How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 31: September 26th
Updated: Sep 6
U.S. progress on second death wave continues to stall; World round-up: Europe starts to lose control of the virus again; Virus infections surge disturbingly in 27+ states; Little new help for Georgia's hobbled economic recovery; The broken record continues: More record levels of new economic pain as numbers of newly jobless" climb; Financial cliff update: vote on new stimulus package in the House expected this week, but future is far from certain; Will Thanksgiving become the "November to Remember" for virus spread, thanks to U.S. colleges?; Landlords and civil liberties groups sue CDC over its controversial eviction moratorium; Johnson & Johnson starts third- and final-stage human trials of its new candidate vaccine for Covid-19; U.K. will go forward full speed ahead with controversial human challenge trials; Scientists may have discovered the secret of why children can usually fight off the coronavirus while adults often succumb; Shocking study finds that the dreaded Covid-19 Cytokine Storm may be a myth; Update on my investment strategy.
(Usual disclaimer: I'm just an investor expressing my personal opinion and not a registered financial advisor, attorney or accountant. Consult your own financial professionals before making any financial decisions. Code of Ethics: I / we do not accept any money from any sponsor or platform for anything, including postings, reviews, referring investors, affiliate leads or advertising. Nor do we negotiate special terms for ourselves in the club above what we negotiate for the benefit of members.).
Quick Summary
This week there was a slew of new economic, health information and new studies about the virus.
This article is part of 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 and its effect on the economy and on alternative investment classes. 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. Progress On Second Death Wave Continues To Stall
For the 27th week in a row, the United States battled the coronavirus called SARS-CoV-2, which causes the Covid-19 disease. And as of Saturday morning, the death toll had climbed to 208,483 (versus 203,108 last Saturday morning).
Six weeks ago, the U.S. finally turned the corner on the second wave of deaths, and has been (mostly) battling it lower ever since. Last week, there was a nasty spike before a small drop at the end of the week. How did things go this week?
The label obscures some of the information, so let's zoom in to take a closer look:
This week, the deaths essentially plateaued (neither really going up or down). So on one hand, this was better than seeing an increasing death rate. On the other hand, progress on fighting back the second wave also completely stalled out, as well.
If we're 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.). This would be slower, involve more long-term 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 potentially so important, let's take a look at one of the leading indicators of upcoming 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. In fact, some states are not reporting all of the positive tests (specifically the antigen tests). But they can still provide a clue of what might lie ahead with deaths.
How do virus infections look, this week?
This graph is clearly moving in the wrong direction. Last week, there were hints that infections might be moving into a third wave. And unfortunately, this week clearly confirmed it.
As we discussed earlier, a third wave was not entirely unexpected. A few weeks after Memorial Day weekend back in May, the country ended up ceasing all progress against the first death wave and ultimately kicked off the second. And many health experts warned that Labor Day (September 7th) was shaping up to be a repeat. (See "Forgetting History and Doomed to Repeat It: Will Labor Day Launch the Third Wave, like Memorial Day Kicked Off the Second Wave?" )
So it's disappointing to see that so far, it's looking like Labor Day did indeed kick off a third wave. Still, the data is noisy and it's still too early to tell for sure. So we'll continue to watch.
World Round Up: Europe Starts to Lose Control of the Virus
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. 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:
South Korea had been fighting a third wave triggered by a surge of 400 infections that were traced back to a church in Seoul.
But, last week suggested that they might have hit a peak and were starting to turn things around. This week, that positive trend appears to have continued with deaths ending the week lower than they started. This reinforces the idea that they may indeed have gotten control of their third wave.
The other big positive for South Korea is that even at the peak of the all of their death waves, their rates have been extraordinarily low compared to virtually every other country in the world. (See chart below for comparison to other countries.) And this is been a major factor allowing them to keep their economy open and suffer far less damage than virtually everyone else.
Meanwhile, Sweden has opted for a lockdown-lite strategy (see part 8). Note, they have 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.), many of which are/were in fact stricter than most U.S. cities' current measures. However, they never went into the full-on lockdown seen for various stretches og time in many other countries.
The hope has been that if Sweden's technique 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 was good to see. Sweden had a small uptick and then returned essentially to the same plateau they were at the beginning of the week. But more importantly, their death rate continued to stay low.
Keep in mind, some of Sweden's achievements are due to unique advantages that other countries can't duplicate. That includes an extraordinarily large number of people who live alone, are young and have no children (versus countries like the U.S., which contain a lot more families).
And when compared to other Scandinavian countries, which have similar demographics, Sweden's road to this point looks extremely bumpy. Their death rate has been many times worse than those neighbors. And it's even been many times worse than poorer countries who have controlled the disease well (and who lack all their built-in advantages). However, Sweden has hoped that if they continued to push down their death curve, they eventually might be able to make up their deficit.
How is Sweden doing there? 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 this week:
On one hand, for the second week in a row, they have pulled ahead of the United States and are doing slightly better. And they are also slightly better than the United Kingdom. (See more on how the U.K. is experiencing a second wave, below.)
On the other hand, those two countries are among the worst performers in the world, so simply outdoing them isn't that difficult. And Sweden's numbers are still stratospherically bad at about 580 deaths per million. This is a disturbing five times worse than the average country in the world.
And when compared to its next-door neighbors with similar demographic advantages, it's doing almost 6 times worse than Denmark, almost 10 times worse than Finland and 12 times worse than Norway.
Also compared to the best-of-show countries, it's almost 100 times worse than South Korea and almost 2000 times worse than Taiwan.
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 on deaths, 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 (which is what happened with the U.S. in the graph above). We'll continue to watch.
The final big issue for Sweden to overcome is that lockdown lite has thus far failed 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 against the virus, then their economic outlook could improve as well. For now, it still appears that Sweden has suffered the worst of both worlds (receiving more damage to its economy and its public health than have others). We'll continue to watch.
Meanwhile, in Europe, some health experts had previously warned that the dropping of travel restrictions would cause an additional wave of virus infections and deaths. And so for the last few weeks, we looked at one country in particular that was alarming: Spain. How does that nation look this week?
That climbing graph, dipping but still ending high above its last trough, is not good news for Spain. For the fourth week in a row, Spain is experiencing escalating deaths. And they continue to fail to reign in their latest death wave.
Meanwhile, British officials this week warned that the country's virus infection rates are heading "in the wrong direction." How is their death rate looking?
That graph is also not what we want to see for the U.K. They are clearly fighting a second wave of escalating deaths.
This week, U.K. officials imposed local lockdowns in several British cities where infections are rising the most. They also imposed a 10 PM curfew for pubs and restaurants in other areas, and heavy fines for people who violate quarantine and social distancing rules.
Meanwhile in France, health officials there have issued warnings about growing spread of the disease. How do they look?
Their data is noisy, but they clearly are in an ugly second death wave, as well.
On Thursday, France reported a new record for daily coronavirus infections and the government announced new restrictions on bars and restaurants in major cities. The southern port city of Marseille was put on "maximum alert," while ten other cities received the second tier warning of "elevated alert." These measures provoked an outcry from some local politicians and business owners.
These European nations' second waves were not unexpected. Many health officials had previously warned that more deaths were a strong possibility with the loosening of travel restrictions, reopening of schools, public weariness/resistance to following safety measures, and possibly cooling weather.
We will continue to monitor and see how things progress.
Virus Infections Surge Disturbingly in 27+ States
For the last 12 weeks, we've closely watched individual states to get insights on what might happen next at the national level. First, we saw the second wave of infections (and eventually deaths) start in the Sunbelt and spread across 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). Then, in the last four weeks, we saw Sunbelt states make huge progress in reducing infections and eventually deaths. However, this was accompanied by surges in the Midwest and Northeast, along with warnings that school re-openings, the Labor Day weekend and colder weather might cause additional increases.
What happened this week? First, let's take a look at the states we've been tracking over the last couple of weeks.
Last week, new infections were at elevated levels and/or up from the past week in all four of these states, and unfortunately this week was no different. Here's West Virginia:
North Dakota:
Iowa:
(Note the temporary surge in early September is most likely artificial and caused by the addition of previously completed antigen tests that were not properly backdated).
and Kansas:
And ominously, deaths are all either up for the week or continuing at elevated levels in West Virginia, North Dakota and Iowa. Kansas is the only one that experienced a welcome drop.
So clearly, the second wave is not yet under control.
And this week, there were even wider troubling signs of uncontrolled viral spread. A total of 27 states and Puerto Rico showed an increase in the seven day average of newly confirmed cases versus the final week of August. And in six states ( Minnesota, Montana, Oklahoma, Puerto Rico, Wisconsin, Wyoming and Utah) and in Puerto Rico, this pushed infections to record highs for the entire pandemic.
Here's a closer look at the first three, starting with Minnesota:
Montana:
And Oklahoma:
All three are clearly experiencing significant surges in new infections. Montana is experiencing new highs and deaths, while Oklahoma's deaths remain elevated. Minnesota is the only one of the three that is, so far, maintaining deaths at a lower plateau.
So overall, the picture this week was not great. All of the above states are losing control of the second wave of infections and many are also experiencing a surge in deaths.
Additionally, some of the states are coming under criticism by health experts for not reporting all their known positive cases. There has been a national rollout of millions of antigen coronavirus tests, and some states are reporting these in the results. But many are still not and only reporting the older, polymerase chain reaction (PCR) tests. This is generally due to antiquated and overloaded bureaucracies that have not been able to keep up. For example, until fairly recently, Texas was not reporting antigen tests because their fax-based system couldn't handle the extra load.
David Rubin, director of PolicyLab at Children’s Hospital of Philadelphia, said, “I suspect there will be an increasing number of states whose data becomes unreliable."
Little New Help for Georgia's Hobbled Economic Recovery
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 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 five 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. And we will look at Georgia's four primary Covid-19 sensitive industries: restaurants, retail, fitness, and hotels.
So this week, in the category of restaurants, let's take a look at Applebee's. This is a fast casual dining restaurant and its lower price point (than fine dining) would be expected to do better in a recession. How is it doing?
This week, Applebee's had -12% foot traffic versus a year ago. In normal times, these would be considered terrible, recessionary types of numbers. But compared with other restaurants during this pandemic, that is actually a very good result.
And yet, Applebee's numbers are still moving, overall, in the wrong direction, with their best performance back at the end of July. Currently, they are trending worse.
For retail, let's look at Macy's, which is a slightly upscale retailer.
Unfortunately, Macy's numbers are apocalyptically bad at a crushing -37%. Additionally, the trend continues to show them moving backwards from their initial improvement and best performance in the middle of June.
Let's take a look at fitness. Lifetime Fitness is a traditional gym.
Lifetime Fitness's numbers are also devastating at -46% footfall versus a year ago. Their long-term trend is also poor, as they have made no improvement since their best performance at the end of June.
Finally let's look at hotels. Holiday Inn Express is a budget hotel that we'd expect to do better in a recession than others.
This week, they are -14% footfall versus year ago. Again, this would have been considered very bad, in pre-Covid times, but in today's environment, is actually relatively very good versus others. And they have been trending in a positive direction for the last three weeks. Unfortunately, they are still worse than their low four weeks ago, so it's difficult to get a feel for their true trend. We'll continue to watch.
Overall, Georgia's Covid-19 sensitive industries are not showing any signs of a quick, V-shaped recovery.
The Broken Record Continues: More Record Levels of New Economic Pain from Newly Jobless
Unemployment has historically been one of the most reliable indicators for when the U.S. is entering a recession and when it has recovered. So that's why we look at it so closely every week. And unfortunately, over the last 24 weeks, the economy has been hammered over and over again by massive levels of new unemployment.
This week was no different, with previously unthinkable numbers of new people losing jobs. This week, it was 870,000 (which was slightly worse than last week's 860,000):
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 continue to be unemployed right now.
This week, continuing claims stayed at 12.6 million (which was unchanged from the 12.6 million the week before that). And once again, those hoping for a quick improvement that would support a V-shaped recovery were disappointed. For yet another week, there are still more Americans unemployed now than at the height of the Great Recession.
Bank of America Corp.’s Head of Global Economic Research, Ethan Harris, said:
"It’s an indicator of the pain that’s still out there. And it’s consistent with the idea that we’re getting past that phase where we’re kind of rebounding from that shutdown, and now we’re more to the grinding-forward phase with this massive headwind from the labor market."
On Wednesday, a parade of Federal Reserve officials said that U.S. lawmakers will need to pass more stimulus in order to sustain an economic recovery. (See "Financial cliff update" below for the week's progress on that front.)
Federal Reserve Chairman Jerome Powell warned:
“We will see that the economy has a harder time sustaining the growth that we’ve seen. There is downside risk probably coming if some form of that support doesn’t continue.”
Boston Federal Reserve Chief Roengren said:
“The most difficult part of the recovery is still ahead of us. ...We are still in a deep hole."
Roengren also addressed the timing of stimulus critics who have expressed concern that the price tag would be too high:
“Long term, the U.S. needs to get back on a sustainable fiscal path, but you don’t want to start that in the midst of the worst economic hit in 90 years.”
Financial Cliff Update: Vote on New Stimulus Package in the House Expected This Week, But Future Is Far from Certain
As we've discussed over the last several weeks, tens of millions of unemployed and underemployed Americans are either falling off or teetering on the edge of a huge financial cliff. And if it's not resolved well, there could be significant pain for them, the economy, and also businesses and investors in virtually every alternative investment asset class (especially real estate and private equity).
Why does this cliff exist? Well, so far, the economy has taken unprecedented damage through record-setting unemployment. But, this has been mitigated by the $3 trillion Covid-19 stimulus package passed by Congress at the beginning of the pandemic. Unemployed workers got an extra $600 per week and many citizens got free stimulus checks ($1200 per adult and $500 per child). Also, governments at the federal, state, and local levels passed moratoriums on evictions and foreclosures that let unemployed people stay 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 much deserved and needed aid. But still, these programs have contained untold amounts of damage. Zach Parolin, a researcher at Columbia University, estimates that together, these programs stopped 17 million people from dropping below the poverty line.
But, more recently, there's been a huge problem. The $600 unemployment payments expired 5 weeks ago, the stimulus payments were a one-time event, and many of the moratoriums have ended as well. And unfortunately, the two political parties and the president were unable to come to agreement on a new stimulus law.
One party passed a $3.5 trillion stimulus package and offered to reduce it to $2 trillion. The other party could not get its members to agree to even $1 trillion. So things remained at an impasse.
Then the President unilaterally passed executive orders to temporarily pay the unemployed an extra $300-$400. But the fund from which this money was appropriated has already been exhausted. And the President doesn't have the constitutional power to spend new money. So, any real solution requires Congress and the President to cooperate to pass a new law. And up until now, that has not happened.
So what happened this week on that front?
Last week, a part of a bipartisan caucus of 25 members of both parties (called the "Problem Solvers Caucus") came up with a compromise plan that split the difference. And this raised some small hopes that it might be accepted by both the wider parties. Unfortunately, it did not gain any traction this week.
Instead, the political party that controls the House, prepared a new $2.4 trillion stimulus bill. This was triggered by some rank-and-file members in swing districts whose constituents want to see a deal happen. And the new amount represents a reduction of $1.1 trillion from their previous $3.5 trillion package. It still also includes aid to airlines, restaurants and small businesses and is expected to be voted on early this upcoming week.
However, it's still significantly above the $500 billion bill proposed by the opposite party in the Senate (which bill itself has not successfully passed among its own members). And it's above the $1 trillion previously proposed by that same party as well (which also was not successfully passed).
The President urged his party to move higher on price and Treasury Secretary Stephen Mnuchin said he was ready for a new round of talks. However, senators of the President's party have not yet indicated willingness to stretch to any point that the opposite party would find acceptable.
Many economists had previously been counting on at least $1 trillion in additional stimulus to date and had not anticipated the stalemate to last this long. So, many of them have been hurriedly downgrading their U.S. economy forecast. After doing so, these models are now generally pointing to a sharp slowdown in growth in Q4.
Aneta Markowska and Thomas Simons, economists at Jefferies said:
"The odds of [new] stimulus are a close call. While still possible, there is a high risk that it does not happen this year. Without it, we would expect the economy to hit a major speed bump in the fourth quarter."
Will Thanksgiving Become the "November to Remember" for Virus Spread Thanks to Colleges?
In previous weeks, we talked about how many health experts had warned that in-person college re-openings could become the fuel for a third wave of new infections. Despite this, schools were under tremendous financial pressure to reopen. So about one third of the nation's public colleges and some private ones as well, went forward with opening in spite of the risks. And, within a remarkably short period of time, many were hit with rapidly escalating infections and were forced to roll back or scale back these plans.
Those that have decided to stay the course are continuing to feel intense pressure and stress. Many have reported that they rapidly run out of room to quarantine those who have caught the disease.
This week, several more schools announced about-faces. The University of Michigan announced mandatory quarantines for off-campus residences, including fraternity and sorority houses. The school had already switched to completely virtual schooling in mid-August, but had to crack down further as virus infection spread continued.
The University of Wisconsin at River Falls is also weathering a huge surge in cases and announced that all students will be required to shelter in place. And at the University of Colorado, officials announced that due to rapidly climbing infections, the school will now switch to completely remote for at least two weeks. Then, the New Jersey Institute of Technology announced a forced quarantine of 300 people after the virus was found in their dorm wastewater.
Meanwhile, many communities surrounding these universities are growing increasingly worried about the problems leaking off-campus, since students habitually frequent off-campus restaurants and coffee shops, and hang out at bars and parties. And in recent weeks, several counties that are home to large colleges have become some of the nation's most infected locations. This includes the County of Radford (which includes Radford University, Harrisonburg and James Madison University) and Whitman County (which includes Washington State University).
Josh Michaud, an associate director for global health policy at the Kaiser Family Foundation, said:
“It’s very predictable that we would see outbreaks at colleges... We’re just starting to see at a very broad level the impacts of reopening colleges, universities and schools."
Gavin Yamey, a physician who directs Duke University’s Center for Policy Impact in Global Health went further and compared the current outbreaks to a self-inflicted wound:
“This is beyond our wildest nightmares. It has been a debacle, a national catastrophe and, in many ways, you could consider it a third wave. The third wave is a university reopening wave. It was a self-inflicted national wound.”
However, some health experts are concerned that everything that's happened so far may be merely the tip of the iceberg. Thanksgiving break will be coming soon, and students will return to their homes far and wide. Experts warned that we may have effectively created virus reservoirs that are poised to spill over across the US.
“If infected students go home, there is a risk that they could seed outbreaks all around the country -- outbreaks that are ultimately caused by the university reopening."
said Yamey.
On Friday, Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, warned that the U.S. could face a "problematic" fall and winter in the fight against the virus.
Landlords and Civil Liberties Groups Sue CDC Over It's Controversial Eviction Moratorium
As we discussed a couple of weeks ago, the White House ordered the Centers for Disease Control (CDC) to pass a national eviction moratorium. This protected tens of millions of unemployed workers from evictions/foreclosures until the end of the year. And the CDC justified this as being necessary to prevent further spread of the infection.
However, since the executive branch does not have constitutional power to spend new money, this order didn't provide any aid to the landlords that would be negatively affected by it. And this drew overwhelming criticism from these groups. The vast majority of property owners aren't faceless corporations but instead are small mom-and-pop's who have thin profit margins and carry significant mortgages (which themselves have not been forgiven and still have to be paid). So many argued that this was not a solution, but simply a way of moving the crisis from one group to another.
Others objected that the CDC appeared to be overreaching far past its authority and mandate in creating such a rule. And if allowed to stand, they argued, the same justification could be used by the government at any time to essentially comandeer any type of business on the flimsiest grounds.
This week, the National Apartment Association (NAA) along with the New Civil Liberties Alliance combined forces and sued the CDC. They claimed:
"The CDC’s actions are not authorized by statute or regulation. But even if they were, they are unprecedented in our history and are an affront to core constitutional limits on federal power. If allowed, the Order would abrogate the right to access the courts, violate limits on the Supremacy Clause, implicate the nondelegation doctrine, and traduce anti-commandeering principles... It [the CDC] does fine work but it is out of its depth on the issues of economics and housing.”
NAA CEO Bob Pinnega went further said the CDC has only limited authority. It's able to regulate movement from state to state to keep disease from spreading. And it is has the authority to step into local jurisdictions that have no ability to respond at all to protect public health. But in going to this current level, Pinnega claims, “The CDC has moved beyond its original authority.”
Pinnega also pointed out that the apartment industry is not a high margin one. According to NAA stats, out of every dollar received in rent, only 9 cents (or less) ends up in the pocket of the landlord. The majority, 39 cents, goes to a mortgage payment, 27 cents to paying staff and operations, 14 cents to paying taxes, and 10 cents goes to reserves. And he pointed out that the general consensus is that a vaccine will not be widely available and distributed until early summer or early fall, so the moratoriums will have to be extended. And if that happens, he claims the industry is unlikely to remain resilient for such an extended length of time without revenue.
So Pinnegar says,
“[This lawsuit] is the result of Congress’ inaction on a new stimulus bill, which has forced the industry to push back.”
If all goes well, the group expects to be granted a hearing in October.
Johnson & Johnson Starts Third and Final Stage Human Trials of its New Candidate Vaccine for Covid-19;
On Wednesday, Johnson & Johnson announced that it has started a 60,000 person third-stage human trial of its new Covid-19 candidate vaccine. The tests will be done across three continents and countries including the U.S., Brazil and South Africa. The results could be available as soon as early next year, and if successful, the company hopes to receive emergency use authorization soon afterward.
We discussed this candidate in detail back on August 1 (see "New Johnson & Johnson Vaccine Protects Monkeys From Covid-19 with a Single Shot").
We also discussed, on August 8, how the U.S. government (through Operation Warp Speed) awarded J+J $1 billion for the right to purchase 100 million doses of the vaccine (assuming it works) and distribute them for free. Johnson & Johnson had previously been awarded $456 billion for development.
So this makes this experimental vaccine the fourth one to enter final Phase 3 human trials in the U.S. and Europe. We have covered all of the other candidates extensively in the past. These include Moderna, which entered Phase 3 in July and has enrolled 26,000 people toward its goal of 30,000. It also includes a vaccine produced in collaboration by Pfizer and bioNTch. This entered Phase 3 in July and they have enrolled almost 32,000 towards their goal of 44,000.
The fourth is AstraZeneca, which started a 30,000-person Phase 3 trial in August. However, their trials are currently on pause in the United States as federal investigators seek "answers to important questions" about its safety, after one of the U.K. participants suffered a "severe adverse reaction". At this point, it's unclear if and when regulators will give them the go-ahead to resume trials.
U.K. Will Go Forward Full Speed Ahead with Controversial Human Challenge Trials
As we discussed back in early May, creating a successful vaccine is generally a slow process. But, there is a significant but controversial technique that could greatly speed it up.
Typically, in Phase 3 testing, volunteers receive either a vaccine or a placebo. Then scientists have to wait months in the hope that enough of these people will end up being exposed to the virus to create a successful test. But this leaves exposure up to chance and takes a lot of time. And, if the country/city where the trial participant resides reduces virus spread sufficiently, it's possible that too few trial participants will be exposed, and the test results become unusable.
One alternative method that greatly speeds this process up and avoids the above-mentioned risks is to deliberately expose each vaccinated person to the virus. This is called "human challenge trials" and can shave months off of the final time.
The catch is, obviously, that this is exponentially more dangerous for the volunteers. And unlike other diseases were challenge trials have been used, we don't have a cure for Covid-19 and there is a real risk of death. Despite this, there are nonetheless still some people who are willing to put their lives on the line to help a successful vaccine arrive faster.
Earlier this year, 18-year-old Alastair Fraser-Urquhart started a health advocacy group called 1 Day Sooner to push for human challenge trials. And he has accumulated 4,000 volunteers from 52 countries who are willing to participate. The name of the group comes from the concept that even if their efforts enable the vaccine to arrive just one day sooner, they may save tens of thousands of lives. (See May 3rd article: "4,000 Volunteer to Put Their Lives on the Line to Give World a Shot at a Faster Vaccine")
In the past, some ethicists have said that human challenge trials are morally unacceptable. But some are coming around to the idea that in certain situations (like a pandemic), these trials can be acceptable so long as the volunteers truly understand the risks they are taking and give true consent.
Dominic Wilkinson, Professor of Medical Ethics at Oxford University, is one of several prominent ethicists in the U.K. who signed the 1Day Sooner petition. He said:
“When we are facing an unprecedented global threat from Covid, it is an ethical imperative to carry out well-controlled challenge studies to help develop a vaccine and then to identify the best vaccines. The ones emerging first from clinical trials are unlikely to be the best.”
And this week, the U.K. announced that the government will be funding human challenge trials starting this January at a secure quarantine facility in East London. They believe these could play a vital role in narrowing the large field of potential vaccines to find a more successful candidate.
Alastair Fraser-Urquhart claimed that:
“By exposing just a few hundred carefully selected young, healthy people to coronavirus — a virus which for this group is far less deadly than routine procedures such as a live kidney donation — we can test a huge range of vaccines very quickly.”
Also this week, 1 Day Sooner announced that they are petitioning the U.K. Parliament to publicly fund the facility with enough capacity to quarantine 100 to 200 participants.
Volunteers who have taken part in past influenza challenge studies have received up to £3,750 in compensation. But the payment for Covid-19 trials is expected to be higher, since volunteers will have to isolate much longer (for as long as a month). And, as mentioned above, risks are higher.
Mr. Fraser-Urquhart says he hopes to be one of those chosen. And he also says that after devoting his time to this campaign, he will be going to University College London to study cancer biology next year.
Scientists May Have Discovered the Secret of Why Children Can Usually Fight Off the Coronavirus, While Adults Often Succumb
The coronavirus has many mysteries. And one of the most intriguing is the question of why children are so much less likely to die from the disease than adults. Usually, small children are one of the groups that is most susceptible to diseases (for example, the flu). So that is a clue that something unusual is going on. And perhaps, if we could figure out why this is the case, the answer could be used by scientists to help treat those who are more at risk.
This week, a study was released which may provide the answer. A scientific team studied 65 adults and 60 children who were hospitalized in New York City for Covid-19. So this was a relatively small study and larger follow-ups would be needed to provide more conclusive data. However, if the results end up being accurate, then they're both illuminating and potentially far-reaching.
Unsurprisingly, they found that the pediatric patients did much better than adults. Kids had a shorter length of stay in the hospital, had decreased requirements for mechanical ventilation and a lower death rate. Ultimately, only 5 children required mechanical ventilation, versus 22 adults. And only 2 children died, compared with 17 adults.
And very interestingly, they found that kids didn't achieve their superior outcomes with a better antibody response or a higher T cell response (which is the focus of virtually every vaccine and treatment). Just the opposite: adults mounted a much more robust defense against the virus then children, and had many more antibodies and T-cell responses. This didn't help them do any better.
So how did the young ones do it? The study found a surprising (but in retrospect, probably expected) answer. And it's related to the fact that the human immune system changes over time.
The adult immune system defense is based on using the previously mentioned antibodies and T-cells to attack pathogens that it has encountered before. This is very specialized and efficient system that typically works very well.
However, when children are born, they have never encountered any attackers before. So if this were their only defense, many children would never survive to adulthood to be able to use the adult defenses.
Fortunately, children have a completely separate immune system called the "innate immune response." Unlike the specialists of the adult system, these innate responses are more generic. And they work by moving much more quickly and furiously, to wipe out any generic intruder.
However, this is not very efficient. And as the child ages and becomes exposed to more and more pathogens, they build up a repertoire of attacks against known invaders. So by the time of adulthood, the body relies primarily on the adult system instead.
Dr. Michael Mina, a pediatric immunologist at the Harvard T.H. Chan School of Epidemiology in Boston says, "The adaptive system makes sense biologically because adults rarely encounter a virus for the first time."
However, the coronavirus is new to everyone. So, the study's scientists theorize that this puts the adult system at an unusual disadvantage and makes them more vulnerable. And by the time the body is able to ramp the specialized adaptive system up, the virus has run rampant for a long time. And when it's widespread throughout the body it can make it too difficult to control. Additionally, allowing the virus to run uncontrolled for so long may increase the chances of the body trying to attack it with an additional immune defense (like a "cykotine storm"), which some believe contributes to the lethality of the disease. (Although, see next section on why some now believe there may be more to the cytokine storm story).
If this is accurate, it may have some surprising repercussions. The scientists further theorized that the current concentration of focus on T-cells and antibodies for treatments and vaccines to treat covid-19 may be misplaced.
"The finding that adults who did poorly had high titers of antibodies that were both neutralizing and induced phagocytosis, as well as the greater T-cell responses, suggest that boosting of these functional responses to the spike protein, particularly late in the course of disease, may not be beneficial. In contrast, boosting of early innate immune responses may be important."
But again this is a small study, so further follow-ups are needed to determine if the results will stand or not.
Shocking Study Finds That the Dreaded Covid-19 Cytokine Storm May Be a Myth.
As discussed previously, many people have noticed that patients afflicted with severe cases of Covid-19 appear to go through two stages. The first stage is generally mild, and some of the infected even appear to temporarily recover. Then a second stage occurs, which is more severe and can often result in hospitalization and/or death.
Most health experts currently believe that this is caused by a so-called "cykotine storm". Cykotines are a natural reaction by the body to infection or trauma and typically trigger inflammation to promote healing. But in some cases, this inflammatory response can go too far and end up damaging the body worse than the disease it's intended to fight. That's what many believe happens with Covid-19. Dr. Carl Fichtenbaum, MD, professor in the Division of Infectious Diseases at the University of Cincinnati College of Medicine says:
"Imagine that you put your foot on the accelerator and it gets glued to it. You can't get your foot off the gas to slow down your car."
The theory makes intuitive sense. But up until now, few have tried to study it with any scientific studies. Perhaps this is because there is no precise medical definition of a cykotine storm. Or perhaps because measuring one is complicated by the fact that individuals vary widely and it's difficult to predict what level of response would be necessary for an individual person to convert a helpful cykotine-induced inflammatory response into a negative "cykotine storm."
However, that is slowly changing. This month, researchers announced that they tried to tackle this issue and came up with surprising results. This is a relatively small study and done in just a single medical center, so it's not conclusive. But if accurate, then everything we currently believe about the second stage of the disease (including the cykotine storm) could be completely wrong.
The researchers studied 46 people with Covid-19 and acute respiratory distress syndrome (ARDS) who were admitted to the ICU at Radboud University Medical Center. All of them were placed under mechanical ventilation between March 11 and April 27.
The scientists measured the plasma level of their cytokines, including tumor necrosis factor (TNF), interleukin-6 (IL-6), and interleukin-8 (IL-8). And they compared the results with 51 patients who experienced septic shock and ARDS, 15 patients with septic shock and no ARDS, 30 people with out-of-hospital cardiac arrest, and 62 people who expressed multiple traumas.
And the result was shocking. According to senior study author Peter Pickkers, MD, PhD, who is affiliated with the Department of Intensive Care Medicine at Radboud University Medical Center in the Netherlands:
"For the first time, we measured the cytokines in different diseases using the same methods. Our results convincingly show that the circulating cytokine concentrations [in Covid-19] are not higher, but lower, compared to other diseases."
Dr. Tadamitsu Kishimoto, MD, PhD, of the Department of Immune Regulation at the Immunology Frontier Research Center at Osaka University, Japan, was asked by Medscape to comment on these preliminary but potentially groundbreaking findings.
He said: "The study is quite interesting, and data in this paper are consistent with our data." He published a paper in August 21 in PNAS, which also found surprisingly lower levels of serum IL-6 in people with Covid-19, compared to both bacterial ARDS and sepsis.
However, Kishimoto also proposed one possible caveat. Even if the information is correct, Covid-19 patients often develop severe respiratory failure. This is worse than bacterial sepsis, and so it's possible that even a lower level of IL-6 could still be problematic.
Meanwhile, research on this topic is expected to continue and will hopefully provide further answers.
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 have only minor changes and my strategy is essentially the same as last week.
Treatment: I believe chances are good that 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, until well into 2021. If that happens, then it will not be enough to super-charge the economy right away. And, there may potentially be a huge quality-of-life difference between the treatment-haves and treatment have-nots. This will be divisive and will exacerbate existing tensions and conflicts between rich and poor countries. And it's likely to cause considerable instability in "have-not" countries that could easily cause unexpected global consequences, not just for themselves but also for the U.S. and the world.
Recession? When the U.S. was first hit by the virus, many pundits claimed the U.S. economy was so strong, it would have little to no effect (or if it did, then it would rebound quickly and things would be back to normal in a jiffy). But, after looking at all of the micro data week after week, I said I couldn't see any way the country could avoid plunging into a technical recession (two consecutive quarters of negative GDP growth). Ultimately that happened (-5% in Q1 and -32.9% in Q2). Going forward, I believe Q3 will show strong double digit growth. But this will be only because it's measured relative to the chasm of Q2 (i.e. an almost 40% plunge from 2019). And it will come up disappointingly well-short of the amount needed to "break even" to where things were back in January (and thus well short of a true V- shaped recovery).
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 virus spreading in the U.S. in any meaningful way. Virtually no one came close to imagining that lock-downs would occur in May. Hundreds of thousands more people have been killed than originally projected. And now, even the later May projections, which maxed out at 200,000 dead, have proven to be too optimistic. Tens of millions more people than expected have lost jobs. The stimulus and unemployment aid was enormous, but had too many unexpected holes and didn't get into the hands of millions who needed it the most. States reopened, but were forced to backtrack. Many businesses have reopened, but customers are staying away. 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 and/or third waves of the virus. Unfortunately, this is looking more and more likely. My slim hope is that the second wave can be controlled. But if this can be maintained, avoiding a third wave from school openings, Labor Day and cooler weather... and if the US government also passes a generous stimulus law... then the worst effects of the additional waves could be mitigated. That's a lot of "if's"... so we'll see. And I'll continue to monitor the data very closely. Currently, I still believe we will have a three-stage combo-shaped recovery that starts off (1) quickly 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 return, and a slow swoosh will become apparent. If we get a second (or third) lockdown, 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 third stage and an accelerated recovery. But this most likely won't be a straight-V recovery, because it will most likely take time to ramp up production and delivery to enough Americans to get herd immunity (not until well into 2021). 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. And all of this will depend 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 a newer type that can be scaled up more quickly or is more effective). If so, then the third-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 very severe, and will 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 sub-sectors 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:
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.
Invest in assets that are coronavirus resistant (and uncorrelated with the business cycle). That includes:
Music royalties (which can actually do better in lockdowns due to increased streaming).
Life settlements (which actually perform better when people are dying faster and in any event aren't directly tied to the business cycle).
Litigation finance (which performs based on winning or losing cases, and also isn't directly tied to the business cycle).
Invest in coronavirus "portfolio insurance" (i.e. an investment that would be expected to do better the longer coronavirus continues or if it gets worse).
N95 Mask Manufacturing Company. If the pandemic should disappear tomorrow (which I personally am not counting on), I would be happy to take a small loss here given that the rest of my portfolio would be doing extremely well. On other hand, if Covid-19 doesn't disappear and things go as I expect (or worse), then this investment could provide a welcome profit boost and improve my diversification.
Continue to hold cash and be patient for dislocated and distressed opportunities. The worse the economic damage, the more chance there will be for those 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 in some of the other X factors. For example, a new stimulus law 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.
Next Article
How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 32: October 3rd
U.S. deaths stuck on high plateau as infections kick up into 3rd wave; World Roundup: Europe continues to lose ground against escalating second wave of deaths; State roundup: Little relief from surging infections; Georgia's bellwether economic recovery remains stalled out for another week; Economy battered with more record unemployment and announcements of more pain to come; Monthly employment report shows sputtering recovery coming up short; The silent, looming $24.3 billion unpaid utility bill crisis; Financial cliff update: Negotiations intensify as deadlines loom; President of the United States contracts Covid-19; Regeneron antibody cocktail shows promise in early study; Innovia covid-19 vaccine trial put on hold again by FDA; Moderna says it' COVID-19 Vaccine Won't Be available before the election after all; New supersized study highlights the dangers of super-spreaders events and spread by children under 17; Update on my investment strategy
