How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 41: December 5th
Updated: Feb 8, 2021
Third death wave in the U.S. skyrockets close to a grisly record; Crystal ball: a hint that the third wave of infections might be slowing, but the ghost of Thanksgiving also looms ahead; World round up: after disappointing stall-out last week, Europe resumes rounding the corner; State Roundup: Dakotas finally see some relief as viral epicenter shifts South and West; Georgia’s Bellwether economic recovery: revisited in 2 weeks; Economy gets little relief from new unemployment battering; Monthly unemployment reports show recovery losing steam and fading far short of recovery levels; U.S. regulatory panel warns of risks of increasing bankruptcies, commercial real estate losses and money market instability; Financial cliff: New compromise plan breathes new life into stimulus talks and brings “all parties back to the table” ; "Hunger Like They've Never Seen Before”: U.S. Food Banks Deluged as 1 in 6 Families Don’t Have Enough to Eat; CDC Blood test study suggests Covid-19 was already present in several U.S. states weeks before the first known outbreak in China; New CDC recommendation says masks should always be worn indoors; U.S. now has plenty of ventilators but a shortage of medical staff to operate them; Doctors say CDC should warn people that Covid vaccine isn’t "a walk in the park"; Update on my portfolio strategy.
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This week there was a slew of information on virus spread, economic impact, investment repercussions, as well as more news regarding the virus itself.
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.
Third death wave in the U.S. skyrockets close to a grisly record
For the 32nd 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 official death toll had climbed to 285,705 (versus 271,192 last Saturday morning). Here's a quick summary of what's happened so far:
1. The first U.S. death wave started in early March. It was overwhelmingly in urban areas (like New York City in the Northeast). It peaked on April 21st and the country fought it down until July 6th.
2. The second death wave started on July 7th. This ran predominantly through urban areas in the Sun Belt. It peaked on August 1st, before falling until October 8th.
3. Then the third death wave began on October 9th and is currently tracking upwards. Unlike earlier waves, this was led by rural areas (although now it is spreading across the entire country and surging in all sized areas).
How did things go this week?
This is a very bad-looking graph. Deaths soared over the last week. And we are almost back at exactly the same place we were in the dark, early days of the pandemic. If they continue on the current track, we will be shattering and breaking those records (which many thought would never be seen again).
Unlike the two previous waves, this third one is widely distributed throughout the country, which many experts say will make it much more difficult to contain and to fight. And as we discussed in late October, this has already caused acute shortages of critical drugs and key medical personnel needed to fight the disease and limit deaths. On the other hand, many states have enacted varying lockdowns which may start to kick in and change the trajectory. So we’ll be watching this very closely to see what happens.
Crystal ball: a hint that the third wave of infections might be slowing, but the ghost of Thanksgiving also looms ahead
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?
It’s difficult to see what happened, because of the placement of the CDC label. So let’s switch the graph to linear mode to get a closer view. Note that, since pandemics occur exponentially (and not linearly), a linear graph can make increases seem larger than they are (and make decreases seem smaller). Having said that here’s what the close-up looks like:
On one hand, the week ended up higher than the previous week. So this week is still not even a plateau (let alone a turnaround). On the other hand, the week had a slower growth rate than the week before. If this continues, it may be a sign that virus control measures are starting to kick in.
However, even if this does prove to be a slowdown, there could be other factors that complicate things. As we talked about last week, health officials and epidemiologists fear that there will be another surge in a few weeks, due to Americans ignoring health advice during Thanksgiving, and traveling and getting together with loved ones.
We’ll continue to monitor and see.
Unfortunately, the 3rd wave hasn’t been much of a surprise so far. As we discussed in early September, many health experts predicted this would be the inevitable result of lax behavior over the Labor Day weekend (September 7). And that itself wasn't a difficult prediction to make, since the exact same thing happened after the lax behavior over the Memorial Day weekend (May 23)… which ended all progress against the first wave and triggered the second. (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.
Further below, we’ll take a closer look at what happened at the U.S. state level, to better understand what might happen next. But first, let’s complete our look at the rest of the world for the week.
World round up: After disappointing stall-out last week, Europe resumes rounding the corner
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 week's numbers essentially plateaued, after they went down and back up to where they were at the beginning of the week. For the last several weeks, the country has been battling a third wave, which was triggered by a super-spreader event at a church in Seoul. And this week, it’s unclear if they have things under control or if they will see another surge.
Still, if it is a surge, it is likely to be a small one. The biggest positive for South Korea is that (at least so far) their rates have been extraordinarily low compared to virtually every other country in the world. (See chart below for comparison to other countries.) 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.
How is Sweden doing? Unfortunately, it’s only productive to cover Sweden’s developments once a month now (versus every week like we had been doing for months). There used to be hope that their unorthodox lockdown-lite strategy might prove itself as a successful alternate model for other countries to follow. But after a recent surge of infections, hospitalizations and deaths, they’re reversing course and their numbers are becoming much more similar to others. And so far, the strategy has resulted in worse economic damage and stratospheric deaths (versus the top countries). So, we’ll look at them again in another week.
Meanwhile, the other nations in Europe have been hit by a brutal second wave of deaths. Initially, the continent was bruised badly by the first wave, but used aggressive lockdowns to drive infections and deaths to extremely low levels. So then, countries loosened travel restrictions and reopened schools (despite warnings from many health experts). And, as colder weather hit, the death toll has skyrocketed. So authorities were forced to enact a variety of new lockdowns (which we've described in detail in previous weeks). So how are things going?
First, let’s look at Spain. The country is a popular travel destination and was one of the first to get hit by the second wave. And, in the last two months, they've been battling an increasingly bad situation. But in the last couple weeks, they finally peaked and deaths mercifully dropped off a little bit. This gave hope that they might finally be getting control of things and turning the corner. How did they do this week?
This week brought some very welcome progress. Two weeks ago, Spain looked like it was turning the corner, as health restrictions finally caused upward-spiraling cases to plateau. But then last week progress stalled out. This week, there was finally a clear trend downwards. So let’s hope this continues.
How did some of their neighbors in Europe do? Here's the U.K., France, the Netherlands and Belgium.
Thankfully, France, Belgium and the Netherlands also firmly trended downwards and have clearly rounded the corner. The United Kingdom (though obscured here by the label) did finally plateau (and gave hope that it may round the corner next week).
So overall, Europe is looking a lot better than it did a week ago. And it may have finally put a lid on the out-of-control exponential viral spread they've been suffering for the last couple of months. We'll continue to watch and see.
State Roundup: Dakotas finally see some relief as viral epicenter shifts south and west
For the last several months, we've watched individual U.S. states to get insights on what might happen next at the national level. And here's what we saw:
Second Wave: 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. And the people getting infected were significantly younger than those afflicted by the first wave (many of whom were going to parties and bars). 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 and fought the wave back down.
Third Wave: Then after the Labor Day weekend (in September) the U.S. also 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 then spread across every major area of the country. And while earlier waves hit mostly urban areas, this new wave was led by rural places Also, since the wave is spreading much wider spread than before, there are now chronic shortages of 29 of the 40 most crucial drugs needed to treat Covid-19 as well as crucially needed medical personnel in many areas.
What happened this week?
Let’s look at North Dakota first. Recently, the Governor reversed his longtime resistance to masks, and mandated statewide use (along with other health restrictions). Here’s what happened this week:
This is an incredible turnaround from only a couple weeks ago. Infections, hospitalizations and deaths are all down. And the reduction in hospitalizations is especially welcome, since many of the state medical facilities were over-capacity and unable to handle a further surge. Let’s hope that they can keep up the progress.
How about South Dakota?
On one hand, deaths continue to rise. However, the leading indicators of infections and hospitalizations have both fallen. And while hospitalizations have not fallen as quickly as North Dakota, the trend is positive. Hopefully, we’ll see more progress next week.
Let’s take a look at a new state: Mississippi.
Unfortunately, all of Mississippi's graphs are moving in the wrong direction. Infections set a new high for the entire pandemic. Hospitalizations climbed rapidly and are approaching the peak of the second wave. And deaths also increased.
Last week, a panel of four Mississippi prominent medical experts wrote a letter to Mississippi Gov. Tate Reeves. While certain counties have mask mandates, these health experts called for reinstatement of a statewide mask mandate. This had been imposed in August, but lifted in late September when cases were declining. The panel included included Dr. LouAnn Woodward of the University of Mississippi Medical Center, Dr. Anita Henderson, president-elect of the Mississippi Chapter of the American Academy of Pediatrics, Dr. Claude Brunson, executive director of the Mississippi State Medical Association; and Dr. James Griffin Jr., president of the Mississippi Academy of Family Physicians.
In their letter, they said:
“The statewide mask mandate, which was highly effective, needs to be reinstituted.”
However, Gov. Reeves rejected this idea, saying:
“I almost feel like there are those out there who really, truly believe if I were to write an executive order, a statewide prohibition against hurricanes in 2021, that we won’t have any hurricanes. It just doesn’t work that way.”
On Tuesday, Mississippi State Health Officer Dr. Thomas Dobbs said 12 major hospitals in the state had no intensive care unit beds available:
“We are getting to the point now where we are getting notifications about patients who cannot get transferred to a higher level of care when they need it, and it’s because most of our hospital systems have been saturated.
On Wednesday, LouAnn Woodward, vice-chancellor of the University of Mississippi Medical Center, wrote on Twitter:
"UMMC’s bed status is -31 beds, which means that 31 people are admitted but waiting for a bed to become available. Who will be #32 or #33 or #34?
Those of us in health care are numb, frustrated and so very tired."
Let’s take a look at another new state: Missouri.
On one hand, deaths are climbing to record levels and hospitalizations are at an all-time pandemic high. On the other hand, new infections are slowing, which may be a sign of relief to come in the coming weeks.
In the meantime though, the strain on Mississippi’s healthcare system is showing. St. Louis Dr. Micah Luder said:
“We’re drowning at the hospital. People are dying every day from COVID-19 and we’re notdoing everything in our power to stop the virus.
Sometimes we feel like firefighters, I go to work all day and I fight fires and then on my drivehome, I see people mixing in the community, not wearing masks, starting fires all over again.”
Let’s hope that he and the others in Mississippi get some relief soon.
Now let’s take a look at another new state: California.
Unfortunately these are all bad graphs. Infections and hospitalizations have climbed to pandemic highs. Deaths are also climbing as well.
“Our numbers at the hospital have doubled in the last three weeks. As the only trauma center in the east San Gabriel Valley, and a comprehensive stroke center, right now all of our ICU beds are full, and we are in surge.”
On Friday night, the California Department of Public Health released numbers showing that ICU beds in Southern California as well as the San Joaquin Valley had less than 15% capacity, which might automatically trigger health restrictions. If that continues for 24 hours, a regional stay-at-home order will automatically be issued shutting down outdoor restaurant dining, hair salons, nail salons, playgrounds, cardrooms, museums, zoos, aquariums, wineries and restricting hotel capacity to 20%. And if that continues, on Saturday, then it would trigger an automatic stay-at-home order, also. So overall, some states improved while others have continued to decline. We'll continue to watch and see what happens next week.
Georgia’s Bellwether economic recovery: revisited in 2 weeks
(Note: Georgia’s economy is now being reviewed only once a month, as described below. So this section has no new updates, and we’ll be revisiting the state fully in two weeks.)
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've watched them week by week across all of Georgia's four primary Covid-19 sensitive industries: restaurants, retail, fitness, and hotels. How’s that gone over the last six or seven months? We've seen different sectors moving back and forth during that time, as well as different individual businesses in those sectors. But overwhelmingly, results have ranged from disappointing to dismal. And while there have been occasional spurts of improvement to celebrate, these have almost always been quickly followed by disappointing backtracking.
So at this point, the Georgia experiment has failed to achieve its goal of a V-shaped recovery. This is why I’ve called a halt to the weekly monitoring of the state and will only be checking in monthly. We will look again in two more weeks.
Economy gets little relief from new unemployment battering
Unemployment has historically been one of the most reliable indicators of when the U.S. has entered a recession and when its left one. So that's why we examine it very closely, every week. And unfortunately, over the last 29 weeks, the economy has been hammered week after week by massive levels of new unemployment. This week was no different, with 712,000 people newly unemployed. This was a tiny decrease from 748,000 last week (and 742,000 the week before).
Unfortunately, at eight months into the pandemic, we’re still getting weekly job losses that are more than three times the pre-pandemic level. Back in June, virtually no one expected the continuing damage to last this long.
Meanwhile, as we've talked about every week for the last several months: "continuing claims" are theoretically 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.
On the other hand, this statistic isn't perfect, because people who stay unemployed for a large number of weeks lose state benefits and fall off of the statistic. However, these people then show up in the Pandemic Emergency Unemployment Compensation (PEUC) stat. But this number also has the same problem (people lose this benefit after 13 weeks of unemployment). And at that point, these people have nowhere else to go and simply fall out of both statistics and “disappear”. This can cause the numbers to give the appearance of improvement, while the underlying situation is not actually improving.
This week, we got some new information on the reliability of these statistics. The U.S. Government Accountability Office (GAO), which is a non-partisan government watchdog, said that they reviewed these figures and found they suffer from significant problems. In normal conditions, they wouldn’t be noticeable. But in our current bizarro pandemic world, they are severely skewing the data.
For example: if a person files for six weeks’ worth of benefits in a single week, they don’t show up as a single person across each of the six weeks. Instead, they show up as six people in a single week. So this significantly over-counts the first week and then under-counts to a lesser extent the following five.
Also, a smaller amount of over-counting is believed to be caused by people filing more than one claim in a week and not initially being caught (which could be either from an unintentional mistake or fraud).
The GAO recommended that the Labor Department fix these problems by retroactively collecting figures from the states, starting with January 2020. But the Labor Department pushed back. They said that due to “antiquated data systems” and “insufficient level of staff in the midst of historic claims levels” it would take nine months to make the changes necessary to correct these problems. And by then, the Cares Act unemployment insurance provisions (which are expiring soon) are expected to be long gone.
Instead, going forward, the Labor Department will put a disclaimer that these claims do not necessarily reflect individual people.
Veronica Clark, an economist at Citigroup Inc., points out that despite these problems, the statistics are still useful.
“On a longer-term basis, really we care about the trend rather than the level. So even if there is some of the murkiness in the levels of these numbers and still some fraud in even regular continuing claims, as long as we’re looking at the change over time, then that kind of sorts itself out.”
So how did continuing claims look this week? This week, continuing claims dropped modestly to 5.55 million (from 6.07 million last week and 6.37 million the week before). And the Pandemic Emergency Unemployment Compensation (PEUC) program decreased about 339,000 to 8.87 million. So both of these suggest there was modest improvement. But it was still disappointing to those hoping for a more meaningful drop.
Monthly unemployment reports show recovery losing steam and fading far short of recovery levels
This week, two much-anticipated monthly unemployment reports also came out.
On Wednesday, the monthly ADP payroll report came out. This documents 26 million workers in the U.S. and it showed that only a very weak 307,000 jobs had been added. This was the smallest increase since July, which strongly suggested the recovery is sputtering and running out of steam. And the minuscule increase fell far short of what would be needed to dig out of the huge hole from April.
Then on Thursday, the U.S. Labor Department put out its monthly unemployment report (which is based on nonfarm payrolls). These increased a mere 245,000 from the prior month.
This was disappointingly less of an increase than even the tepid increase the month before, and suggested the recovery was losing steam. And once again, the total was far short of what's needed to recover from the gaping hole caused by the pandemic.
Jeffrey Rosenberg, senior portfolio manager at BlackRock Inc. (a financial firm), said:
“You are seeing the impact of the pandemic surge here.”
And this report had the advantage of being merely a mid-month snapshot. In other words, it didn't reflect jobs that are believed to have been lost due to the newer restrictions that went in place over the last few weeks, weren’t included (and won't show up until December).
The headline unemployment rate dropped down only very slightly to 6.7% (versus 6.9% last month). As a result, 9.8 million less people have a job now than before the pandemic. And many Americans have been jobless since losing employment back in March and April.
And unfortunately, it’s known that the headline unemployment rate understates true unemployment in the pandemic and the bigger picture is actually worse. As we've discussed in past articles, this headline unemployment rate statistic was designed for a pre-pandemic age and doesn’t count discouraged workers, workers attached to who lost jobs the labor force who lost jobs and those who want full-time work but are forced to settle for a part-time job.
The more complete U-6 unemployment rate corrects for these issues. So, the true gauge of employment, this month, was at a very unappetizing 12.0% (which is almost double the headline rate). And this also stalled out and was barely improved from the 12.1% in August.
Gregory Daco, of Oxford Economics, said:
“[The reports] are pointing to weaker momentum as we enter a critical phase of the recovery with the health situation deteriorating rapidly. Going into the month of December, this is quite worrisome and worthy of ourattention and importantly worthy of policy makers’ attention [i.e. stimulus].”
Economists and analysts have widely agreed that more government stimulus is required to avoid the economy falling into a potential double-dip recession (i.e., painful W-shaped recovery). And this week, there were more calls from regulators at the highest levels.
"Some fiscal support now would really help move the economy along and guard against downside risks, particularly to small businesses.
People that are in public-facing jobs, in public-facing industries - they may see the light at the end of the tunnel the middle of next year ... They may need more help to get there.
The risk of overdoing it is less than the risk of under doing it.”
Treasury Secretary Mnuchin also testified and was more blunt, saying:
"These businesses cannot wait two or three months... I urge Congress to pass something quickly.”
However, passing such stimulus requires the agreement of both houses of Congress and the President. And since early April, they've been unable to come to any such agreement.
However, there was actually significant progress toward that goal this week. And we'll talk about that more in a later section on the financial cliff.
U.S. regulatory panel warns of risks of increasing bankruptcies, commercial real estate losses and money market instability.
On Thursday, the Financial Stability Oversight Council (U.S. regulatory panel) put out its yearly report on current risks to the financial system. And they laid out several things for regulators and policymakers to watch out for:
1) High levels of corporate debt (including $2 trillion in nonfinancial debt) has been downgraded by the ratings agencies since March. If these translate into bankruptcy filings, this could stress court systems and make it harder to restructure debt. And this in turn could cause more firms to liquidate and start a vicious cycle and downturn.
2) A potential wave of bankruptcies could cause a collapse of the