How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 33: October 10
Updated: Feb 8, 2021
For third week in a row, U.S. progress fighting virus death stalls out; World round up: Europe continues to battle its 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-setting job loss; Financial cliff update: the roller coaster week; Apartment landlords in tourism-dependent, high-expense cities start to feel the heat; Chasm between commercial real estate buyers and sellers grows 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.
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This week, there was new economic info, health info, 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.
For Third Week in a Row, U.S. Progress Fighting Virus Death Stalls Out
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 218,685 (versus 213,543 last Saturday morning).
Eight weeks ago, the U.S. turned the corner on the second wave of deaths, and wrestled it down lower for six weeks. Then, two weeks ago, progress stopped and came to an ominous plateau. How did things go this week?
The label on the CDC site is blocking our view of the most recent week. Here's how it looks, zoomed out:
Unfortunately, for the third week in a row, progress has plateaued.
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?
For the third week in a row, infections are moving in the wrong direction and increasing. And the contours of a third wave continue to stay in place.
As we discussed earlier, a third wave was expected by many. 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, or how long it will last. We'll continue to watch.
World Round Up: Europe Continues to Battle It's Second Wave
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 was a good one, as they appear to have turned the corner on their third wave and are now beating it down. Still, it's early, so we will continue to monitor.
Either way, the biggest positive for South Korea is that even at their highest, 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). So the hope is been that if this works well, it might be a workable model for other countries looking to do with the virus.
Note, they have actually implemented some lockdown measures and applied the 3 T's: 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. Additionally, they do extensive testing and contact tracing. And when a person tests positive, they and their entire family are required to quarantine for 5 to 7 days (although school children receive an exemption). This mandatory quarantine would be difficult to implement in some other countries (like the U.S.).
But, they also never went into the full-on lockdown seen for various stretches of time in many other countries.
So how are they doing? 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 most likely 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 has been 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, Sweden has pulled ahead of the United States and is 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, health experts had previously warned a second death wave was likely to occur, due to the loosening of traveling restrictions, reopening of schools, and public weariness/resistance to following precautions, and possibly also as a result of cooling weather.
And sure enough, the second wave hit numerous countries across the continent, which has caused them to tighten restrictions again. As we discussed in previous weeks, this tightening has included locking down cities that have been affected, restricting specific industries, reducing movement and requiring stronger adherence to antivirus guidelines.
Among the first to get hit was the popular travel destination of Spain. And they've been battling an escalating second wave for two months. How did they do this week?
This week brought Spain a welcome respite, with deaths plateauing for the first time in a long while. So perhaps they're finally getting control of things. We'll see how they look next week.
How about the U.K.? About two weeks ago, we discussed how officials imposed lockdowns in several cities after infections had skyrocketed. Here's how they look this week:
Unfortunately, this was not a happy week for the U.K.. For the fifth week in a row, deaths continued to rise rapidly in the second wave. On the other hand, there was perhaps a tentative sign of reaching the top, near the end of the week, as deaths plateaued. We'll watch them and see how they do.
How about France? Officials there have also imposed lockdowns due to the growing spread of the disease:
For yet another week, deaths continue to rise. However, France's increases are starting to slow, so they may be showing signs of nearing their own top, as well.
State Roundup: Infections Continue to Escalate Uncontrolled in Third Wave
For the last 14 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, but this was accompanied by surges in the Midwest and Northeast. And in the last couple of weeks, the virus has been surging amid school re-openings, the Labor Day weekend and, perhaps, the colder weather in the north).
What happened this week? Let's start with the four states that have the highest escalation in infections last week: North Dakota, South Dakota, Wisconsin and Montana. First, North Dakota:
Unfortunately, North Dakota had a bad week and continues to experience both escalating infections and deaths. And they do not appear to have their second wave under control.
How about South Dakota?
The story here, in South Dakota, is almost a mirror image of North Dakota. It was another ugly week of escalating infections and deaths.
How about Wisconsin?
The analysis is starting to sound like a broken record. Wisconsin also had a bad week of record high infections and deaths.
How about Montana?
Montana also had a painful week of rapidly escalating infections. The one positive is that deaths did not hit a new high. At the same time, they remained at painfully high, elevated levels.
How about Oklahoma?
On one hand, Oklahoma didn't hit new highs on either infections or deaths. On the other hand, both those numbers remained at historically high levels. So perhaps this is a sign that they are getting control of the second wave. Or it may end up being just noise. We'll see.
How about Iowa?
Iowa's bump in infections around September is most likely artificial (and the result of adding positive antigen tests from previous weeks all at once). Ignoring that: this week, they had a small drop in infections but then another increase, effectively leaving them at all-time highs. Deaths also continued close to or at all-time highs for the second wave. So this was a discouraging week for them.
This week, Kansas's infections continue to climb, although at a much lower level than other states. And deaths continue to stay elevated, to near-record highs for the second wave.
So all in all, it was not a great week at the state level.
Another Painful and Underwhelming Week for Georgia's Bellwether Economy
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 also 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 at Wendy's. This is a fast food/low-cost restaurant with considerable drive-in business. So it would be expected to do better in this recession versus higher cost/non-drive-in oriented restaurants. How is it doing?
This week, Wendy's stayed at a painful -18% footfall versus a year ago. Restaurant profit margins tend to be very thin, so this is unlikely to be profitable. And worse, they have not improved and have actually backtracked since their best point in the recovery back in September.
Let's take a look at retail with Burlington Coat Factory:
For the last four weeks, Burlington's numbers had been improving and they looked like they might be moving to sustainable levels. Unfortunately, this week, year-on-year footfall fell off a cliff to a brutal -25% again.
For fitness, let's take a look at Gold's Gym. This is a traditional gym, so would be expected to be doing about average along with other similar gyms.
Unfortunately, they are at a crushing -33% versus last year's footfall. And worse, they have seen no reasonable form of relief at all, this entire pandemic. These look like the kind of numbers that cause bankruptcies.
Finally, let's look at hotels. Holiday Inn Express is a budget hotel that would be expected to be doing better in a recession than others.
For the last four weeks, they had been steadily improving. Unfortunately, this week, they experienced a little bit of backtracking at a painful -12%. Still, their data is noisy, so we'll continue to watch them.
Overall, it was another painful and underwhelming week for Georgia's economy.
Economy Forced To Take Another Week Of New, Record Job Loss
Unemployment has historically been one of the most reliable indicators of when the U.S. is entering a recession and when it has recovered. That's why we look at it very closely every week. And unfortunately, over the last 26 weeks, the economy has been hammered over and over again by massive levels of new unemployment. And each week has set records, each higher than any previous week before the pandemic.
This week was no different, with 840,000 newly unemployed. Not only was there no improvement from the previous week, but it was actually slightly worse (with only 837,000 last week).
However, as we mentioned last week, 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 for the second week in a row. This was intentional, so they could catch up on a backlog of filings and improve their systems. So, for this week and the last one, the numbers have simply been a repeat of what they were the previous week. And many analysts believe this has the effect of making them look artificially lower. We'll see, next week, when California comes back online.
Meanwhile, as we've talked about every week for the last several months: "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 million. If accurate, this was a slight drop from the 11.8 million last week. And this was a modest improvement. 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.
The biggest increases came in Florida, Illinois, Virginia and Massachusetts and may reflect cuts from major airline hubs (which we discussed last week).
Some economists warned that this metric may have already started to become less useful. The unemployment crisis has continued for much longer than originally expected, and so some of the chronically unemployed are believed to have already exhausted their federal benefits. If that's correct, then they would no longer show up in this metric, even though still unemployed. And if so, then this will cause the number to be artificially lowered.
Incidentally, after losing their federal unemployment benefits, people are often moved to state benefits. And when they exhaust that money, then they are able to access the new Pandemic Emergency Unemployment Compensation (PEUC) for a while. And we do know the number of people who are at that stage. In the past week, 153,700 new people began PEUC (bringing the total number of people in the program up to 1.96 million). This further suggests that the number of long-term, chronically unemployed is increasing. And economists widely agree that this type of long-term unemployment is potentially crippling both for the people suffering through it and for the economy in aggregate.
Unfortunately, there were more announcements of future pain, across a spectrum of industries:
Cineworld, the second biggest cinema chain in the world announced on Thursday it will close 536 Regal theaters in the United States (and 127 in the U.K.), which will affect 45,000 employees. As we've talked about in past weeks, the cinema industry has been decimated by lack of attendance, as well as by movie studios continuing to push back big releases. The latter helps the studio avoid a pandemic-related flop, but also means even fewer people visiting the theater than in a normal year.
AT&T announced a plan to lay off thousands at HBO, Warner Bros. and other parts of Warner media, in order to cut costs by 20%. The company had previously laid off 600 people in August. The company is coming under severe strain, as revenues have dropped significantly from movie tickets, cable subscriptions and television ads.
Wells Fargo, the largest employer in the U.S. banking industry, announced on Wednesday that it would begin workforce reductions. An immediate 700 people in commercial banking will be laid off, and insiders are reporting that potentially "tens of thousands" more pink slips are on the way.
Then on Friday, cosmetics and fashion firm L'Oreal announced it would be closing retail locations and cutting 400 US jobs. Cosmetic brands are suffering due to people socializing less. And luxury brands have been hit hard as well, thanks to the falloff in tourism and buyers' squeezed budgets.
On Saturday, Chevron announced that 700 employees will be laid off as part of a cost-cutting program that is expected to eliminate up to 15% of its workforce. As we've discussed previously, the U.S. oil industry has been devastated by the collapse in oil demand.
Multiple colleges announced that they would be laying off staff, as enrollment is down and budgets are tight. Ithaca College, Duke University and Memphis University all announced that pink slips would be going out.
Meanwhile, Federal Reserve Chairman Jerome Powell acknowledged that unemployment is not disappearing and called for lawmakers to provide additional stimulus:
"It appears that many will undergo extended periods of unemployment, there is likely to be a need for further support... Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. ... By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste."
Meanwhile, Philadelphia Federal Reserve Chief Patrick Harker, specifically said that "at least another $1 trillion" of additional stimulus will be needed to sustain the recovery. “We really could use that additional fiscal stimulus to get through this period," he added.
How did lawmakers respond to these calls, this week? See the next section for an update ("Financial Cliff Update: The Roller Coaster Week").
Financial Cliff Update: The Roller Coaster Week
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, ther