How Will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 26: August 23

U.S. makes snail-like but definitive progress fighting second wave of virus deaths; More progress in the Sun Belt beating down second wave of infections; Georgia's economic recovery continues to look mostly painful; "The beatings will continue until morale improves" --unemployment heads in the wrong direction... again; The cleaving of America's two worlds: a tale of two recessions; More cleaving: big company execs award themselves and white-collar workers with a salary boost (in a time of record low-wage job-loss and small business bankruptcy); Financial cliff update: Business execs criticize payroll tax fudge as political agreement remains elusive; The great college coronavirus experiment begins to implode after only a week; Another much hyped coronavirus cure collapses when confronted with a serious scientific study; Study suggests antibodies are back on the table to provide lasting immunity to Covid-19; Pfizer's mRNA vaccine candidate may be approved as early as November; 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, a lot of the important developments centered around the second virus wave health and economic data, the financial cliff, college reopenings and medical studies on antibodies.

This article is part a multi-article series that's been published weekly since the pandemic began back in March 2020. It started with three introductory articles on the virus, it's effect on the economy and on 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. Makes Snail-Like but Definitive Progress Fighting Second Wave of Virus Deaths

For the 23rd 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 179,805 (versus 172,132 last Saturday morning).

Last week, the country finally appeared to turn a corner battling a second wave of deaths. This new wave had started approximately in mid to late July and had increased for four weeks. Then, last week, it finally plateaued and even had a slight drop. So what happened this week?

This graph is somewhat illegible because of where the European CDC puts the country labels. So let's fix that by zooming in and looking at the section from the start of the second wave to today.

(Note: what looks like a temporary surge between days 104 and 110 is actually just a statistical aberration that resulted when the CDC changed its accounting methodology and then worked through the backlog caused by that change. So we are ignoring that).

This week, deaths mostly treaded water and then had a slight downtick at the end.

So on one hand, this is better than seeing deaths increasing. On the other hand, not much progress happened to actually beat down the second wave.

If we are unable to make clear progress and deaths remain high, then the overwhelming consensus of economists is that this would sabotage hopes of a quick, V-shaped recovery. Instead, 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).

Since this is so important, let's take a look at one of the leading indicators of coming deaths: virus infections. Virus infections tend to lead deaths by 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). These case numbers are not completely reliable due to testing labs' difficulties in many parts of the country with getting results back on time. But they can still provide a clue of what might be happening later with deaths.

Last week, the country's case numbers were looking a little ambiguous. There was a slight drop from the peak but then they ticked up at the end of the week. How did they look this week?

This week, they unambiguously moved down. So that's a very welcome sign. However, it was only a slight improvement and, so far, it's not yet showing the large progress that will be necessary to truly fight back this wave. But turnarounds can be slow to evolve. So, we'll give it more time and see what happens next week.

World round up

How did other countries do this week?

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:

The country continued to keep their death rate very low compared to the vast majority of the world. For the last 40 days, they have oscillated back and forth between the trough of their first wave and the peak of their second. This week, they oscillated up after 400 infections were previously traced back to a church in Seoul. But this tiny second wave of deaths would still be considered an "A+" result almost anywhere else.

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 (they've shut down grade schools, prohibited gatherings larger than 50, instructed elderly people to stay home and young people to work remotely, enacted social distancing rules at restaurants, etc.), they never went into the full-on lockdown seen in 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 week they had a spike of increased deaths. They have always had very volatile numbers, which can make it tricky to interpret their trends in real time. But currently, their numbers suggest they may have hit a trough previously and are now in a second wave. Still, these are at relatively low levels compared to what we saw above in the U.S. And only recently, about a month and half ago, the situation was swapped and they were worse. So, that progress is at least good to see.

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 worse than other countries in general (who lack 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 Sweden's cumulative deaths 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:

Unfortunately, their numbers are still stratospherically bad at 575.29 deaths per million. Compared to its next-door neighbors with similar demographic advantages, it's doing 6 times worse than Denmark (107.21), almost 10 times worse than Finland (60.28) and almost 12 times worse than Norway (48.7). And compared to the best-of-show countries, it's 95 times worse than South Korea (6.03) and almost 2000 times worse than Taiwan (0.29).

Many health experts believe we will likely get an effective vaccine/treatment later this year, and perhaps a rollout to wider populations sometime in mid-2021. If so, then there may not be enough time for Sweden to ever catch up. On the other hand, the Swedish model could still prove itself if other things happen. It's possible we may not get an effective medicine; and/or the pandemic could mutate, leading it to run wilder than expected in 2021; and/or other countries may stumble while Sweden doesn't. We'll continue to watch.

The other big issue for Sweden to overcome is that lockdown lite has thus far been a failure in its main goal: protecting 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 their economic outlook could improve as well. For now, it still appears that they've suffered the worst of both worlds (receiving more damage to the economy and to its public health than have others). We'll continue to watch and see.

More Progress in the Sun Belt Beating down Second Wave of Infections

Over the last seven weeks, we watched the second wave of virus infections. First, it started in the Sun Belt and spread to other parts of the country. In response, many states put in place virus control measures, including reinstatements of key portions of lockdowns and rules mandating the wearing of masks (in more than 50% of states). And last week, we saw marked improvements in Sun Belt states like Arizona, South Carolina and North Carolina, which all beat down both deaths and infections. Other states like Florida, Texas and Georgia had more mixed results (with a setback on either infections or deaths). And Kansas also looked potentially troubling.

What happened this week? Here's Florida:

While Florida had previously made progress on infections, deaths had remained stubbornly high and had accelerated last week. This week, there was a reversal and a welcome drop. So that was good to see.

How about Texas? As we talked about previously, the state is undercounting infections because its antiquated systems are not able to incorporate the results of what's estimated to be tens of thousands of antigen tests. So the accuracy there is questionable. But that's are still useful to look at, and previously, deaths had plateaued. What happened this week?

So, this week there was some welcome news, as deaths have now dropped as well.

How about Georgia? They had previously been experiencing accelerating deaths, which was a bad situation. How about now?

This week, they appear to have turned the corner, experiencing a sharp drop for the first time since July. Of note, they also suffered from a smaller but still significant rebound from a large spike at the end of the week. And this marred the results. But, hopefully they're moving in the right direction, and we'll check them out next week.

How about Kansas?

This week, they set a state record for most infections and then had a slight drop at the end. Deaths went down and back up and ultimately ended the week about where they started. So their numbers are looking more troubling, and we'll keep an eye on them.

Overall, the majority of the Sun Belt looks better this week than it did last week: a welcome improvement.

Georgia's Economic Recovery Continues to Look Mostly Painful

One of the most important questions for investments (as well as for 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 states.

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 about four months.

How are they doing? Since there's no official government or state data on this, we've previously looked at Placer.ai. This is a service which tracks mobile phone usage to different types of businesses to measure foot traffic. Again we'll look at how Georgia's Covid-19-sensitive industries did in four areas: restaurants, hotels, retail and fitness.

First let's look at Denny's. It's not known for takeout, so we'd expect it to be more Covid-19-sensitive than a restaurant like McDonald's. Here's how it looks:

It made some slight progress this week, to about -30% foot traffic versus last year. Since restaurants generally have thin profit margins, that's unlikely to be either profitable or sustainable.

Next, let's look at Holiday Inn Express. This is not a luxury hotel. So it might be expected to be a little bit more resistant to a recession than a luxury brand (as consumers downsize). Here's how it looks:

Holiday Inn Express is not looking good, as progress backed up to about -27% foot traffic versus last year. Hotels also don't have huge margins so this currently looks unprofitable and unsustainable.

For retail, let's look at Kohl's. It's somewhat of a discount store so would be expected to do better in a recession than a more upscale brand as consumers pinch pennies. Here's how it looks:

Kohl's is looking a lot better than the last two. True, foot traffic is about -10% versus last year. And before the pandemic hit, this might've been considered a terrible performance that would be suffered only in a recession. But within our current, Covid-produced recession, this graph is actually very good, compared to others.

Finally, we'll look at LA Fitness. This is a traditional gym:

Ouch, that looks horrible at about -58% foot traffic versus last year at the same time. Plus, it hasn't really improved since the middle of June. That looks catastrophically unprofitable and unsustainable.

So overall, progress, for the majority of Georgia's Covid-19 sensitive industries, appears to be stuck in a painful place. The one exception is Kohl's, which is depressed but at least moving in the right direction to recovery.

"The Beatings Will Continue until Morale Improves" ---Unemployment Heads in the Wrong Direction... Again.

For the last 20 weeks, the economy has been hammered with record levels of unemployment. But there was a glimmer of hope last week, as the newly jobless sunk below the 1 million mark for the first time (963,000). And some spoke optimistically of potentially turning a corner.

Unfortunately, the reprieve was brief. This week, the pain ratcheted back as the economy was battered by another 1.1 million jobs lost.

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 within 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 14.8 million. This was a small but continued improvement from 15.5 million last week and 16.9 million the week before. So continued positive progress was good to see. Still, the pace is glacial, and more Americans remain unemployed then at the height of the Great Recession.

Also this week, the nonpartisan Internal Revenue Service (IRS) put out its projections for how long it believes the hit to jobs will last. Unfortunately, the picture was bleak. The IRS believes that, even as far out as seven years from now, there will still be less jobs than there were back in 2019 (i.e., 15.9 million fewer jobs in 2027).

If this ends up being accurate, it would mean a quick, V-shaped recovery won't be in the cards.

Meanwhile, the U.S. Census Bureau put out a report showing new information on the extent of the current damage. As of last month, an astounding half of American households (127 million, making up 50.8%) have lost employment income since March 13.

And more ominously, 35% expect to lose additional income in the next four weeks. (See information on the "financial cliff" in the section below).

The Cleaving of America's Two Worlds: A Tale of Two Recessions

We've talked in past weeks about how Covid-19 has hammered certain groups much worse than others. Low wage earners and minorities are disproportionately more likely to work in public-facing industries and live in more cramped quarters that facilitate the spread of the virus. And as a result, they've died at startlingly higher rates than other groups.

This week, a string of data came out showing that health risks aren't the only problems for these groups. So far, they're also taking the brunt of the economic carnage on the chin, too.

First, the U.S. Census Bureau reported that as of the end of last month, low-wage workers making $25,000 or less were a disturbing 15 times more likely to have missed a rent payment, versus high wage workers making $200,000 and above (30.2% vs. 2.8%). Minorities were also severely impacted, with black renters being twice as likely to have missed a rent payment as whites (31.5% vs. 14.5%):

Also this week, the Federal Housing Administration (FHA) released data on mortgage loans. Typically, these are used by first-time buyers, minorities and low-income Americans who are looking for a more affordable path to homeownership. And the FHA reported that late loans skyrocketed from 9.7% in the previous three months to an eye watering 16% in the second quarter. This set an all-time record for the worst numbers since the information was first recorded back in 1979 (which includes the Great Recession).

In comparison, conventional loans were at a 6.7% delinquency.

Why the discrepancy? Analysts noted that low-income workers are most likely to work in the service jobs hardest hit by the recession including hospitality, travel and retail. And as we've talked about in past weeks, millions have lost jobs, been furloughed and/or seen their hours cut. And more recently, the unemployed have taken an additional hit with the loss of the temporary $600 a week unemployment benefit (see next section on "financial cliff").

In contrast, many white-collar professionals outside of those industries have been largely unaffected. So this has created a strange divide in the country where the two groups are predominantly experiencing a very different reality.

How will this end up playing out?

On one hand, there's the possibility this divide will narrow. Ultimately, all jobs are tied together in the economy. So if enough low-wage workers take sustained hits and stop spending, then theoretically this should eventually start hurting businesses employing high wage workers and cause the damage to spread.

On the other hand, past recessions ultimately turned out to be much harder on some groups than others. For example, in the Great Recession, earners in the top decile saw an income loss of less than 10% while the bottom decile were hit more than twice as hard.

Or, we could see a combination of both.

If this recession and its recovery end up affecting people in very unequal ways, most political analysts predict we will see significant medium and long-term consequences.

For example, the Great Recession caused seismic changes that are still reverberating today. The massive discontent caused a dramatic rise in populism. And today, populist ideas are mainstream, not only in both U.S. political parties, but also in countries around the world (from Hungary to Brazil to the U.K).

So, if we do get an unequal final outcome, many political analysts expect even more mass discontent, further social unrest and unpredictable medium-term and longer-term consequences.

More Cleaving: Big Company Execs Award Themselves and White-Collar Workers with a Salary Boost (in a Time of Record Low-Wage Job-loss and Small Business Bankruptcy)

In another example of the differences between America's two economic worlds, numerous companies made announcements this week concerning salary boosts. Many of the largest companies, including Walt Disney, General Motors and Yelp, will be reversing previous pandemic cuts and hiking executive pay and white-collar worker salaries.

For example, Disney announced that it will lift its previous pandemic salary reductions on executives on August 23. This is despite posting a nearly $5 billion loss and laying off or furloughing thousands of low-wage workers.

Oil producer Occidental Petroleum reported a few weeks ago that it would also double the salaries of some executives. They had been capped at $250,000/year early in the pandemic, but will be increased to $500,000 in a partial restoration. As discussed in previous weeks, the U.S. oil industry has been pounded by a combination of unsustainably low oil prices and high debt, which has resulted in the layoffs of tens of thousands of lower wage workers.

Not all the hikes have been for executives. Some companies are starting to realize that they can't expect to pay part-time wages for full-time white-collar employees who are often working at home juggling work and kids. Yelp had laid off 1000 white-collar workers and furloughed more than 1100 in the spring. Last month, they announced they would bring back nearly all the furloughed workers and fully restore employee pay and hours.

And some companies announced pay increases for both executives and white-collar workers. This week, Virginia hospital operator Sentara Healthcare announced that in October it will increase the pay of senior executives by 20% and physicians by 10% (after decreasing by the same amount previously due to the pandemic).

According to the Healthcare Financial Management Association, an industry financial group, U.S. hospitals and health systems lost $202.6 billion in the year to date as they were hammered by the loss of revenues from patients who put off elective surgeries and noncritical healthcare. They also project a slow recovery for the industry, with 89% of executives believing revenues will not have recovered to pre-pandemic levels by the end of 2020.

Financial Cliff Update: Businesses Execs Criticize Payroll Tax Fudge As Political Agreement Remains Elusive.

As we discussed in past weeks, much of the country is falling off the edge of a very painful 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 pain across the economy. But, 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 housed 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 two weeks ago, the stimulus payments were a one-time event, and many of the moratoriums have expired. 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 does not pass new stimulus, many consumers will fall down a painful economic cliff. And if so, they are expected to drag down businesses and investors along with them.

Unfortunately, the two major political parties in the White House have not been able to come to an agreement on this. One party passed a $3.5 trillion stimulus bill, and the other was unable to get enough agreement from its own members to pass a counter bill. As a result, the second party tried to reach across the aisle, but they were still unable to get an agreement.