How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 32: October 3rd
Updated: Oct 10, 2020
U.S. deaths stuck on high plateau as infections kick up into third 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 its COVID-19 vaccine won't be available before the election after all; New supersized study highlights the dangers of super-spreader events spread by children under 17; 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.).
This week, there was an unusually large amount of new economic, health information, scientific studies and news 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. Deaths Stuck on High Plateau, as Infections Kick Up into Third Wave
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 213,543 (versus 208,483 last Saturday morning).
Seven weeks ago, the U.S. 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?
For the second week in a row, U.S. progress against deaths essentially plateaued (at a relatively high point) and came to a halt.
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?
The label is partially obscuring the data, so let's zoom out to remove it:
For the second week in a row, infections are clearly moving in the wrong direction -- in other words, increasing. And, the contours of a third wave are now definitively in place.
As we discussed earlier, a third wave was expected by some. 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, we don't know what size this wave will be nor how long it will last. We'll continue to watch.
World Roundup: Europe Continues To Lose Ground Against Escalating Second Wave Of Deaths
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.
This week, their data was noisy but for the third week in a row, they stayed below their previous peak. So, they may indeed have gotten control of their third wave. We'll see what happens next week.
Either way, the biggest positive for South Korea is that even at their highest and worst peak in 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 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 of 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 a good week for Sweden, as they continued to reduce their death curve after a temporary, two-week spike.
On the other hand, 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 are the numbers this week:
On one hand, for the third 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 about five times worse than the average country in the world.
And again, 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).
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 both 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's a bad-looking graph. For the fifth week in a row, Spain is experiencing escalating deaths. They've been unable to control their latest death wave.
How about the U.K.? Last week, we discussed how officials imposed lockdowns in several cities after infections had skyrocketed. Here's how they look this week:
This was another bad week as deaths rose rapidly. For the fourth week in a row, their second wave of deaths has continued to grow.
How about France? Officials there also imposed lockdowns due to the growing spread of the disease (as we talked about last week).
Unfortunately, France is almost a mirror image of the U.K. with rapidly rising deaths. And they've been fighting their second wave of deaths for six weeks now.
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, and public weariness/resistance to following safety measures, and possibly also due to cooling weather.
We will continue to monitor and see how things progress.
State Roundup: Little Relief from Surging Infections
For the last 13 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? Let's start with the four states that are currently experiencing the highest escalation in infections: North Dakota, South Dakota, Wisconsin and Montana. First, North Dakota:
Here's South Dakota...
All four states essentially have the same negative story. Large increases in new infections and increasing deaths.
Next, let's take a look at the Midwest. Here's Oklahoma:
On one hand, new infections fell a bit from last week's highs, which was a small but welcome reprieve. Deaths were noisy, but since August appear to be stuck in an oscillating pattern that's significantly higher than the trough back in June.
How about Iowa?
This week, infections climbed again for the third week in a row. Their quick surge and drop in postives last month was most likely just a statistical aberration due to adding backdated antigen tests to the official numbers. Ignoring that they set a new high this week as well. Their deaths are noisy, but appear to be essentially stuck in a high, oscillating pattern for the last couple of months (versus their trough back in early July).
How about Kansas?
They have noisy data, but it's essentially the same story as Iowa and Oklahoma: increasing infections and oscillating high-levels of deaths (versus their low point back in early September).
So all in all, it was not a great week for many states.
Georgia's Bellwether Economic Recovery Remains Stalled Out for Another Week
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 over 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 in the category of restaurants, let's take a look again at Applebee's. This is a fast-casual dining restaurant and its lower price point (compared to fine dining) would be expected to do better in a recession. How is it doing?
Last week, they had a promising-looking drop in the damage, with only -6.7% footfall versus the previous year. So, I was hoping to see this continue. Unfortunately, things deteriorated this week, and they moved in the wrong direction, to -11.7%. And while the data is choppy, for the last eight weeks, the overall trend has been unmistakably worse than their peak recovery point back in August.
For retail, let's look at Bed Bath & Beyond, which is a slightly upscale retailer.
This week, they experienced a punishing -18.5% footfall versus last year. And, while they have had their ups and downs, their last eight weeks have been significantly worse than their best performance in the recovery (which was back in early August).
Let's take a look at fitness. Anytime Fitness is an untraditional gym that gives club members the keys and let them exercise at anytime. So customers can expect much less interaction with staff, and potentially with other customers, which should be a huge advantage over other gyms in the current environment. Here's how they did:
This week showed an unpleasant -10.5% footfall versus last year. On the other hand, for a gym, this is actually a relatively great result. In comparison, last week, we saw LifeTime Fitness being completely disemboweled at -46% footfall.
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.
It's at -9.5% footfall versus last year, which in normal times would be considered terrible. But, compared to how it was doing just a couple weeks ago, this is a vast improvement. Still, they have had dramatic "psych out" improvements in the past (specifically in early September) only to lose all the progress the following week. So, it's too early to say whether this is sustainable or not, and we will continue to watch them and see.
Overall, Georgia's bellwether economic recovery remained weak and essentially stalled out.
Economy Battered with More Record Unemployment and Announcements of More Pain to Come
Unemployment has historically been one of the most reliable indicators of when the U.S. is entering a recession and when it has recovered. So that's why we look at it very closely every week. And unfortunately, over the last 25 weeks, the economy has been hammered over and over again by massive levels of new unemployment.
This week was no different, with 837,000 newly unemployed. This was a slight improvement over last week's 870,000:
However, some of the data was not completely up-to-date. California, which is the largest state in the country, didn't report any data this week to the Department of Labor, as part of a two-week effort to catch up on a backlog of filings and improve their systems. So for this week and next, the numbers are simply a repeat of what they were last week.
Analysts believe this will have the effect of artificially improving the numbers (making them seem lower than they really are). Eliza Winger, an economist at Bloomberg said:
"Claims have been artificially skewed lower in this week’s data as a result of California putting applications on hold to revamp its system.”
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 were 11.8 million. If accurate, this was a small drop from the 12.6 million the week before that. But once again, those hoping for a quick improvement that would support a V-shaped recovery were disappointed. And for yet another week, there are still more Americans unemployed now than at the height of the Great Recession.
Meanwhile, there were numerous announcements this week of more future pain to come.
Walt Disney World, an entertainment company, announced that they will be eliminating 28,000 jobs in its theme park, cruise line and retail businesses. Despite aggressive cost-cutting, both revenues and profits have taken a huge hit. All four Florida theme parks are operating at much lower capacity than normal and on top of that, the number of visitors has been disappointing. And the company was not allowed to reopen its park in California at all.
Allstate, the fourth largest car insurer in the United States, announced they will be laying off 3,800 workers along with closing offices and making other cuts. This represents a sizable percentage of their entire workforce. The company has been feeling the pain of low interest rates that have reduced the profitability of many of their lines of businesses, including life insurance and annuities.
Marathon Petroleum, the biggest independent U.S. crude refiner, will be laying off 2050 employees (12% of its workforce) and idling refineries in California and New Mexico. As we've discussed in previous weeks, the U.S. oil industry has been wrung out by the dramatic collapse in demand caused by the pandemic. This was the second round of layoffs for Marathon.
On Thursday, American Airlines announced it will furlough 19,000 additional people (including flight attendants, pilots and maintenance workers). The industry has suffered dramatically reduced revenues due to the pandemic. That will bring AA's pandemic grand total to at least 40,000 workers laid off or furloughed (or about 30% of the company's pre-pandemic workforce).
United Airlines, another airline carrier, announced it will furlough 13,000 workers.
Goldman Sachs, an investment banking company, is eliminating 400 jobs (or about 1% of its workforce). The move comes after previously announcing that they would suspend all job reductions during the pandemic.
Meanwhile, on Wednesday, the monthly ADP payroll report came out. (This report covers September).
On one hand, they showed that payrolls increased by 749,000. On the other hand, that's still 10 million jobs short of its previous pre-pandemic level. And, for the second month in a row, progress is tapering off and falling far short of what would be necessary for a quick, V-shaped recovery.
On Friday, The Financial Times released an analysis of country-wide retail performance in the U.S. and three European countries. They used high-frequency data from Springboard for the report:
Unfortunately, the U.S. recovery has been dismal in comparison to the rest of the pack. At approximately -72% footfall versus last year, retail in the U.S. is badly lagging that of the U.K. (-38%), Sweden and Italy (-20%).
Monthly Employment Report Shows Sputtering Recovery Coming up Short
On Friday, the much-anticipated monthly Bureau of Labor employment report came out. This also was a look back to September.
The headline unemployment fell to 7.9% from 8.4% the previous month, in August. However, as we've discussed in past months, this metric is not really that useful these days. It was created pre-pandemic and doesn't count certain unemployed workers, including: discouraged workers, all workers attached to the labor force, and those who want full-time work but are forced to settle for a part-time job. Additionally, the U.S. Labor Department has acknowledged in multiple past monthly reports that significant numbers of the people surveyed for the headline unemployment rate have misclassified themselves as "on leave" rather than unemployed. And this has artificially lowered the count.
The more complete, U-6 unemployment rate corrects for these issues and was 12.8%. And this was an improvement from 14.2% in August, which was a step in the right direction.
Unfortunately that was the end of the good news.
Economists had been expecting a larger gain of 859,000 nonfarm payrolls, but ultimately were disappointed, as only 661,000 were realized. There were sizable declines in local education jobs, and the gains in retail and temporary work slowed down to a number far short of what would be necessary for a V-shaped recovery.
Also worryingly, the labor force participation rate declined (especially for women). Additionally, average hourly earnings rose by less than expected, increasing by only 0.1% from the prior month.
Sarah House, a senior economist at Wells Fargo & Co., summed up the concerns with the above two issues by saying:
“A drop in participation is unequivocally bad for the labor market outlook. It has the potential to prolong the overall recovery as workers are more disengaged with the labor market.
And the weak gains in average hourly earnings are another land mine for the spending of consumers going forward, given overall slower job growth and fading fiscal support."
The number of Americans who were classified as long-term unemployed jumped by 781,000 to 2.4 million. This category includes those actively searching for work for 27 weeks or more, and underscores the lasting economic scars that many Americans are experiencing after months of joblessness.
Permanent job losers also rose by 345,000 to 3.8 million (which was a seven year high).
And, as we've seen throughout this recovery, wide racial gaps remained. While headline unemployment for white Americans fell to 7%, it was 10.3% for Hispanics and 12.1% for black Americans.
Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., concluded:
“The rate of improvement has clearly slowed, as the resurgence of the virus has constrained the pace of reopening. And the early signs for October are not encouraging.”
The Silent, Looming $24.3 Billion Unpaid Utility Bill Crisis
Early in the pandemic, many states passed laws prohibiting electric, water and gas companies from cutting off utilities. And this provided a much-needed lifeline to millions of unemployed Americans.
However, one thing was missing from these laws: financial aid to eliminate the charges. So, rather than being forgiven, the bills have simply been piling up.
And, despite massive levels of continued unemployment, many states are now dropping the moratoriums. As of this week, only 21 states still have them in place. More are expected to drop in the upcoming weeks and months ahead. As these are lifted, potentially millions of unemployed Americans will be hit with an unwinnable situation and crisis.
Even before the pandemic hit, 40% of US household couldn't afford to pay an extra $400 bill (let alone months of bills in arrears).
The National Energy Assistance Directors Association (NEADA) estimates that the aggregate amount of unpaid electric and gas alone will reach or exceed a staggering $24.3 billion by the end of the year.
Khalil Shahyd, a senior policy advocate at the Natural Resources Defense Council, said:
“You can’t really underestimate the burden of that debt on families. It’s also going to have wider ramifications for our economy and our ability to recover from this crisis.”
Financial Cliff Update: Negotiations Intensify As Deadlines Loom.
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.
Here's a brief recap:
Back in May, one political party (which we will call the "large stimulus" party) passed a $3.5 trillion stimulus package in the House. But the other party (which we will call the "small stimulus" party) which controls the Senate, wanted to wait and see if stimulus would be necessary or not.
Then in August, the large stimulus party offered to reduce their bill to $2 trillion. The small stimulus party balked and counter-proposed $1 trillion (but wasn't able to get enough of its own members to approve a counter-bill at that amount). This meant that for a bill to pass the Senate, it would require cooperation between the two parties.
Later in August, 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 now 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.
In September, the small stimulus party attempted to pass a $650 billion plan (nicknamed the "skinny package") in the Senate, but could not muster enough votes to bring it to the floor to begin discussion.
Two weeks ago, a bipartisan group of 50 lawmakers came up with a proposal to split the difference. But it did not gain any traction.
Last week, the large stimulus party revived talks with the White House, and prepared a new $2.2 trillion stimulus bill (to solidify what previously was just a verbal counteroffer) for a vote.
So what happened this week?
The "large stimulus party" engaged in extensive talks with the White House and Treasury Secretary Steven Mnuchin. These were the most intense since August.
Mnuchin upped the offer from $1 trillion to $1.6 trillion by repurposing some unused small business relief funds. And both sides agreed on another stimulus payment for up to $1200 to individuals, aid for airlines, coronavirus testing and extending the PPP (Paycheck Protection Program).
But the two sides could not come to agreement on the several other issues we discussed earlier, which included: unemployment insurance; funding for schools and state and local governments affected by the pandemic; tax credits for families with children; and additional money for testing and tracing. The large stimulus party wanted all of these things and the White House wanted much less or no spending on them.
So, the large stimulus party voted and passed a smaller $2.2 trillion stimulus bill in the House. It passed on a 214-207 vote (with no votes coming from the small stimulus party). But there is no appetite for it in the Senate (which is controlled by the opposite party).
Some despaired of the chances of a deal, since technically the House was to adjourn after Friday, and the Senate the following week (and would not be returning until after the election). Others pointed out that these deadlines could be extended, if the two parties and President had a compelling reason to do so.
Then, on Thursday night, the White House announced that the President had become ill with the virus. (See section below). After this, the leader of the large stimulus party said:
"This kind of changes the dynamic. Maybe this will be the moment where people will say, 'OK, masks, sanitation, treatment.'"
The White House also said they would continue to negotiate.
So we will continue to monitor and see what happens.
President of the United States Contracts Covid-19
On Thursday, the President of the United States announced that he and the First Lady had become infected with Covid-19, after an aide became ill with the disease and tested positive earlier in the week.
On Friday, the President had a "high fever" and his blood oxygen saturation "dipped below 94%." Many doctors say that at 93% oxygen saturation and below, a person should visit the hospital.
The Chief Executive was put on oxygen "for about an hour" and was reported as being "fatigued but in good spirits." As we've discussed in previous weeks, one of the mysteries of Covid-19 is how patients with dangerously low oxygen levels are usually completely unaware of it and report feeling completely fine. The Chief Executive was flown to Walter Reed Hospital after first receiving a dose of the experimental Regeneron antibody cocktail treatment. As we've discussed earlier, many health experts believe that antibody treatments are likely to be the first major medical breakthrough in the fight against the disease. And this week, Regeneron announced a promising-looking early study, which suggested that the drug may help significantly reduce virus loads in certain patients, if they take it early in the infection's progression. (See section below, for the latest on the Regeneron treatment). At this stage however, the drug has not yet been approved for use by the FDA.
Later on Friday, the President was also given Remdesivir. As we discussed in July, a study found that the drug helps patients who recover from the disease to do so faster (11 days versus 15 days on average for a placebo). On Saturday morning, the President's physician reported that his patient's fever had improved. But his oxygen levels had fallen again, so he was again given more oxygen.
Later that day, he was also given a third treatment: the steroid Dexamethasone. As we discussed previously, the disease tends to happen in two phases. And the most severe is the second phase (typically 7 to 10 days after infection) when the body's immune system spirals out of control and attacks the body itself. Dexamethasone controls and curbs that inflammatory response, and reduced deaths by 1/3 in a recent study.
But this drug is also not without risks. A recent study posted in the New England Journal of Medicine found that when used on someone who is not getting regular oxygen support, it's been associated with a higher rate of death. So for this reason, it's usually not prescribed until the disease is in the more serious phase.
This caused some health experts to surmise that perhaps the President's condition is worse than recognized. Others worried that the President's physician could be succumbing to the pressures of "VIP syndrome". This is a psychological trap where a physician treating a very high-profile patient can feel extreme pressure to use every cutting-edge medical technique possible. As Art Caplan, Director of Medical Ethics at New York University Grossman School of Medicine, says:
“Presidents get treated differently. Doctors get more aggressive. They are going to go in there and do everything that they can. You don’t want to be blamed for losing his life.”
But aggressive use of exotic and unproven therapies (especially when used in untested combinations with each other) can also backfire.
And Sean Conley, the President's physician, seemed to acknowledge an aggressive stance when he said during his first briefing:
“This is the President and I didn’t want to hold anything back. If there was any possibility that it would add value to his care and expedite his return, I wanted to take it.”
In response, Vinay Prasad, Associate Professor of Medicine at the University of California, said that:
"From the point of view of what’s best for his health, it’s bad medicine. The reason we do the studies in the first place is we don’t know if the drugs work, let alone when they are given with other drugs that haven’t been proven. The idea that doing something is better than inaction is a pervasive myth in medicine. More than 90% of people recover from Covid-19 without doing anything.”
Notably missing from the President's regimen so far, is the controversial drug hydroxychloroquine. As we've discussed previously, early studies were promising for this drug. But, all of these were either very small or not done in scientifically sound double-blind studies. And when confronted with larger and more thorough studies, the drug has failed to show any benefit over a placebo. (See "Anti-malaria drug hydroxychloroquine is miraculously resurrected from grave, only to stumble back in again." )
The President's medical team said they are planning to discharge him as soon as Monday. However, this seemed to be contradicted by the White House and also by National Security Advisor Robert O'Brien (who said that days 7 to 10 after the infection are most critical).
William Schaffner, an infectious disease doctor at Vanderbilt University, agreed it would be wiser for the President to stay in the hospital a while longer, saying:
“The President is not out of the woods. We need to keep him in the hospital. He needs to be monitored 24-7.”
In addition to the President and the First Lady, eight others in their orbit have also tested positive. That includes the president's campaign manager, a senior advisor, two senators and the chairman of the President's political party.
Six of those infected attended a White House event last Saturday announcing the President's new Supreme Court nominee. It included both an outdoor event in the Rose Garden and indoor events (before and after) with 180 people. In the Rose Garden, little to no social distancing was exercised and only about 50 people were photographed wearing masks:
Before the event, all potential participants had their temperature taken and passed a Covid-19 test. But as we have seen, though, studies have found that approximately 50% of the infected are asymptomatic and would not be expected to be detected by a temperature test. And we've also seen that many people who are infected with the virus do not show up as positive until days after their infection (giving them plenty of time to spread it). As such, health experts generally advise that testing is only useful for detection of the disease and not for prevention. Dr. Michael Mina, an assistant professor of epidemiology at Harvard T. H. Chan School of Public Health, said, "This was not inevitable, but this was the likely outcome."
Regeneron Antibody Cocktail Shows Promise In Early Study
As we discussed in late April, many immunologists (as well as the former head of the FDA) believe that antibody treatments will become the first major medical breakthrough in controlling the disease.
The Regeneron cocktail treatment is one of these antibody treatments, and we discussed it in detail in May. It uses synthetically manufactured protein antibodies that should theoretically prime the human immune system to attack the virus.
This week, Regeneron released early data on the treatment. The small study was done on 275 nonhospitalized patients. Some of these patients -- 41% -- had not previously made enough antibodies on their own to record a reading, while the remainder had. And for those who had already created antibodies, the drug did best and significantly lowered their virus levels, versus a placebo. Interestingly, those on a low dose did better than those in a high dose, with an average recovery of only 6 days versus 8 (versus 13 days average to recover on a placebo).
Side effects were minimal. Four patients had infusion reactions and two suffered severe side effects. The company is now hoping to confirm this with a second group of patients who have already been enrolled. It's also testing the drug on hospitalized patients, as a preventative treatment for people who are exposed but not yet symptomatic.
Innovia Covid-19 Vaccine Trial Put On Hold Again By FDA
Innovia announced that its Covid-19 vaccine candidate trial has been placed on hold again, after questions were raised by the U.S. Food and Drug Administration (FDA) regulator. The trial was originally supposed to start in August, but at the time, the company said it was still in talks with the FDA.
This time, the company did not detail the FDA's issues, but simply said the concerns are about the "delivery device used in administering the shot."
The vaccine works by injecting patients with synthetic DNA that theoretically stimulates antibodies to trigger an immune response to the Covid-19 disease. The company has not yet brought any vaccine successfully to market.
Innovia has received $71 million of funding from the Department of Defense to scale up manufacturing of the device that delivers the vaccine (which is the item the FDA is now questioning). It has also received funding from the Oslo-based Coalition for Epidemic Preparedness Innovations and the Bill and Melinda Gates Foundation.
If the company can clear the hurdles, the best case scenario is that phase 2/3 trials might begin later in October.
Moderna Says It's COVID-19 Vaccine Won't Be Available Before The Election After All
Moderna’s vaccine candidate is based on a radical messenger RNA technology. Called mRNA-1273, it's currently in final phase-3 human testing with 30,000 participants.
Unlike some other drugmakers, the company has never successfully created a vaccine before, and has twice been criticized for its scientists releasing partial/incomplete test results to the public. (See "Moderna Again Releases a Partial and Incomplete Study That Causes Stock Market to Swoon.")
Additionally, insiders have been selling stock at unusual rates, and many believe the company is under investigation by the SEC. (See "Are Moderna execs sending silent vote of no-confidence on the company's much-hyped covid-19 vaccine?")
Despite this, the company has received up to $1.5 billion from the federal government's Operation Warp Speed program (which is a program to accelerate development of a vaccine and treatments)
And Moderna had previously said it would seek emergency authorization for use of its vaccine on November 1 (which would be two days before the U.S. election).
However, now, the company says it will not have enough supporting data to pursue an Emergency Use Authorization from the FDA until at least November 25.
Moderna CEO Stéphane Bancel said that if testing is successful and the authorization is received, the vaccine won’t be available for widespread distribution until at least Spring 2021 (and most likely late in the first quarter or early in the second quarter).
New Supersized Study Highlights the Dangers of Super-Spreader Events Spread by Children under 17
This week, a team of Indian and U.S. researchers announced they had completed the largest epidemiological study of Covid-19 done so far. Using painstaking contact-tracing techniques, they examined 575,071 people in India who were tested for the virus after they came into contact with 84,965 people with confirmed cases of the disease. This is 10 times larger than the previous largest study, done in South Korea.
The first interesting finding is that a startlingly small number of people were overwhelmingly responsible for the majority of the disease spread. In fact, 70% of people with the disease caused no new infections to anyone around them (at least that the researchers could determine). On the other hand, 8% of the people with Covid-19 caused 60% of the new infections.
Health experts say this correlates with the theory of Covid-19 "superspreaders" -- that one individual or event (such as a poorly ventilated indoor space) can trigger a high number of new infections.
As an example, researchers tracked down 78 people who sat within three rows of an infected person on a bus or train for more than six hours. And they found that a startling 80% of these ended up sick with the disease. In contrast, those who were merely in the same room as an infected person and stayed 3 feet away only became infected about 1.6% of the time.
The other notable thing is that the study found that children younger than 17 transmitted the virus just as well as those who were older. This is contrary to what many believe, since children are much less likely to show symptoms and/or die of the disease. But some health experts pointed out that this same result was also shown in other recent studies (which we have discussed in previous weeks). And it would provide a plausible explanation for the super-spreader events that have occurred at U.S. summer camps (like the Georgia YMCA camp we talked about a few months ago) and grade school incidents.
Additionally, the study found that children are not immune from passing on the virus to other children or getting it from them. The average child aged 5 to 17 also passed the virus on to 18% of other children their own age.
Antonio Salas, a Spanish researcher who was not involved in the study but has investigated the role of super-spreaders in the pandemic said:
"The study’s findings regarding children are important in light of previous reports suggesting a minor role of children in the pandemic. National policies on how to proceed with children in schools and other social activities could change dramatically if the scientific evidence underpins the idea that children can infect as efficiently as adults, and even more, they could also behave as super-spreaders."
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.
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.
For third week in a row U.S. Progress fighting virus death stalls out; World round up: Europe continues to battle it's second wave; State roundup: Infections continue to escalate uncontrolled in third wave; Another painful and underwhelming week for Georgia's bellwether economy; Economy forced to take another week of new, record job loss; Financial cliff update: The roller coaster week; Apartment landlords in tourism-dependent and high-expense cities start to feel the heat; Chasm between commercial real estate buyers and sellers gets even wider; Study finds that two thirds of those who get Covid-19 are still battling chronic side effects months later; Update on my investment strategy.