How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 31: September 26th
Updated: Feb 8, 2021
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.
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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:
(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 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:
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.”
“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."