How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 37: November 7th
Updated: Feb 8, 2021
No doubt anymore: Third U.S. death wave has clearly arrived; World Round Up: Sweden walks-back controversial “lock-down lite” strategy after it crumbles from second round of viral onslaught; State round-up: “A whole lot of hurt”; Georgia’s bellwether economy: Dismal is as dismal does the; Yet again, economy pummeled by more record job loss as initial recovery bounce continues to weaken; Financial cliff update: No progress and control of new Senate still unresolved; U.S. military battles silent enemy of Covid-19 within its ranks; Multifamily rents start to show cracks and decline at record pace in Q3; Many investors can’t exit core real-estate funds; Study suggests virus killing t-cells can last in the body for at least 6 months; German CureVac vaccine looks promising in early human trials; Nightmare scenario hits Denmark: Coronavirus mutation from minks is resistant to existing antibodies; could cause 2nd pandemic and render all leading vaccines weakened or useless.; Update on my portfolio strategy.
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This week, there was a ton of news on virus-related spread, economic impact, and health and treatment info.
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.
No Doubt Anymore: Third U.S. Death Wave Has Clearly Arrived
For the 29th 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 242,670 (versus 235,453 last Saturday morning). Here's a quick summary of what's happened so far:
The first U.S. death wave mainly hit urban areas in the Northeast, started in early March and peaked in early April. Then the country fought it down until early July.
That marked the start of the second death wave, which ran predominantly through the Sun Belt. It peaked in mid-August, before starting falling.
Then in the beginning of October, progress stopped, then plateaued, and then ominously headed back up (for a week and a half). This looked disturbingly like it could be the start of a 3rd death wave.
How did things go this week?
Unfortunately, the climb upward continued. And clearly we are now in a third death wave.
Unlike the two previous waves, this one is widely distributed throughout the country, which many experts say will make it much more difficult to contain and fight. Still, it’s early, anything is possible. We’ll be watching this very closely to see what happens.
Gazing At The Crystal Ball: Infections Continue To Rocket Into The Stratosphere
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 both 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. And 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 did virus infections look, this week?
There’s nothing to like about this chart. Infections are continuing to accelerate. And they have again shattered all records, including those from the initial, dark months when the pandemic began.
We’ll take a closer look at what happened in the state section below.
Looking at the broader picture, this means that the third infection wave (which began about 5 weeks ago) is still uncontained and has continued to strengthen.
As we discussed earlier, this was unfortunately exactly what many health experts predicted. Super-spreader events triggered by Americans not following health precautions on the May 23rd Memorial Day weekend led to the end of all progress in the first wave and triggered the second. And when the same thing happened on Labor Day (September 7th) they warned we could expect 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?" ).
Sadly, so far, they've been right.
World Round Up: Sweden Walks-back Controversial “Lock-down lite” Strategy After It Crumbles from Second Round Of Viral Onslaught
How did other countries do this week?
As we discussed in part six, South Korea uses an aggressive mixture of the Three T's of epidemic control (testing, tracing and treatment). And through most of the epidemic, it has been one of the world leaders in both minimizing deaths (one of the lowest per million) and also minimizing economic damage (their economy is now mostly open and growth is projected to barely shrink this year, while in comparison, the U.S. still has significant closures and is projected to take a -5.9% hit to GDP).
This week, South Korea looked like this:
This was a mixed week for South Korea. For the last several weeks, the country has been battling a third wave, which was triggered by an super-spreader event at a church in Seoul. This week, deaths went down and up, and so they essentially plateaued. But so far anyway, they still appear to be in control of their third wave. The biggest positive for South Korea is that throughout this pandemic, 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 has been a major factor allowing them to keep their economy open while suffering far less damage than virtually everyone else. And this week again, the South Korean economy continued to remain predominantly open for business.
Meanwhile, Sweden has opted for a lockdown-lite strategy (see part 8). So on ond hand, they’ve enacted some lockdown measures (shutting down grade schools, prohibiting gatherings larger than 50, instructing elderly people to stay home and young people to work remotely, enacting social distancing rules at restaurants, etc.). But, they never went into the full-on lockdown seen in many other countries. And the hope has been that if this worked well, it might provide another workable model for other countries looking to deal with the virus.
So far though, it’s been a dual failure. Economically, the country has been thrown into a deep recession (roughly equivalent to the recessions of others that enacted a full lockdown). And the country has had to pay a horrific public-health price (with stratospheric levels of total deaths compared to others). (See last week’s article for full details). But, in early August, Sweden suddenly brought their deaths down dramatically. And when that happened, and the numbers continued to stay down, the world took notice. Some even whispered that perhaps the country had achieved “herd immunity,” which would mean the virus had nowhere else left to run and would die down on its own. Regardless of the reason, if Sweden could keep deaths ultra low, and other countries stumbled, and if we got no effective medicines from science, then by Q2 of 2021, their strategy might have been proven to be the most effective.
However, this week, the entire strategy got up-ended. First, let’s take a look at what happened with deaths:
We’ve watched them over the last couple of weeks, and seen this increase slowly building. But, Sweden’s data tends to be so noisy, and it was hoped that noise is all that this was. But, this week, it's clear that the country is now in a third death wave, which started around the beginning of October.
Again, infections are generally a good leading indicator of what deaths will be doing in the coming weeks. How do infections currently look?
This is a nightmare scenario graph. Infections are not just increasing (and in a very easily visible third wave) but they are accelerating.
Last week, Anders Tegnell (who is the architect of the Swedish strategy) acknowledged the emerging crisis, saying:
“The country [is] approaching a critical juncture."
He also criticized those who theorized that Sweden had achieved herd immunity without a vaccine, saying that was highly implausible:
“Throughout history, there has up to now been no infectious disease whose transmission was fully halted by herd immunity without a vaccine.”
Tegnell went further, and added that deliberately pursuing a herd immunity strategy in a prevaccine world would be "futile and immoral.” And, he also met with local health officials to enact additional local health restrictions and plan what might happen if the situation escalated.
Then, this week, the Swedish government announced that new national rules will put total capacity limits in restaurants and cafés and also mandated that no more than 8 people may sit at a single table. The country also announced new local restrictions in three additional counties, which include the largest cities in the country. Still, Swedes pride themselves on taking personal responsibility without need for orders. And so perhaps this is why the government didn’t put strong teeth behind some of the restrictions like other countries have done (with strong penalties). Instead, Swedish Prime Minister Stefan Lofven pleaded with citizens to voluntarily comply:
"We are going in the wrong direction. The situation is very serious. Now, every citizen needs to take responsibility. We know how dangerous this is."
We’ll see how they do in the coming weeks.
No Relief for Europe as Virus Continues to Run Amok
Meanwhile, the other nations in Europe have been hit by a brutal second wave of deaths. Initially the continent was pummeled by the first wave, but with the use of aggressive lockdowns infections and deaths fell to extremely low levels. Then a public that had gotten tired of health precautions cheered the loosening travel restrictions and reopened schools (despite warnings from many health experts). And, as colder weather hit the death toll has skyrocketed. So authorities have been forced to enact a variety of lockdowns (which we've described in detail in previous weeks).
Spain is a popular travel destination and was one of the first to get hit by the second wave. And they've been battling an increasingly bad situation for more than two months. But then last week they plateaued which gave hope that they might be close to getting control of things. How did they do this week?
Unfortunately, Spain’s deaths kicked up into high gear this week, and came close to all-time highs. So the impression of progress, last week, was just a mirage caused by a temporary glitch.
How about the U.K., France, Netherlands and Belgium?
This is a disaster of a chart as deaths clearly continued to accelerate. And if this continues for a week or two more, they’ll eclipse even the record deaths from early on in the pandemic (which many had assumed would be the worst we would endure).
In the U.K., government science advisors warned that, at this rate, British hospitals will be overwhelmed in six weeks. And one-time virus skeptic Prime Minister Boris Johnson (who later spent three days in the ICU fighting a severe case of he disease), had to announce that the country will be entering a second lockdown. Johnson said:
“We will get through this, but we must act now to contain this autumn surge.”
All nonessential shops, pubs, cafes, restaurants and gyms in England have been ordered to close until December 2nd. Grocery stores, child-care facilities, schools, colleges and universities will remain open.
Several other countries also tightened restrictions in the face of escalating deaths. For example, Portugal announced a lockdown affecting 70% of the country, starting November 4th. And Austrian Chancellor Sebastian Kurz said his country would implement “hard measures” beginning Tuesday, with a nationwide lockdown that includes nightly curfews from 8 p.m. until 6 a.m.
Kurz said private visits among family and friends was the main driver behind the surge in Austria and said:
“We’ve seen an exponential increase in cases in the last few weeks, and an almost explosive increase in the past seven days . People will still be allowed to go to work, to provide help, and to stretch their legs, but it is a ban on visiting other people during these hours.”
State Round Up: “A Whole Lot of Hurt”
For the last several months, we've watched individual U.S. states in order to get insights on what might happen next at the national level. And here's what we saw:
After the Memorial Day weekend (in May), we saw the second wave of infections (and eventually deaths) start in the Sunbelt and then spread to the Midwest and Northeast. In response, many states put in place virus control measures, including reinstatements of key portions of lockdowns and rules mandating the wearing of masks (in more than 50% of states). And the Sunbelt states made huge progress.
Then after the Labor Day weekend (in September) the U.S. reopened schools and cooler weather began in the north. Almost immediately, a third wave began. While this started in just the Midwest and Northeast, it has now spread across every major area of the country. And while earlier waves hit mostly urban areas, this new wave is being led by rural places.
And in late October, we saw 38 states showing increased hospitalizations and 14 reporting record highs. This caused public health officials in several areas to plead with the general public to be more careful as they experienced shortages of critical hospital workers and crucial drugs.
What happened this week?
First let's look at Colorado:
Unfortunately, new infections continued to skyrocket in Colorado. And deaths also rose modestly, which was enough to set a third-wave high.
Colorado Governor Jared Polis warned citizens:
“We’re not doing a good enough job, my fellow Coloradoans. We need to do better. Three days in a row with more than 2,500 cases. Now remember, six weeks ago, we had 300 to 400 cases a day. We’re reaching an alarming inflection point. If this trend continues, our hospitals will run out of capacity in the weeks ahead.”
How did North and South Dakota do? Here's North Dakota:
And here’s South Dakota:
These are both terrible graphs, and show infections and deaths both continuing to soar at all-time highs.
How about Wyoming?
Unfortunately, this is the same story as the Dakotas, with increasing infections and deaths both setting unwanted records.
How about hospitalizations across the nation? According to the Covid-19 tracking project, these are also surging dangerously in a third wave, and ominously approaching the unwanted peaks of the second and first.
And in a startlingly short time (just the week from October 30 to November 6) hospital admissions increased more than 30% in Michigan, Florida and Ohio and more than 20% in Minnesota, Illinois, Arizona, Wisconsin and Missouri. Texas currently has the most patients at 6,377 hospitalizations (and an increase of 6.7% versus last week).
Nationwide, 50,678 beds were occupied by people with the disease. Additionally, almost 11,000 coronavirus patients were being treated in intensive care units.
Last weekend, Dr. Anthony Fauci, the nation’s top-ranking infectious disease expert, summed it all up with a dire warning:
“We’re in for a whole lot of hurt. It’s not a good situation. All the stars are aligned in the wrong place as you go into the fall and winter season, with people congregating at home indoors. You could not possibly be positioned more poorly.”
Georgia’s Bellwether Economy: Dismal Is As Dismal Does
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 about 6 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 Applebee’s. This is a fast-casual restaurant and would be expected to do better in a recession, versus a higher-priced fine dining restaurant. How is it doing?
After recovering relatively well, the last two weeks have been unkind to the Applebee’s chain. And currently, they are at an unprofitable-looking -17.5% footfall versus last year.
For retail, let’s look at JCPenney, which is a retailer that sells a variety of goods in stores that are usually anchors in malls.
That is a devastating graph, showing -45% footfall versus last year. No retailer would be expected to stay in business for long under those circumstances.
For fitness, let’s look at Orange Theory Fitness. This is a higher end fitness club with personal trainers. And since high income employees have tended to be spared much of the worst of the pandemic, this might be expected to have better results than a middle-of-the-road club.
On one hand, gyms have high fixed costs and low profit margins. So a -13% footfall is probably extremely painful for them and unlikely to be profitable. On the other hand, it’s better than some of the much worse results we’ve seen in other gyms.
Finally, let’s look at hotels. Holiday Inn Express is a budget hotel that would be expected to do better in a recession than a more expensive, middle-of-the-road one.
This graph is very disappointing, since Holiday Inn has been one of the few bright spots over the last couple of weeks. But it’s currently at a painful looking -13% footfall versus a year ago. Still, it was doing well only a week ago, so we might hope that maybe it’s just a glitch. And we’ll continue to monitor.
Overall, it was a pretty dismal week for many of Georgia’s Covid-19 sensitive businesses.
Yet Again, Economy Pummeled by More Record Job Loss As Initial Recovery Bounce Continues to Weaken
Unemployment has historically been one of the most reliable indicators of when the U.S. is entering a recession and when it’s recovered. So that's why we examine it very closely every week. And unfortunately, over the last 28 weeks, the economy has been hammered week after week by massive levels of new unemployment. And each week the new damage has continued to be worse than any pre-pandemic week on record. This week was no different, with 751,000 people newly unemployed. This was almost imperceptibly lower than the 758,000 (adjusted results) from last week.
Meanwhile, as we've talked about every week for the last several months: "continuing claims" is also a useful statistic to look at within this report. Jobless claims only tell us who lost jobs over the last week, but continuing claims removes the ones who have been rehired. So in theory, continuing claims tells us how many continue to be unemployed right now. In practice though, even this number isn't perfect. The problem is that some people have been unemployed for so long that they've exhausted their unemployment benefits and unhelpfully disappear from view. And the more people who fall out, the more this number will understate the true long-term joblessness. Still, it's better than nothing.
This week, the number fell very slightly to 7.3 million from 7.76 million million last week (and 8.37 million the week before). So this disappointed those hoping for a more meaningful improvement.
Additionally, this number suffers from a measurement issue that can cause it to understate the damage. And that’s because it goes down (making continuing unemployment look “better”) when people have exhausted their state benefits without being able to get a job (which is not an improvement). How many of these people are there? Unfortunately, it doesn’t directly tell us, but we can try to guess. We know that 363,000 more people are now on the Pandemic Emergency Unemployment Compensation (PEUC) program versus last week. This is a program passed by Congress, which gives people who fall through the state unemployment safety net and additional 13 more weeks of benefits. And this increase was lower than the 587,000 people that were added last week, but nonetheless continued to push up the grand total. So at least some of the “improvement” in continuing unemployment was probably an allusion. Regardless of the interpretation of these issues: once again, those hoping for a quick improvement in support of a V-shaped recovery were disappointed.
And this week, Ann Elizabeth Konkel, an economist at the jobs website, Indeed, summarize the situation, saying:
“The economy is on its own against the virus. Accelerating cases are an ever-present threat during winter, and a virus surge means economic uncertainty for businesses. Until that uncertainty is eliminated, the labor market will struggle to return to what it used to be.”
And unfortunately, there were announcements of more pain to come:
Chevron, an energy company that's been hammered by the collapse in demand for oil, said this week that it planned to cut a quarter of the employees at its recently acquired Noble Energy.
Charles Schwab, a financial services firm, announced after completing its purchase of TD Ameritrade, that it would cut 1,000 jobs from the combined company.
Boeing, an aerospace manufacturer experiencing depressed demand for new planes, announced it would cut another 11,000 employees (on top of the 19,008 announced three months ago).
Later in the week (on Friday), the Bureau of Labor Statistics released its much-anticipated payroll report.
It showed that nonfarm payrolls increased to 638,000 (versus 672,000 last month) and that the unemployment rate fell one percentage point to 6.9%. So on one hand, this was positive progress, which was good to see. On the other hand, the level for jobs is still 10 million less than where it was before the pandemic. So this is far short of a full recovery. And worse, this increase was worse than the month before, meaning that momentum is fading increasingly with each subsequent report. Many economists agreed this is a very troubling sign and not enough to facilitate a quick, V-shaped recovery.
Further, as we talked about in part 24, the headline unemployment rate of 6.9% doesn't include all of the unemployed. The problem is that it omits people who have given up looking for work. That might makes sense in normal times, but now when many people who want work can't get it, because the jobs aren't available yet. So, to get the full picture, we need to look at the U-6 rate, which is 12.1%. This was barely improved from the 12.8% of last month (and 14.2% prior). And it still means an unhealthy economy with more than one in ten Americans out of a job (which was essentially the same as last month).
On Thursday, Federal Reserve Chairman Jerome Powell said during a press conference that:
“The recent rise in new COVID-19 cases, both here in the United States and abroad, is particularly concerning to the central bank and dangerous to the fragile U.S. economy. As we have emphasized throughout the pandemic, the outlook for the economy is extraordinarily uncertain, and will depend in large part on the success of efforts to keep the virus in check.”
He also said that fiscal support (meaning new stimulus) would be needed to keep the fading recovery going:
“We'll have a stronger recovery if we can just get at least some more fiscal support, when it's appropriate, and to the size Congress thinks it's appropriate. There are plenty of people on Capitol Hill—on both sides of the aisle, on both sides of the Hill—who see a need for further fiscal action and understand perfectly why that might be the case.”
So far though, stimulus efforts have been stymied. For the latest on what has happened with that, this week, see the “financial cliff” section, next.
Financial cliff update: No progress and control of new Senate still unresolved.
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 many alternative investment asset class (such as real estate).
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 months ago, the stimulus payments were a one-time event, and many of the moratoriums have ended or will be in January of 2021. As a result, the Federal Housing Authority (FHA) estimates that 8 million delinquent homeowners are currently facing eviction in January of 2021. If this happens, it would spark a tidal wave of foreclosures that would dwarf the Great Recession. And the Federal Reserve Bank of Philadelphia found that there are millions more delinquent renters (owing an estimated $7.2 billion by the end of the year). These also currently face the same threat in January.
Federal Reserve officials and virtually all economists have called for additional stimulus to head off this threat. But unfortunately, the two political parties and the president were unable to come to agreement on a new stimulus law before the election. Here are their current positions:
One party (which we’ll call the large stimulus party) wanted a $3.5 billion spending package, which was later reduced to $2.2 trillion (including aid for increased testing, higher unemployment benefits, and states whose revenues have been reduced by coronavirus.
The other party (which we’ll call the small stimulus party) wanted a $1 billion spending package, and then a $500 million law (with no aid for testing, lower unemployment benefits and no aid for states). However, it can’t get a large enough number of its own members to agree to support either of these packages to pass one as a bill. This is because a significant number feel that there should be no additional spending.
The White House has held a variety of positions, ranging from endorsing the package of less than $1 billion to saying it would prefer to go higher than the $2.2 trillion currently offered by the large stimulus party.
Since all parties must agree to pass a law, nothing has happened so far.
What happened this week?
This week, the U.S. had a presidential election. Shortly before, the President reiterated that he wanted to do a stimulus deal afterwards. And the Senate leader of the small stimulus party said he was also willing to do a deal.
"We need another rescue package. The Senate goes back in session next Monday. ... I think we need to do it and I think we need to do it before the end of the year. I think that's job one when we get back.”
However, later in the week, he expressed an important caveat. He claimed:
“[The jobs report (mentioned above)] is a stunning indication of a dramatic comeback of the economy. [And] paired with the surge in GDP in the third quarter, [shows] our economy is really moving to get back on its feet.
That, I think, clearly ought to affect what size of any rescue package we additionally do. Something smaller, rather than throwing another $3 trillion at this issue, is more appropriate.”