How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 4: March 22nd Update
Updated: Sep 6, 2023
The latest updates on Italy's spiraling crisis, the U.S. lock-downs, positive news on X-factors like (drugs and mutations), updates on jobs, some encouraging news from China, a tantalizing clue on the origin of Covid, the promise of next-generation tests and more.
(Usual disclaimer: I'm just an investor expressing my personal opinion and not a registered financial advisor, attorney or accountant. Consult your own financial professionals before making any financial decisions. (Code of Ethics: I/we do not accept any money from any sponsor or platform for anything, including postings, reviews, referring investors, affiliate leads or advertising. Nor do we negotiate special terms for ourselves in the club above what we negotiate for the benefit of members.).
Quick Summary
So much has happened in just a week. Rather than integrating these into the original article (and have many people probably miss the changes), I'm keeping them all together, here, in a brand-new update. And going forward, I'll continue to do the same thing.
By the way, this is one article in a multi-part series that has been published weekly since the pandemic began back in March 2020. The series started with three introductory articles on the virus, effect on the economy and alternative investment classes. And 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.
Italy's Spiraling Crisis
In a very short time, Covid deaths in Italy have surpassed China (3,405 on Thursday versus 3,249 ).
As feared, even more hospitals are overloaded and more doctors are performing wartime-style triage. The elderly or those with medical complications are being denied treatment in favor of the young and healthier. This can essentially be a death sentence. (See "hospital overload" in part 2). Some morgues (running 24 hours a day) have not been able to keep up with the dead bodies. On Thursday the military stepped in to take them elsewhere.
To fight the virus, the country has instituted a series of increasingly wider lock-downs (from local on February 21st to national on March 10th). These were generally more severe at the local level (February 21 lock-down of Lombardy restricted all work and public gatherings) and looser at the wider levels (initially at the national level, many non-critical businesses and industries were allowed to continue operating).
But as the death toll rose, Prime Minister Giuseppe Conte and the national government came under more criticism and pressure from trade unions, mayors and regional presidents. On March 21, Italy tightened restrictions further to shut down all the unnecessary businesses and industries.
Since the believed average incubation time of the virus is 14 days, every action taken is expected to take some time to have any effect on the mortality statistics. This will probably feel like an eternity to those caught up in this escalating crisis. However, as of this writing, Italy's exponential doubling time (time for the deaths to double) has decreased from 2 days to 4 days.
So some progress is happening. And hopefully we will see improvements through next week and the following.
In comparison, the US doubling time is still 3 days. This is ominously unchanged from where it was a week ago.
U.S. Lockdown Update:
Currently, the governors of Illinois, California and New York have implemented virus-related lockdowns. Collectively, these represent more than 25% of U.S. GDP. The governor of Florida has also implemented a looser lockdown.
There is currently no mandatory national lock-down in place.
Last week, in the midst of writing part 3, I wondered if I was going out on a limb by surmising that the control measures would be likely to cause a recession. This week, numerous firms from Citigroup to J.P. Morgan rushed to revise their formerly optimistic forecasts downwards. Goldman Sachs is now forecasting 0% Q1 GDP, -5% Q2 GDP (i.e. a technical recession) and then a rebound.
Sheltering-at-home update in the US
Currently, the voluntary compliance with recommendations for avoiding public places and sheltering-at-home looks mixed. In a poll on Friday:
1) 47% of Americans said they are not going to any public places and only socializing with friends and family virtually (or not at all).
2) 25% are continuing to socialize with family and friends in their own or other houses.
3) 20% are continuing to socialize in public places (either a little bit less than before or with no change).
The last category included many spring breakers, including one partier who told Reuters, "If I get corona, I get corona. At the end of the day, I’m not going to let it stop me from partying." Many health experts believe the level of voluntary compliance is too low to either meaningfully lower the infection curve or significantly reduce the chance of hospital overload. In the absence of national mandatory requirements, some doctors have taken to posting pleas for people to shelter-at-home on social media, such as Instagram and Twitter:
Young People Not Invincible to Covid
The Chinese Covid study that we discussed in Part 1 found that the mortality rate of those under 40 was only 0.2%.
This led many to incorrectly conclude that people under 40 cannot catch the disease. But as we discussed in Part 1, studies have found that younger people are still just as likely to get it and spread it. So they can essentially act as symptom-less carriers to the older and physically compromised (who do have an increased mortality rate).
But this week, the CDC reported more granular data. In the U.S., 15.3 - 20.8% of 20 to 44 year-olds with Covid are having severe enough problems that they are requiring hospitalization.
There's an argument that these numbers are inaccurately high. As mentioned in part 1 (and as is still the case), the U.S. is unable to test at adequate volume. So this includes only people with the worst symptoms and the highest probability of being hospitalized. But either way, it still shows that young people can be seriously affected.
Promising news on repurposed drugs:
As mentioned in Part 1, a vaccine will not be available until at least December 2020 or mid-2021. But, many existing drugs that were developed for other things and have already been shown to be safe on humans, are being tested for Covid. And even a relatively small improvement can make a big difference in a large number of outcomes.
This week, we got back some promising news on a couple of these drugs:
a) Chloroquine (anti-malaria drug)
Professor Didier Raoult in France announced successful human clinical trials for the drug on 24 patients. He found that after 6 days, only 25% were still contagious (versus 100% of the control group).
The drug is already being used in China and South Korea where guidelines call it "effective" against Covid. Another recent U.S. study by Stanford University School of Medicine, also said that the drug did appear to be an "effective treatment". Tantalizingly, the U.S. report also says that the CDC research shows that Chloroquine may also be useful as a prophylactic (preventative) measure. If it turns out to be true, that could also be extremely helpful while waiting for the vaccine.
The drug is inexpensive, globally available and has been used since 1945 and well-known. It can be prescribed to adults and children of all ages including pregnant women and nursing mothers. On the other hand, it's not safe for people who suffer from heart arrhythmia, impaired kidneys or liver.
Contrary to what's believed by some, the FDA will not be approving Chloroquine for use in the U.S. for Covid-19 "almost immediately," because it has to do its own trials which will take time.
However, the FDA also gives doctors wide license to use drugs for conditions beyond their initial FDA approval ("off label"). And already, several US hospitals are using the drug for this.
As word of the effectiveness of the drug has spread, this has caused a shortage in the US since March 9.
On Thursday, the German manufacturer Bayer said it had donated three million tablets of chloroquine (which they sell under the name of Resochin) to the U.S. government for potential use as a treatment for coronavirus. They also asked for emergency approval by the FDA to sell the product in the U.S. as well (which they are currently not allowed to do).
On Friday, Teva announced it would donate 16 million tablets to hospitals throughout the US. Mylan announced that it is ramping up production in West Virginia with supplies to make 50 million tablets. And Novartis pledged a global donation of 130 million hydroxychloroquine tablets.
2) Favipiravir (Japanese flu drug)
Human trials of 340 patients in China using Favipiravir (Japanese flu drug) found that patients tested negative for the virus after a median of 4 days after becoming positive, compared with a median of 11 days for those who were not treated with the drug.
The Japanese health ministry source suggested the drug has limitations and was not as effective in people with more severe symptoms. "We’ve given Avigan to 70 to 80 people, but it doesn’t seem to work that well when the virus has already multiplied," the source told the Mainichi Shimbun.
Japan has a stockpile of 2 million tablets of Favipiravir, but it is currently not licensed by the FDA, so the U.S. doesn't distribute it. So, it would need to be approved by the FDA and Japanese manufacturers would need to approve also for export.
As of Friday, March 20, the FDA had not responded to a media request as to whether or not the drug was being on a fast-track approval process or not.
Covid mutations:
A legitimate concern and X-Factor is that the Covid virus could mutate. That could make it more deadly, spread more easily, and cause problems for existing strategies, drugs, vaccines etc.
And a recent Chinese study concluded that there are now 2 strains and that the newer strain is the one spreading and is more "aggressive". This has caused many people to conclude that the virus "has now mutated", and that the symptoms for Covid will be worse outside of China. Some have even claimed that this will make it more difficult to make a vaccine.
However, all viruses mutate every single time they replicate (6 mutations on average). And even if they are changed enough to be considered a different "strain", it does not necessarily mean that the behavior of the strain will be any different (as far as we are concerned, with vaccines, symptoms, etc.).
Erik Volz at Imperial College London says "The differences between the two identified strains are tiny. In fact, they can’t really be considered to be separate 'strains'".
Additionally, many people misinterpreted the study's claim of "more aggressive" to apply to the symptoms of Covid. However, this was just a genetic study and the researchers were simply postulating that it was more aggressive in spreading since they found more samples of it. It's possible that the virus that spread more widely is in fact the milder version, because it is less likely to be detected and stamped out. Either way, they did not do any testing of symptoms to find out if this was true or not.
“In all practical terms, the virus is as it was when it originally emerged,” says Jones. “There’s no evidence it is getting any worse."
The World Health Organization also concurred saying “there is no evidence that the virus has been changing”.
So genetic mutation remains an X-factor for the future, but so far there is little evidence that any real, significant change has occurred.
Jobs update
Unemployment filings have skyrocketed in the last week. This has caused Goldman Sachs to revise its estimate for national unemployment for the 2nd quarter to a staggering 2 million. If it does, this would be the largest increase in the history of the United States (even worse than the Great Depression).
The silver lining is that certain industries will benefit from Covid and will be hiring more workers. As mentioned in part 2, some of those are online-related, groceries and pharmacies. Many of those companies announced aggressive hiring this week:
The Walgreens pharmacy announced they are hiring 9500 workers for pharmacy technicians, shift leads and customer service associates.
Additionally, grocery stores across the nation from Publix, Kroger, Aldi and others announced aggressive hiring of thousands.
Apple reopens all China stores.
In encouraging news about a country recovering from the virus: Apple has now officially re-opened all 42 of its stores in China. It shut down all 42 in mid-February in response to the virus spreading around the country. It had opened about half on February 24 and has now reopened all of them.
In contrast, Apple has currently closed all retail stores outside of China (including the U.S.).
Tantalizing Clue
There's also a tantalizing new clue that came out of Italy this week, that suggests we may have fundamentally misunderstood the origin of the virus and the spread. And it may be important for where we are now and what the future holds. In Part 1 we talked about an Italian doctor who warned policymakers of the upcoming hospital overload in early March (Dr. Giuseppe Remuzzi via an article in the Lancet).
Since then, Dr. Remuzzi has done more research. After talking to many general practitioners, he learned that in "December and even November," many of them saw "a very strange pneumonia, very severe, particularly in old people". His conclusion: "This means that the virus was circulating, at least in [the northern region of] Lombardy and before we were aware of this outbreak occurring in China." If Dr. Remuzzi is correct, it's difficult for me to believe that such a contagious virus would limit its early arrival to Lombardy alone, in this interconnected world.
China has tracked down the timing of its first case of Covid to the date of November 17th, and even earlier cases may have existed. If symptoms take 14 days to emerge, the initial infections may have occurred in late October or early November. It wasn't until January 7th that China identified the pathogen as a novel coronavirus. Other countries then began identifying their "first cases", starting with Thailand, on January 15th. The assumption that these cases really were the first for each country, now seems highly unlikely. Many asymptomatic cases must have gone unnoticed, and some deaths, mis-attributed. To travel so far, so fast, the virus must have been far more contagious than was understood at the time, or must have hitchhiked on global travelers' backs very early on.
Thus, I believe Covid likely reached the U.S. much earlier than we realized, too. And it's possible we are further along on "riding the curve" than many of the models currently project (which might be a good thing). Many of the assumptions that we're basing our policies on -- spread, etc. -- may need to be re-examined. This also reiterates why implementing new-generation virus tests will be crucial for U.S. policymakers (which I'll talk about next).
But as usual, with so much uncertainty we will only know for sure with the passage of more time.
Next-generation Covid antibody test
The U.S. and the world desperately need a brand new type of test to deal with Covid. And help could be on the way.
All the existing tests only detect if someone currently has the virus. And since 50%+ are likely to have no symptoms and never get tested, we don't know some of the most crucial things about the virus like how contagious it is, or how fatal it is. And without that, most of our policies are flying blind.
But, the new generation of tests detect Covid antibodies and will tell us who has been infected (even if they have no symptoms and are no longer sick). This will let us know, for example, when we can safely re-open up the schools, businesses and reduce social distancing measures...and when we can’t. Right now we’re pretty blindly guessing on life and death matters that will affect the entire country. Once a good Covid antibody test is identified, it will most likely be a game changer.
People who have recovered from the disease, might even be able to safely end quarantine and provide services to others who still staying at home. If so, this would kickstart the economy so much faster.
Chris Whitty, the Chief Medical Officer for England says, "once we have these, the key thing for in the first case health care workers and then other workers and members of society, we'll be able to say to somebody, you've had this virus, you're not likely to get it again at least in the immediate term, and now we can be confident you can return to work and now we can be confident you don't need to be taking some of the precautions you've been taking to date."
Labs and companies around the world are racing to develop this. Several have already been used in small studies and received commercial approval, including several in China.
The U.K. plans to buy in bulk once one of them is proven in larger trials to work. Presumably the U.S. would as well. If and when that happens, it will be very welcome news.
Hope you and yours are staying healthy and safe.
More Info / Weekly Update
Click here for part 5 with lots of additional information on the latest developments (Italy, US, New York, etc) as of March 29th
