimulus package, unemployed workers are receiving an extra $600 per week. And state and local governments have passed moratoriums on evictions and foreclosures.
As we talked about in past weeks, millions were unable to get intended benefits, due to antiquated and overloaded state unemployment systems. But, the majority of the unemployed still have roofs over their heads. And additionally, the U.S. handed out stimulus checks of $1200 to many citizens (and $500 per child). So this gave workers without jobs the money to continue to spend to support the economy.
But now, the status quo is coming under tremendous pressure. First, the unemployment insurance ends this week. Second, Freddie Mac and Fannie Mae eviction moratoriums expired Friday and others are scheduled to expire soon. And, stimulus checks were a one time thing and many have been completely spent. As a result, the financial state of many of the unemployed is deteriorating rapidly. For example, a startling 1/3 of renters failed to make their full payment in July. And 1/5 of renters in cities like Houston and New York say they have "no confidence" in their ability to pay at all next month.
So, consumers, businesses and investors are now eyeing a scary financial cliff. And that fall can be cushioned -- but only if the U.S, government passes more stimulus. But prior to this week, it had not been able to pull that off.
How have things been going with this long-awaited stimulus package?
Back in May, one political party had passed a $3.5 trillion stimulus bill to address these issues. But it was rejected by the other party for several reasons:
The size: Many were concerned with taking on additional debt.
Unemployment: The $600 per week unemployment payment is more than many of the low-wage unemployed had made previously. So there was deep concern that this was a disincentive to work. (As we saw last week, the data does not show this is happening. People who were laid off are still applying for jobs and the few jobs that are available are snapped up quickly. Perhaps this is because many employees typically get health insurance benefits far in excess of the extra check. But regardless of the reason, the size of these checks remains a big stumbling block towards agreement).
Liability: Wanting to shield corporations from the liability of workers who get sick from Covid-19 (which was not in the bill)
Funding for revenue shortfalls within local and state governments: Many did not want money from the federal government to aid local governments.
Last week, the Senate leader of that opposing party tried to pass a counter-proposal bill amounting to $1 trillion, with the reduced unemployment benefit. But he couldn't get enough support from his own party to pass it. So this week, he and the presidential administration tried a different tactic. And they presented talking points to the opposing party to try to get some crossover votes to make up for the defections.
However, despite negotiations all week, they were not able to come to an agreement. And on Thursday, the Senate adjourned for the weekend. So, as a result, the unemployment payments ended this Friday leaving about 30 million unemployed potentially in a huge financial lurch. Each state pays a different amount, but the average will see their paycheck cut from $930 a week to a measly $330.
Analysts say all hope isn't lost for a deal. Since this is an election year, the pressure is very high to make something work for constituents. And perhaps as a sign of that, today, top White House officials engaged in rare weekend talks with the opposing party on the package.
We will continue to watch this as it develops.
Study Finds That More Than 20%+ of People Who Have Covid-19 Are Incorrectly Told By Tests That They Don't
Meanwhile, John Hopkins researchers found that a popular type of Covid-19 test can miss a significant number of people who actually have the disease. And this is especially true early on in the disease.
Polymerase chain reaction (RT-PCR) tests involve giving the patient a nasal swab and then running the sample through a testing system. And John Hopkins found that four days after infection, 67% of infected people still came back as negative according to the test. By the time the average patient began displaying symptoms, this had dropped to a still large 38% that were missed. The best result was 8 days after infection (which was, on average, three days after symptoms arrived). But even here, the tests told 20% of the infected that they didn't have the disease.
Lauren Kucirka, MD, PhD, MSc, is an obstetrics and gynecology resident at Johns Hopkins Medicine, in Baltimore. She explained: “A negative test, whether or not a person has symptoms, doesn’t guarantee that they aren’t infected by the virus,” she added. “How we respond to, and interpret, a negative test is very important because we place others at risk when we assume the test is perfect.”
U.S.'s Hapless Testing Strategy May Be Getting A Much-Needed Booster Shot
Testing is one of the 3T's of basic pandemic control (along with tracing and treatment). And it has to be done sufficiently and rapidly to allow proper tracking and to ultimately control the disease.
As a result, many of the countries that are best at dealing with the disease are able to turn around tests quickly. For example, South Korea is able to turn around tests in a day (and sometimes sooner). And many health experts say that a 1-2 day turnaround is generally acceptable.
So many were dismayed when on Friday, Admiral Brett Giror, the lead for U.S. testing strategy, testified to Congress that a three-day turnaround time for testing is currently impossible for the country to accomplish. He also added that, currently, about 25% of test results can't be delivered after an even longer wait of five days.
As we've discussed in past weeks, this is due to shortages of many of the crucial reagents required to run the tests, as well as shortages of equipment and personnel.
Dr. Anthony Fauci, head of NAIID, testified further to Congress on how potentially dangerous this situation is:
"If you have to wait multiple days for the result of a test, and the test is done in the context of contact tracing, that in many respects obviates the whole purpose of doing it. Because if you have to wait that long, a person has already been out in the community in that period of time.”
On Thursday, the former Director for the Centers of Disease Control (CDC), Tom Frieden, proposed that companies that are taking taxpayer money to deliver inadequate testing shouldn't be rewarded:
"Testing charade continues. We shouldn’t pay a dime for any test that takes more than 72 hours to come back. Every state and county should report the proportion of tests with results within 24 and 48 hours. What gets measured can get managed."
However, so far, no plans have been announced to implement any sort of accountability scheme for testing providers.
On the other hand, the National Institutes of Health (NIH) announced this week that it is allocating $250 million to attempt to develop brand new testing technology that would allow them to be done faster and in higher volume.
The program is called the Rapid Acceleration Diagnostics program (RADx) and the goal of the program is to increase the U.S.'s current testing capacity from about 800,000 per day currently to millions of tests per day by September 2020. And it further aims for 6 million tests per day by the end of 2020.
The NIH put companies through what it described as a "Shark Tank"-like evaluation process, and then chose seven finalists. Quidel, Mesa Biotech, and Talis Biomedical were chosen for point-of-care tests. And Ginkgo Bioworks, Mammoth Biosciences, Helix, and Fluidigm (FLDM) were chosen for lab-based tests. The agency said 20 other companies are being considered for funding as well.
None of the funded projects are new, as all have received previous emergency use authorization from the FDA or submitted an application for an EUA. And several had already received considerable funding. For example, Ginkgo Bioworks’ efforts to automate more of the lab work needed to run a Covid-19 test had already raised $70 million in May from the sequencing company Illumina as well as from a hedge fund and private equity firm.
But, the NIH funding offers all of these companies the ability to potentially bring their products to market at a larger scale than before.
Why An Effective Vaccine May Not Be The End Of The Pandemic Story, But Only The Beginning Of A New Chapter
As we've talked about extensively in past weeks, it's possible that we could get one or more effective vaccines or treatments for the virus later this year. It's not guaranteed, because the virus may prove immune or may mutate too quickly to be controlled. But many health experts (including Dr. Fauci) are now starting to agree that we have a decent shot at it.
So for a minute, let's assume that success will happen. When that does occur, what will it look like and what can we expect? The likely answers will probably surprise many.
The first challenge is that vaccines work by giving them to enough people so that herd immunity is achieved and the spread of the disease is stopped. However, 20% of Americans have said they definitively will not take a Covid-19 vaccine when it comes out. And another 31% say they're unsure. So it's possible that even if we get an effective vaccine, there may not be enough people who take it to achieve herd immunity.
But for a minute, let's assume enough people are willing to take it. What then?
Many health experts say that the first generation of vaccines (presumably available at the end of 2020) may not be the cure-all that many are expecting. That's because Covid-19 is a respiratory disease which typically enters the body through mucous membranes in the nose and throat. But vaccine shots aren't ideal for addressing this, because they're injected into muscle where they seep into the blood. So in the past, these types of vaccines have tended to not provide much protection for mucous membranes.
If that occurs again with Covid-19, then there's a good chance that the vaccine will not actually be able to prevent the virus from entering the body. Instead, it's more likely to protect tissues deeper in the body such as the lungs from getting a very severe infection. This is not what many people think of when they imagine a vaccine.
Kanta Subbarao, the director of the World Health Organization’s flu collaboration center in Melbourne summarizes this concept by saying that "sterilizing immunity (prevention of the disease) is unlikely."
There are ways to get around this problem. Kathleen Neuzil, the director of the University of Maryland’s Center for Vaccine Development and Global Health says that one way to boost the effectiveness of a respiratory virus vaccine is to mimic the actual infection by spraying a live, weakened virus into the nose. This would be similar to FluMist which treats the flu.
However, doing that right now is a very risky strategy, because we know so little about SARS-CoV-2, and the risk of causing more harm than good is high.
“We don’t want to be spraying coronavirus up people’s noses until [we] are absolutely sure that it’s actually a virus that can’t spread from person to person and that it can’t make somebody sick. It will just take time".
So if this type of vaccine is possible, it isn't expected until the second generation of treatments arrive (perhaps in 2021).
And so, many health experts believe the first generation vaccines are likely to be far less effective. The FDA appears to be recognizing this by setting the bar for emergency approval to the very low standard of "preventing or reducing severe disease in at least 50% of people who get it".
This has the potential to be very underwhelming. If a vaccine were to just skate by at the minimum level, a person would still have a 50/50 chance of getting seriously sick. With those odds, many people will have a hard time relying on the vaccine to feel safe and probably will continue to take the same precautions they did before it.
So, many economists believe this would not likely be enough to truly reboot the economy, either. According to Walter Orenstein, who is the former director of the National Immunization Program and a vaccine researcher at Emory University: "That’s obviously not ideal."
On the other hand, a much higher effectiveness rate could change that equation. And while perhaps unlikely for generation one, it's not impossible. So a lot will depend on the stage III trial results. Also, companies are rushing to put out and test Covid-19 treatments, which, not being vaccines, might not have to deal with the same effectiveness issues. Time will tell what happens with all these x-factors.
But, let's say a vaccine gets this far and overcomes all previous roadblocks. Unfortunately, it still is not home-free, and there are other potential serious issues to deal with concerning manufacturing and distribution.
Hundreds of millions of doses would need to be created, safely stored and transported. However, many of the current first generation vaccine candidates use technologies that have never been scaled in this way before. For example, some require storage at temperatures as low as -80°C, or must be taken in multiple doses. All of these special requirements could greatly complicate, slow down or even critically cripple a rollout. There is no way to know for sure what will happen, until it's tried.
This stage can be so challenging that even tried-and-true technologies have no guarantees of success. In 2009, the swine flu pandemic (H1N1) simply required vaccine makers to substitute the H1N1 strain into the usual seasonal flu vaccine they make each year. But, despite decades of experience, they ran into an unexpected snag. Flu vaccines are typically made from chicken eggs, but for some reason, H1N1 would not grow well in them, at first. And debugging the problem cost precious time. Then afterwards, when the technical issue was solved, there still weren't enough facilities available to package the vaccine into individual vials.
Thankfully, the vial issue may not be a problem this time around. As we discussed last week, Operation Warp Speed recently awarded contracts to make the millions of syringes and glass vials needed to package a COVID-19 vaccine. But, at this point, we don't know what other issues may be in store.
But, let's say an effective vaccine overcomes all those challenges. Is it now home-free? It still might not be. Because that's where the distribution network comes into play. And these have gotten rusty.
The 2009 vaccination program was built on the industry model of the Vaccines for Children Program, which distributes medicine to children who are uninsured or on Medicaid. And these managers are well trained in the intricacies of vaccine storage and distribution. (As an example, almost all vaccines require a cold chain to be maintained, without which they become ineffective at room temperature. So this distribution network can handle that without a problem.)
But the H1N1 pandemic vaccine needed to be distributed to adults, too. So the government had to quickly scramble to sign up adult hospitals and labs. It needed six months to get them up and running. Kelly Moore, who was the director of the Tennessee Immunization Program in 2009, says: "that network has not been maintained, because we haven't had other vaccines to send them in 11 years." So some are expecting this to cause additional delays as well.
So taking all these factors together, many experts believe it's unlikely that the day we get an effective vaccine will also be the end of the pandemic story. Instead, it may be more like the beginning of a new chapter.
Study Finds Infected Children Under Five Host 10x-100x More Coronavirus Particles than Adults and May Be Much More Highly Infectious
Many people incorrectly believe that children can't catch or pass on Covid-19. However, as we talked about in Part 1, studies have shown that while kids are generally much less likely to die from the disease or show severe symptoms, they can still contract and transmit it.
This week, a new study came out which added to that research. A team of doctors looked at 145 patients. Unsurprisingly, they found that children from the age of 5 to 17 years old had similar levels of SARS-CoV-2 nucleic acid in their upper respiratory tracts as adults (18 to 65). Past pediatric studies have shown a correlation between these levels and the ability to culture infectious viruses (grow them in a lab). So this new study strongly suggests that children of these ages are able to spread the virus equally as well as adults. And this lines up with earlier studies.
The real surprise of the report, though, was what they found in children under five. When they looked at their upper respiratory tracts, they found, startlingly, that these very young children carried 10x-100x more virus particles than the others. This means that very young children may be super spreaders.
How is it that children with equal or greater viral load are suffering from fewer symptoms and deaths than adults? That we still don't know.
But, the researchers concluded that the evidence from this study strongly suggests that children (especially young children) in close quarters in both school and daycare settings could become a source of virus spread, if proper health restrictions are not observed.
CDC Releases Study Of Georgia YMCA Summer Camp That Was Overrun with Coronavirus and Infected 260 in About a Week
Over the course of about a week, a troubling 260 children and staff at the camp were infected by the coronavirus. And this was despite the fact that the camp followed every single one of Georgia's health requirements, including requiring everyone to have a negative test before they could visit, and having all adults wear masks. However, the children were not required to wear masks, which some health experts believe was a crucial mistake. The disease was spread to 51% of those aged 6 to 10, 44% of those aged 11 to 17 and 56% of staff members. The longer a time the person was present at the camp, the higher a chance they had of contracting the disease.
The report drew particular attention since many schools are considering whether they should be opening, now or later this month. And few scientific studies have been done in a school (or school-like) environment, because the vast majority of schools have been closed since the virus appeared in the spring.
This particular camp was not exactly the same as a traditional school. The children slept on premises and reportedly sang loudly during the day. And these are things which are known to spread the virus. So it's possible a traditional school would not experience the same effects.
Still, other health experts pointed out that we currently have no scientific evidence that shows that reopening schools will be safe, either. Parents have a difficult choice ahead, particularly as some parents work essential jobs and/or cannot keep kids at home for online/home schooling.
Teachers Union Will Strike If Adequate School Safety Measures Are Not Put in Place for Reopenings
Meanwhile, the second largest teachers union in the country, the American Federation of Teachers (AFT), warned that if schools are opened without adequate safety features, their 1.7 million members will go on strike.
AFT's Randi Weingarten said:
"Teachers want schools to reopen. Children need in-person instruction. And remote instruction is no substitute for it. But teachers need to know they will be kept safe. Our members are afraid and angry. Many are quitting, retiring or writing their wills.”
Some of the nation’s largest public school districts have already agreed to start the school year online, including in Los Angeles, Atlanta and Houston. And this week, under pressure from 2,700 educators who had signed a dissenting letter, Ohio's largest school district announced they it be opening virtually as well.
In Massachusetts, nurses represented by the Boston Teachers Union are planning a sit-in at City Hall on Wednesday over the city’s reopening plan. The nurses are calling for rapid testing in schools, more protective equipment for nurses and teachers and assessments of air quality in school buildings.
Meanwhile, the AFT says the U.S. government will need to pony up more money if it wants to see schools reopen up safely. And it estimated that the average price tag for typical school would be at least $1.2 million, which totals to about $116 billion nationwide. So far, no money has been allocated, but the concept is under negotiation by both political parties in the latest stimulus package in Washington.
New Johnson & Johnson Vaccine Protects Monkeys From Covid-19 with a Single Shot
This week, Johnson & Johnson announced that its Covid-19 vaccine candidate protected 5 out of 6 monkeys from the disease with just a single shot in animal trials. While animal trials don't always translate to humans, the news gave hope that a vaccine might only require a single shot. If it ends up being effective, this would greatly reduce the logistical efforts of distributing it (as discussed in the previous section).
The vaccine is based on the human adenovirus, which is a type of common cold virus. And the technology is proven, and is utilized in the Ebola vaccine.
But the drugmaker is still hedging its bets, and will test both a one dose and two dose regimen in the final phase 3 human trials. This will involve 1000 volunteers and is scheduled to start in September.
Paul Stoffels, Johnson & Johnson's chief scientific officer, said the shot plus a booster is still probably the best bet for enduring immunity. “That is the optimal approach for long-term protection. If you give a boost, you get 100-fold more neutralizing antibodies. The paper shows that the higher your neutralizing antibodies, the better for your protection.”
J&J had previously received a $456 million award from the Biomedical Advanced Research and Development Authority as part of the Operation Warp Speed project (more on this Warp Speed below). And J&J is currently in discussions with the U.S., the European Union, and other governments around the world to supply its vaccine (if it ends up being successful). The company says it hasn't yet determined how much it will charge, but has suggested it will be offered on a not-for-profit basis during the pandemic.
Operation Warp Speed Awards $2.1 Billion More For Vaccine From Sanofi and GlaxoSmithKline
As discussed in past weeks, Operation Warp Speed is a U.S. government program to finance rapid development and manufacturing of several promising Covid-19 treatments and vaccines.
Previously, it had announced substantial investments in Johnson & Johnson (up to $456 million), Moderna (up to $500 million), the AstraZeneca/Oxford partnership (up to $1.2 billion), Regeneron (up to $450 million), Novavax ($1.6 billion), CDMO Emergent BioSolutions ($628 million for manufacturing space), Sanofi (previously up to $30 million), Merck & Co. and the Pfizer/BioNTech partnership ($1.95 billion).
This week, the program announced up to $2.1 billion will be awarded to a partnership between Sanofi and GlaxoSmithKline that had previously received $30 million back in May.(see part 14).
The funding will support clinical trials, and if successful, manufacturing and securing of 100 million doses. The U.S. would also have the option to receive an additional 500 million doses in the long term. Additionally, the European Union said it signed an agreement for as many as 300 million doses earlier this week, in exchange for its own financial support of the partnership (for an undisclosed amount).
Sanofi is using a tried-and-true protein antigen technology, which it already uses to make an influenza vaccine called FluBlok. The vaccine uses a molecule designed to trigger an immune response in the body. Glaxo is supplying the adjuvants, which are designed to enhance the body's immune response.
The partnership is compressing the stage I and stage II human trials into a single test in September. If successful, then final stage III human trials would be launched before the end of 2020. And if that is successful, they hope to have U.S. regulatory approval in the first half of 2021.
Sanofi said that they're committed to charging less for the vaccine to countries that are less able to pay. And all profits will be reinvested in coronavirus research, preparation for future outbreaks and manufacturing capacity.
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 I've made some small updates and changes but fundamentally it's 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 the second wave of the virus and second lock-downs. Unfortunately this is looking more and more likely. My slim hope is that as of this week, some of the worst hit second wave states are seeing improvement in infections. So if this can be maintained and the rate of spread brought under control and the US government also passes a generous stimulus law, then the worst effects of the second wave could be mitigated. On the other hand, some states are also showing signs of a potential third wave. 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 (or third) 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. So the boost will be slower and smaller at first. Also if the first generation medicines are significantly less effective than 100% (which many health experts believe will be the case), the boost will be even smaller. (All of this will depends on which treatment makes it that far...which we don't know at this point). 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 or is more effective). 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) No new investments in real estate or any asset classes that are correlated with the unemployment or the business cycle until there is more clarity about the unknowns concerning the virus and the upcoming financial cliff. 2) Invest in assets that are corona-virus resistant (and uncorrelated with the business cycle). That includes: - 2a) Music royalties (which can actually do better in lock-downs due to increased streaming). 2b) Life settlements (which actually perform better when people are dying faster and in any event isn't directly tied to the business cycle) 2c) Litigation finance (which performs based on winning or losing cases and also isn't directly tied to the business cycle). 3) 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 or third time, could easily make things worse.