How Will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 24: August 8th
Updated: Feb 8, 2021
U.S.'s second death wave continues to climb, but there may be light at the end of the tunnel; Sunbelt states make progress against second wave of infections while all nervously eye potential third wave; The economic stall-out continues at dangerous and unsustainable levels; Economy hammered by more record unemployment as jobs recovery runs out of gas; Financial cliff update: more "jaw-jaw" but still no deal; Biggest U.S. banks report a gargantuan $150 billion of deadbeat consumer and business loans; Only a week into America's back-to-school experiment, and already some school districts are looking shaky; Eli Lilly announces Phase 3 trials of Covid-19 antibody drug for the elderly; Johnson & Johnson is awarded $1 billion by Operation Warp Speed for 100 million doses of its Covid-19 vaccine; Relief/NeuroRX treatment appears to dramatically turn around critically ill Covid-19 patients; 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
This week, the news was much accelerated compared to its pace 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 Death Wave Continues to Climb But There May Be Light at the End of the Tunnel
For the 21st 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 164,144 (versus 156,772 last Saturday morning).
For the fourth week in a row, the daily death rate moved in the wrong direction and continued in what has become its 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 due to that change).
The overwhelming consensus of economists is that a sustained second wave would sabotage chances of a quick, V-shaped recovery. If this occurs, the recovery would assume a different shape (W-shaped, U-shaped, etc.) which would be slower, involve more damage to health and economy, and potentially cause problems for some or many consumers, businesses and investments. (See part 14 for more information on the possible "recovery shapes" and their ramifications).
So this is not good news.
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, cases have started to taper down:

This could be a potentially promising sign. However, infections aren't as reliable as death statistics because they rely on adequate testing. And as we've discussed in previous weeks, the U.S. suffers from critical shortages of the equipment, staff, and chemicals needed to run them (see part 23).
Still, it does suggest a chance that deaths may start leveling off in the future, as well. But this depends on states successfully fighting their second waves and not accidentally entering into third waves via school openings. We will look at those issues in depth in later sections.
And we will continue to watch the trends next week, and see how they evolve.
Global Round up
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 to GDP).
This week, South Korea looked like this:

This week they beat down their second wave before rebounding a bit. However, the tiny size of their "wave" would be too minuscule to even count as a wave in 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-on lockdown like many other countries.
The hope has been that if this worked well, it might provide another workable model for other countries looking to deal with the virus. Here's how they look this week:

This chart was great to see as Sweden continued to make progress.
But 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) and other countries in general (who don't have these advantages). However, they have hoped that if they continue to push down their death curve, they eventually might be able to make up this deficit.
How did that look 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:


The progress here is remarkable. Three weeks ago, Sweden was doing worse than the United States (which itself is a significant laggard at about 300x higher death rate than top tier countries). This week, Sweden not only continued to greatly surpass the U.S., but also dropped below Australia (which is in the second tier). And it is clearly now in the group of first tier countries. So that was encouraging.
On the other hand, that is only a snapshot of this most recent week, and it ignores the rest of the pandemic. Once we look at the bigger picture, things look like this:

Cumulative death rates per million show a completely different story, with Sweden still the worst of them all, because its previously stratospheric death rate ran rampant for so long. At this point, they still have a long way to go to catch up with other countries (as they have 5.3x the deaths of Denmark, 9.6x deaths of Finland, 57x deaths of Australia, 96x deaths of South Korea and 1965x deaths of Taiwan).
Many health experts believe we are likely will get an effective vaccine or treatment later this year. If so, then there may not be enough time for Sweden to ever catch up. On the other hand, if the pandemic is still running at full speed in 2021, and/or if other countries stumble while they don't, then the Swedish model may still prove itself.
The other big issue for Sweden to overcome is that lockdown lite has thus far been a failure in its main goal: protecting the health of its 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 can sustain their progress on the virus, then that economic outlook could improve as well. For now, it still looks like they've suffered the worst of both worlds (economic and public health). We'll continue to watch and see.
Sunbelt States Make Progress against Second Wave of Infections While All Nervously Eye Potential Third Wave
Over the last 5 weeks, we watched as the second wave of virus infections swept the Sun Belt (and then spread to other areas of the country). And we talked about all of the virus control measures that have been put in place in response, including reinstatements of key portions of lockdowns and more than 50% of states making mask-wearing mandatory.
How did these conflicting factors play out this week?
Last week, Florida and Texas were experiencing a disturbing rise in record-setting deaths, but also appeared to hit an important inflection point. Cases appeared to be tapering off, and as mentioned above, these can act as an early notice of what will happen with deaths 2 to 8 weeks later. So, here's how they look this week:


In this week, both states saw welcome signs of a small drop in deaths.
And at first glance, infections also appear to be dropping in both, too, which would be fantastic. However, as we mentioned last week, the state of Florida shut down testing sites across the eastern part of the state due to tropical storm Isais. So its infection statistics are artificially deflated this week, and possibly next week as well. We'll have to wait at least until then to truly see how it's doing.
The Texas infection data may also be misleading. This week, the Houston Chronicle reported that due to bureaucratic snafus, the state has been unable to report thousands of cases that are being done with antigen testing.
Antigen tests (not to be confused with antibodies tests) are rapid diagnostic tests typically done in doctor's offices, hospitals and standalone clinics, that deliver results in less than 30 minutes. But the problem is that the state of Texas relies on an overloaded, antiquated fax system to compile its data. And it's been unable to sufficiently clear the backed-up system to be able to include the quicker tests.
As a result, an analysis by The Chronicle estimated that "at least tens of thousands of cases... but likely far more" have been omitted from the official stats.
So, the official Texas infection numbers may or may not be helpful in predicting deaths. We'll see.
Meanwhile, state health officials in Alabama claim that the mask mandate that they previously enacted is improving things. And this week, the stats seem to confirm this, with infections dropping:

Deaths are also down from the peak two weeks ago (although it's also possible recent progress could have stalled).
Despite the progress made, some healthcare administrators in Alabama voiced strong concerns about what might happen to state hospitals if school reopenings cause overload due to a third wave. (See later section for more on school reopenings).
Don Williamson, the president of the Alabama Hospital Association, said:
“My fear is if we don’t see some decline in hospital caseloads, we’re going to be really, really challenged when we’re faced with increased caseloads due to schools reopening. I hope I’m wrong, but I don’t know of any biological reason I’ll be wrong.”
Meanwhile, Mississippi grabbed the unwanted record this week for worst (highest) test positivity rate in the nation. They took the title away from Florida by clocking in at an eye-watering 21.7%.
The positivity rate is the percentage of tests that come back positive. And a large number can mean inadequate testing and/or that the disease is spreading rapidly in the community. So it can be a leading indicator of future deaths and this could be an ominous sign for the future. To put it in perspective, the World Health Organization recommends striving for a maximum 5% positivity rate in testing, to keep the virus under control.
How is Mississippi doing for the moment?

Right now, they are doing all right, with falling infections and, just recently, an apparent decrease in deaths.
But here too, some have voiced concerns about school reopenings causing progress to backtrack. Tim Moore, president of the Mississippi Hospital Association, said:
“It’s a bad move to open up all these schools right now. Have you ever tried to socially isolate a second-grader? It’s like trying to keep frogs in a wheelbarrow.”
LouAnn Woodward at the University of Mississippi Medical Center in Jackson, said Thursday that a third wave could push hospitals past the breaking point. “Our ICUs have been full for weeks. It’s a very acute issue we’re facing here.”
On Thursday, the Corinth School District, which re-opened last week, reported that 116 students were quarantined after positive cases were identified on campus. Carey Wright, Mississippi’s superintendent for education, warned the future is uncertain. And when asked if she expected a similar situation at other Mississippi schools, she replied, “Let me just say, I won’t be surprised.”
Meanwhile, the issue of test positivity brings up another question. How are the other states currently doing with that? Here's the latest from John Hopkins University:

Many areas in the country (like hard-hit Miami-Dade in Florida) are targeting a 10% maximum before considering implementing restrictions. John Hopkins University reports that there are currently 13 states that are above 10% and fail the standard. As mentioned above, the World Health Organization goes further and considers 5% to be the maximum acceptable level before a community reopens. By this standard, only 14 states meet the threshold.
Still, the above are just "best guess" guidelines by health officials trying to do their best with limited data. And no one knows the exact percentage of positive tests that will or will not tip a state into a new wave of infections and deaths. So we will continue to monitor and see what happens.
The Economic Stall-Out Continues At Dangerous and Unsustainable Levels
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.
For the past four weeks, we've been tracking Georgia's Covid-19-sensitive industries (foot traffic this week versus the same week one year ago). But for some reason, the site did not update the data this week.
So instead, we will look at the national statistics. Here is the change in foot traffic year on year for the industries we were looking at: apparel, fitness, shopping centers, dining, hotels and casinos.

That isn't a pretty picture. About half of the categories slightly improved and about half got slightly worse. But, either way, there was essentially no improvement from last week. And, foot traffic is still down anywhere from -27% to -56%. These levels are very depressed and unlikely to be profitable or sustainable. And nowhere are the numbers showing any of the improvement that would be necessary to experience a quick, V-shaped recovery.
But we will continue to monitor and see how this evolves.
Economy Hammered By More Record Unemployment As Jobs Recovery Runs Out Of Gas
Before the pandemic hit, the U.S. economy had never experienced a week where 1 million people suddenly lost jobs. But, since the pandemic hit, it's been hammered for 18 weeks that way, with no let up. And unfortunately, this week, the pummeling continued for the 19th week in a row. Thursday's jobless claims report showed that 1.19 million new people lost their work and source of income:

The one silver lining is that at least this was slightly less than last week. The past two weeks' progress had actually gone into reverse and each number had been worse than the last. So that turnaround was a positive. But the sustained high levels of damage nonetheless make the odds of a quick, V-shaped recovery continue to look extremely unlikely to many.
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 16.9 million, which was barely improved from the 17 million last week. Just as in the jobless report, the continuing claims number also has the same small silver lining, in that at least it's slightly lower than last week. This number had also gone into reverse. But still, this kind of snail pace improvement isn't enough to allow quick economic recovery to take root.
And unfortunately, as in previous weeks, there were multiple announcements this week about new economic pain on the horizon.
3M, a manufacturing conglomerate, announced 1700 layoffs to allow it to cut costs.
L Brands, which owns Victoria's Secret as well as Bath and Body Works, announced it would lay off 850 people or 15% of its corporate workforce.
Lord and Taylor, a retailer which was started back in 1826, announced it would be entering bankruptcy. It currently has 38 locations.
NBC Universal, a media company which owns NBC, announced layoffs that were vaguely described as "less than 10%" of its 35,000 employees.
Delta, a U.S. airline, reportedly asked 3000 flight attendants to take unpaid leave for 4 to 12 months. On top of the 20% of the workforce that was already cut out earlier with buyouts and early retirements, the company this week reported to the state of Georgia that more than 800 employees will be laid off (presumably in Atlanta, its headquarters).
This week, we also received the monthly payroll report. Here were the July results:

On one hand, it showed 1.48 million more people have gotten new jobs from the previous month.
On the other hand, this was comparatively only a drop in the bucket compared to the massive loss in May and far short of what would be needed to have an effective recovery. As a result, the headline unemployment rate barely fell (from 11% to 10.2%).
And as we discussed in part 19, the headline rate doesn't include all of the unemployed. It omits people who have given up looking for work, which which makes sense in normal times. But it doesn't make sense right now, because many people who want work can't even begin to look, because jobs aren't available yet. So, to get the full picture, we need to look at the U-6 rate, which was 16.5%. This also was improved from last month's 18%. However, it still means an unhealthy economy with more than 1 in 7 Americans out of a job.
But, most disturbing about the report was what's happened with progress. The number of 1.48 million new jobs was significantly stalled from the previous month (4.79 million in June and 2.72 million in May). Looking at the picture visually:

We can see that progress is moving in the wrong direction. And the job recovery appears to already be petering out, far short of where it needs to be to get back to pre-pandemic levels.
Previously, we had talked about how state and local governments are also suffering from this pandemic, because unemployed people and closed businesses don't pay taxes. And so they have been hit with drastically lower tax revenues, which is causing significant increases in services and layoffs. How did all that play out in July?

On one hand, it appears at first sight that there was a slight recovery in these payrolls (although still at historically low levels). But unfortunately, this is most likely just an aberration due to an unusual year. Per Adam Ozimek, chief economist at UpWork:
Govt jobs were "up" a seasonally adjusted 301,000 but this is probably largely noise. Normally govt employment declines in July, necessitating a seasonal upward adjustment to keep it level. It declined earlier than normal this year, making the seasonal "wrong".
Meanwhile, CreditCards.com published a survey this week showing how confident consumers feel about paying their credit card debt. Many of the unemployed have used credit cards as a lifeline in the absence of a paycheck. But this isn't a permanent solution.
Disturbingly, the study found that almost half of consumers with credit card debt say they don't have the money to make minimum payments in the next three months without additional government aid.

They found that 30% will be able to pay without new stimulus payments and 18% will be able to pay without a continuation of unemployment benefits.
So the big question is, will these benefits be coming? This is what I call the "financial cliff" and its edge is where the country is currently teetering. We'll talk more about this in the next section, regarding the possibility of additional government support.
Financial Cliff Update: More "Jaw Jaw" but Still No Deal
As we discussed in past weeks, much of the country is teetering on the edge of a very uncomfortable financial cliff. And if it isn't resolved, there could be significant pain coming up for consumers, businesses and investors in virtually every alternative investment asset class (especially real estate and private equity).
Why does the cliff exist? Well, so far, the economy has taken unprecedented amounts of damage through record-setting unemployment. And normally, this would already have resulted in widespread damage across the economy. While there has been substantial damage in specific sectors (like hotels, travel, etc.) this hasn't spread widely yet (for example, into apartments, office, self storage, mobile home parks, business loans, etc.).
That's because, as part of the $3 trillion Covid-19 stimulus package, unemployed workers were receiving an extra $600 per week. Additionally, many citizens got free stimulus checks of $1200 per person (and $500 per child). Also, governments at the federal, state, and local levels have passed moratoriums on evictions and foreclosures to keep unemployed people in their homes.
None of these programs was perfect, and we talked in past weeks about how snafus caused millions to be unable to get deserved and needed aid. But still, these programs have contained untold amounts of damage.
Now however, the problem is that the $600 unemployment payments expired last week, the stimulus payments were a one-time event, and many of the moratoriums have expired or are about to expire. The original thought was that the pandemic would be long gone by now. But obviously, we now realize, that was overly optimistic. And, if the government doesn't pass new stimulus, many consumers will fall down a painful economic cliff. And we can expect them to drag down businesses and investors along with them.
So all eyes have been on Washington for the last couple of weeks to pass a new stimulus law. But last week, the deadline for extended unemployment payments expired and the two political parties were too far apart to come to an agreement.
This was not for a lack of trying.
Previously,