How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 41: December 5th
Updated: Feb 8
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 commercial real estate market. And smaller banks (which have smaller reserves and typically have more exposure to real estate) could come under significant stress.
3) The Council warned that “potentially significant structural vulnerabilities” still exist in short-term wholesale funding markets. And these could cause instabilities (for example, in money market funds). This previously happened in March, and the turmoil required government intervention to resolve.
On the other hand, the report wasn’t all doom and gloom. The Council also noted that large banks have weathered the pandemic relatively well and have built up significant capital and liquidity cushions over the past decade (as a result of cautions taken after the meltdown of the Great Recession). So these are doing well and look unlikely to pose a systemic risk.
Financial cliff: New compromise plan breathes new life into stimulus talks and brings “all parties back to the table”
As we've discussed over the last several months, there's a huge but invisible problem with the economy that's largely unrecognized by the general public. But an overwhelming consensus of economists, analysts (across the political spectrum) and policymakers at the highest levels (including the Federal Reserve) all agree it's essential we find a solution to it.
And if we don't, millions of Americans and businesses are destined to fall over a financial cliff with devastating long-term consequences. If this happens, then we may suffer a debilitating double dip recession (the dreaded "w-shaped recovery"). And investors in many alternative investment asset classes (including certain real estate sectors) could be caught up in a world of hurt.
This financial cliff is caused by several things:
1. Impending collapse of crucial safety nets: On December 26, 10-12 million people who lost jobs due the crisis are scheduled to lose critical benefits they're currently depending on. These were provided by two government programs created by the stimulus package passed by the government earlier in the year. The first is the Pandemic Emergency Unemployment Compensation (PEUC), which gives workers, who've been unemployed so long that they've exhausted state unemployment benefits, an additional 13-week lifeline. The second is the Pandemic Unemployment Assistance (PUA) for workers in the gig economy who are otherwise unable to get the same benefits that traditional workers receive when they lose their jobs. If they don't get any additional help, the damage to the economy will be severe, immediate and potentially long-lasting.
2. Foreclosure and rental eviction tsunami: in January 2021, moratoriums on evictions and foreclosures are scheduled to expire. If this happens, then a tidal wave of 8 million delinquent homeowners are set to be foreclosed on and lose their homes (dwarfing the worst of the Great Recession). And millions more delinquent renters (owing an estimated $7.2 billion by the end of the year) will be evicted, as well. As an example, at the beginning of the month, 14 million renters said they had little to no confidence they'd be able to pay, and were at risk of losing a place to live. If the tsunami is allowed to occur, then it would have a devastating effect on real estate and the wider economy.
3. Student loan resumption: The CARES Act suspended payments and interest on $1.7 trillion in student debt during the pandemic. And the Federal Reserve estimated this saved borrowers from paying about $7 billion a month. But on January 1st, this protection is scheduled to be lifted and payment will become due. If this is allowed to occur, it has the potential to exacerbate the other two issues.
All of these things could be solved by Congress and the President agreeing to pass a new stimulus law. However, over the last several months, efforts to do that have been stymied by enough twists and turns to write a novel.
Here’s the very quick summary:
1. One political party (which we’ll call the "large stimulus party") controls the House of Representatives and passed a $3.5 trillion stimulus bill. They later downsized it and passed a $2.2 trillion bill.
2. The other party (which we'll call the "small stimulus party") controls the Senate. Its leadership proposed a $1 billion plan, but could not get enough support from its own members to pass a bill. This was downsized to $500 million, but so far also has insufficient internal consensus to pass a bill.
3. The White House has held a variety of positions, from less than $1 billion to higher than $2.2 trillion. However, with the loss of the recent November election, it withdrew from negotiations the following week (after previously taking the driver's seat). So this meant that negotiations would be left completely up to Congress.
4. The President-elect is from the large stimulus party and is scheduled to be sworn in on January 20. He expressed his support for the $2.2 trillion bill.
5. Control of the Senate will be determined by two January 5th Senate seat runoffs in Georgia. If the small stimulus party wins at least one seat, then nothing will change and they will retain control. On the other hand, if the large stimulus party wins both seats, then a $2.2 trillion - $3.5 trillion stimulus law is expected to be a slam-dunk. Currently, analysts believe the most likely scenario is that seats will be split between the two parties which would result in no change in the lack of new stimulus. However, this is unpredictable and we'll continue to monitor it.
6. Then 2 weeks ago the Treasury Secretary pulled $580 billion of unspent stimulus funds from the Federal Reserve. Although budget rules say that these cannot be considered new money, it’s expected to provide enough political cover for the small stimulus party senators to claim that this is not new spending and support a stimulus bill.
This week, a lot happened. First, on Tuesday, a bipartisan group of nine senators pitched a $908 billion compromise stimulus plan. Since the Senate is the main logjam, many analysts felt this was a significant step forward.
The plan includes:
· A $300 billion infusion for small businesses, similar to the Paycheck Protection Program (PPP) from the Cares Act.
· $240 billion for schools, state and local governments and other miscellaneous things.
· $180 billion dollars would go to extend pandemic unemployment benefits (which would give the unemployed a much needed extra $300 a week for four months). This alone would go a long way to relieving the financial cliff.
· $16 billion would go to vaccines, testing and tracing
· $35 billion for healthcare providers.
· $45 billion to transportation companies hammered by the pandemic like airlines, airports, transit and Amtrak.
· $25 billion would go to rental assistance
· $26 billion for nutrition and agriculture
· $10 billion for the U.S. Postal Service
· $10 billion for childcare
· $10 billion for broadband internet
· $5 billion for opioid treatment.
There would be no direct stimulus payments to individuals (i.e., the payments provided when the Cares Act passed in late March).
The package would also include a short-term moratorium on business liability for lawsuits related to Covid-19. This is a compromise between the complete removal of business liability that the Senate leader of the small stimulus party has pushed (and which the leaders of the large stimulus party in the House and Senate have rejected).
Senator Mitt Romney of Utah, one of the plan’s backers, said:
"I don’t like borrowing money or spending money we don’t have. The time to borrow money, maybe the only time to borrow money, is when there’s a crisis, and this is a crisis.”
At first, many observers were skeptical. A similar group of bipartisan House members ("The Problem Solvers") proposed a compromise plan a few months ago. But they were stronglyresisted by the leaders of both parties and it ended up going nowhere. So everyone looked to those same leaders to see how they would respond.
On Wednesday, the Senate and House leaders of the large stimulus party indicated they would be willing to work with the compromise deal. In a significant concession, they scaled back their initial demands that the $2.4 trillion dollar pandemic relief package be the baseline for negotiations, and agreed to use the $908 billion proposal instead. They said in a joint statement:
"We and others will offer improvements, but the need to act is immediate and we believe that with good-faith negotiations we could come to an agreement,”
Then later in the day, the Senate leader of the small stimulus party presented a new proposal of his own. However, political analysts noted that it was essentially the same as the previous $500 billion plan which had earlier been unable to get enough votes.
Despite this, Treasury Secretary Mnuchin said that the President now favors the $500 billion plan. This was a dramatic change from the White House's most recent position. Just before the election, the president had said he actually wanted "more than" $2.2 trillion dollars in stimulus.
On Thursday, the House leader of the large stimulus party announced she had met with the Senate leader of the small stimulus party. And she claimed that despite the $500 billion plan that had been introduced on Tuesday, both sides now had momentum toward an agreement based on the $908 billion-dollar package. The two sides also discussed attaching the relief measures to an omnibus spending bill that both parties are working on separately (and that must be passed to keep the government funded beyond December 11).
As the week went on, more rank-and-file Senate members of the small stimulus party announced support for the compromise. For example, Senator Chuck Grassley expressed openness to the bipartisan plan, which many analysts believed would put pressure on the Senate leader to move away from his original $500 billion bill.
And ironically, the recent poor jobs report helped to focus minds by highlighting the emergency at hand.
House member Tom Cole, of Oklahoma (and a member of the small stimulus party) said:
“I think today’s jobs numbers really help the relief effort. We may disagree about the specifics but there is no doubt the economy needs help.”
Later in the day, the sponsors of the bipartisan compromise announced that things had progressed to the point where it made sense to turn their outline into legislative language. Their goal is to finish this by Monday.
Representative Tom Reed, who is a member of the small stimulus party and co-chaired the original Problem Solvers Group of bipartisan compromisers, said:
“Everyone is at the table now. The drafting involves the core bipartisan group but also congressional leadership and the White House."
Let's keep our fingers crossed and we’ll see what happens.
"Hunger Like They've Never Seen Before”: U.S. Food Banks Deluged as 1 in 6 Families Don’t Have Enough to Eat
This week, Feeding America announced some grim figures on the number of people in the country who don’t have enough to eat. By the end of the year, 50.4 million people will be “food insecure”. This is equivalent to one in every six Americans. Additionally, one in every four children is going hungry. These figures are a startling 70-80% increase from 2019:
In October, Feeding America's network of food banks and pantries distributed 548 million meals, which was a 52% increase from the average month, pre-pandemic.
And with the economy sputtering and the holidays approaching, food banks are being crushed by the almost unbelievably high demand. As example, in November of 2019, Feeding America Dallas distributed food to 500 hungry people. This year, 8,500 people waited in car lines that stretched for miles. And the organization ended up distributing half a million pounds of food. Trisha Cunningham, president of the North Texas Food Bank, said they’re also encountering miles-long car lines, and even seeing people sleeping in their vehicles to get a spot. Most have lost jobs and a third had never been to a food line before. She added:
"People are seeing hunger like they've never seen it before,"
Kristin Warzocha, president of the Greater Cleveland Food Bank, explained:
"We're now seeing families who had an emergency fund but it's gone and they're at the end of their rope. We're going to be doing this for a really long time, and that's frankly terrifying given the impact hunger has on physical health, learning and development for children, and parents' stress."
San Antonio food bank CEO Eric Cooper said, this week, that his organization brought in a record-setting “eight semi-trucks” of food daily over the holidays, just to keep up with the enormous need. Cooper says:
“Most people are completely new to the food bank and have never had to ask for help before.”
Meanwhile, food insecurity is on the rise in every part of the country:
Randy Young, a recently laid-off cook who waited in line with his elderly mother summarized the plight of many low-wage workers, saying:
"It's been hard to survive. Money is low. No jobs. [It’s] hard to find work."
CDC Blood test study suggests Covid-19 was already present in several U.S. states weeks before the first known outbreak in China
Reports of a mysterious pneumonia started surfacing in Wuhan, China, in late December 2019. Then it was believed that travelers from Wuhan quickly spread across the globe and the first U.S. case was detected on January 19, 2020.
However, as we've talked about in past articles, studies in Europe have suggested the virus was actually circulating in those countries prior to visits from Wuhan travelers. For example, a patient in France was found to have contracted the virus and was hospitalized at the end of December (before anyone had returned from Wuhan). And, doctors in the Italian countryside described a severe and unknown pneumonia in November and December that was killing the elderly, and which they believed to have in fact been Covid-19.
Later, authorities in China also traced their earliest case back to November 17th, though cases did not proliferate enough to be identified as an outbreak (with 180 individuals) until the end of December.
This week, a group of scientists from the Centers for Disease Control (CDC) and from several research laboratories, published a study of Covid-19’s presence in the U.S. in the days preceding the first officially reported American case. Was January 19th really the first case of the disease on American soil?
Ingeniously, they took 7,389 blood samples that were collected by the American Red Cross from U.S. blood donors. These samples spanned nine different U.S. states and were taken between December 13, 2019 and January 17, 2020.
And to the surprise of many, the scientists found 106 samples with antibodies believed to be caused by the SARS-CoV-2 virus. To rule out the possibility that the antibodies could have been caused by an infection of a very similar disease, the scientists also took those antibodies and confronted them with live versions of the virus. And what they found is that 84 of them were able to neutralize the virus. This would be highly unlikely if the antibodies were from another disease. So this strongly suggests that these were actually genuine Covid-19 infections.
If that’s the case, then the oldest positives were dated between December 13-16 of 2019. And since this was the earliest date that any of the samples were taken, it left open the possibility that the disease could have been spreading in the U.S. even earlier. The early December blood donors believed to have the disease were located in California, Washington and Oregon. Researchers also found early January positives in Connecticut, Iowa, Massachusetts, Michigan, Rhode Island and Wisconsin (which all occurred prior to any known introduction of the viruses in those states).
The researchers concluded:
“The findings of this report suggest that SARS-CoV-2 infections may have been present in the U.S. in December 2019, earlier than previously recognized.”
And since samples from prior to that date were not studied, we don’t yet know when and where the earliest cases in the U.S. may have originated.
New CDC recommendation says masks should always be worn indoors
The CDC completed its latest review of the latest studies on the virus. And for the first time, they recommended that masks should be used indoors at all times (other than in one’s own home).
The latest advice says: “In light of estimates that approximately one half of new infections are transmitted by persons who have no symptoms.
…Consistent and correct use of face masks is a public health strategy critical to reducing respiratory transmission.”
The report also noted a high-level transmission of the virus is occurring because people are being driven indoors by colder weather and traditions around the holiday season.
U.S. now has plenty of ventilators but a shortage of medical staff to operate them
Back in March and April, the early pandemic hammered northeastern states like New York and New Jersey. And it caught the country by surprise and without enough ventilators to handle the crisis. As a result, some of the sick who might've been saved by treatment, weren't able to receive care and died.
Eight months later, the ventilator shortage has been mostly solved. A massive 200,000 new ventilators have been created by American medical device manufacturers with 155,000 of them going to the Strategic National Stockpile.
And doctors have figured out other ways to treat patients that are less invasive and more effective. This includes using inexpensive sleep apnea machines and simple nasal cannulas to force air into the lungs through plastic tubes.
But, as hospitalizations are surging again in the third wave, health experts are warning that a different type of ventilator shortage may be about to rear its ugly head.
Dr. Lewis Kaplan, president of the Society of Critical Care Medicine, said:
“We’re now at a dangerous precipice. Ventilators are exceptionally complex machines that require expertise and constant monitoring for the weeks or even months that patients are tethered to them.
The explosion of cases in rural parts of Idaho, Ohio, South Dakota and other states has prompted local hospitals that lack such experts on staff to send patients to cities and regional medical centers, but those intensive care beds are quickly filling up."
Dr. Eric Toner, an emergency room doctor and senior scholar at the Johns Hopkins Center for Health Security, said:
“We can’t manufacture doctors and nurses in the same way we can manufacture ventilators. And you can’t teach someone overnight the right settings and buttons to push on a ventilator for patients who have a disease they’ve never seen before.
The most realistic thing we can do in the short run is to reduce the impact on hospitals, and that means wearing masks and avoiding crowded spaces so we can flatten the curve of new infections.”
Dr. Branson of the University of Cincinnati agreed, saying:
“Ventilators are important in critical care but they don’t save people’s lives. They just keep people alive while the people caring for them can figure out what’s wrong and fix the problem. And at the moment, we just don’t have enough of those people.
For now, there’s only one way out of the crisis. It’s not that hard. Wear a mask.”
Doctors say CDC should warn people that Covid vaccine isn’t " a walk in the park"
The Moderna and Pfizer coronavirus vaccines are triumphs of modern medicine. Both use a revolutionary mRNA technology that has dramatically shortened the amount of time it takes to produce a working vaccine.
However, one negative of this technology has been the side effects. Some participants in Moderna's and Pfizer's coronavirus vaccine trials have reported symptoms similar to Covid-19, including high fever, bodyaches, migraines, daylong exhaustion and other symptoms. While some reported only mild symptoms, others reported intense extreme ones. Some have claimed they were unable to work or even get out of bed. Many reported the worst was over in a day, but a few claimed certain effects limited them for longer (although not as severe).
And the thing about both vaccines is that the first shot isn’t enough to make it work. A person must return for the second shot or else the entire exercise is a waste. And this has some doctors, like Dr. Sandra Fryhofer of the American Medical Association, concerned:
“We really need to make patients aware that this is not going to be a walk in the park. They are going to know they had a vaccine. They are probably not going to feel wonderful. But they’ve got to come back for that second dose.”
Patsy Stinchfield, a Children’s Minnesota nurse practitioner, said:
“These are immune responses. And so if you feel something after vaccination, you should expect to feel that. When you do, it’s normal to have some arm soreness or fatigue, some body aches and maybe even a fever. It sounds like in some of these trials, maybe even having to stay home from work.”
Update on My Investment Strategy
Every week, I take a look at the latest developments and data and reevaluate my personal outlook on the possible economic scenarios and my personal investment strategy. This week, I have made some small changes and my strategy is essentially the same as last week.
Treatment: Back in May many health experts said we wouldn't get a vaccine for at least two years. But, after I saw unprecedented amounts of resources being thrown against the virus week after week (and their successes), I felt this was overly pessimistic. And on May 21st, I said I thought the chances were good that we would have one vaccine by winter (and with luck we might get two). It turns out the world has been very lucky and we will end up with two right before the end of the year. Unfortunately, as I also predicted in late May: these can't be manufactured and distributed in large enough quantities to immediately treat everyone. Most in the U.S. will have to wait well into 2021). So this will not be enough to super-charge the economy right away. And, there may potentially be a huge quality-of-life difference between the treatment-haves and treatment have-nots. This will be divisive and will exacerbate existing tensions and conflicts between rich and poor countries. And it's likely to cause considerable instability in "have-not" countries that could easily cause unexpected global consequences, not just for themselves but also for the U.S. and the world.
Recession: When the U.S. was first hit by the virus, many pundits claimed the U.S. economy was so strong, it would have little to no effect (or if it did, then it would rebound quickly and things would be back to normal in a jiffy). But, after looking at all of the micro data week after week, I said I couldn't see any way the country could avoid plunging into a technical recession (two consecutive quarters of negative GDP growth). Ultimately that happened (-5% in Q1 and -32.9% in Q2). Then as the Q3 data unfolded week after week I predicted we would see strong double-digit growth but also disappointingly short of the amount needed to break even to where things were before the pandemic. Ultimately both happened: 33.1% increase from rock-bottom but still -3.5% year to date (similar to the worst of the Great Recession at -4%) Going forward I unfortunately believe that all of the easy gains are gone the rest will be a long, tough slog. Q4 will bring us up modestly but it will still come up short of the amount needed to "break even" to where we would have been in Q4 without the pandemic (and thus well short of a true V-shaped recovery). And then unless we get more stimulus or extension on eviction/foreclosure moratoriums, Q1 of 2021 will be brutal and might even be bad enough to cause a double dip recession.
Shape of the recovery: In part 14, we talked about how the shape of the recovery (V-shaped, U-shaped, swoosh-shaped, W-shaped, L-shaped, combo-shaped etc.) will have a huge effect on the ultimate outcome of many different investments. So far, pretty much everything that's happened has been much worse than the consensus expected. Pretty much no one saw the virus spreading in the U.S. in any meaningful way. Virtually no one came close to imagining that lock-downs would occur in May. Hundreds of thousands more people have been killed than originally projected. And now, even the later May projections, which maxed out at 200,000 dead, have proven to be too optimistic. Tens of millions more people than expected have lost jobs. The stimulus and unemployment aid was enormous, but had too many unexpected holes and didn't get into the hands of millions who needed it the most. States reopened, but were forced to backtrack. Many businesses have reopened, but customers are staying away. So unfortunately, I don't think a quick, V-shaped recovery is going to happen. I would love to be wrong. I'm getting more and more concerned about a very damaging "W", which could come from the second and/or third waves of the virus. Unfortunately, this is looking more and more likely. My slim hope is that the 3rd wave (from school openings, Labor Day and cooler weather) can be controlled and kept small. If this happens... and if the US government also passes a generous stimulus law... then the worst effects of the additional waves could be mitigated. That's a lot of "if's"... so we'll see. And I'll continue to monitor the data very closely. Currently, I still believe we will have a three-stage combo-shaped recovery that starts off (1) quickly as the first "easy" industries and companies come back online (i.e. v-shaped). But (2) this will peter out as the more difficult ones are unable to return, and a slow swoosh will become apparent. If we get a second (or third) lockdown, then this step (2) will become W-shaped and more painful. Then in winter, (3) I believe we will probably see a treatment and/or vaccine. And if we do, then that would be the trigger for the third stage and an accelerated recovery. But this most likely won't be a straight-V recovery, because it will most likely take time to ramp up production and delivery to enough Americans to push towards herd immunity (not until well into 2021). So the boost will be slower and smaller at first. Also, if the first generation medicines don't stop the spread to others (don't have sterilizing immunity) the boost will be even smaller. But, we also could get a little lucky (for example, if we get a successful vaccine treatment that is a newer type that can be scaled up more quickly or is more effective). If so, then the third-stage boost would be faster. If I'm wrong, and we don't get a treatment or vaccine this year, then the economic damage caused by long-term job loss and wage cuts will most likely be very severe, and will further exacerbate (and slow down) whatever type of recovery we do get. That would probably be ugly for the majority of all investments. So let's hope we don't have to find out how that scenario would play out.
Investments: If the above is roughly correct, then it will unfortunately be painful for many individuals and some investors. And some sub-sectors of alternative investing (like certain real estate classes) will come under heavy stress. Many may fold in the coming months. At the same time, I think there will also be an opportunity to purchase dislocated and distressed assets at very favorable pricing and significant discounts. And I believe that patient, discerning investors may be able to take advantage of once-in-a-decade or once-in-a-generation opportunities.
No new investments in real estate or any asset classes that are correlated with the unemployment or the business cycle until there is more clarity about the unknowns concerning the virus and the upcoming financial cliff.
Invest in assets that are coronavirus resistant (and uncorrelated with the business cycle). That includes:
Music royalties (which can actually do better in lockdowns due to increased streaming).
Life settlements (which actually perform better when people are dying faster and in any event aren't directly tied to the business cycle).
Litigation finance (which performs based on winning or losing cases, and also isn't directly tied to the business cycle).
Invest in coronavirus "portfolio insurance" (i.e. an investment that would be expected to do better the longer coronavirus continues or if it gets worse).
N95 Mask Manufacturing Company. If the pandemic should disappear tomorrow (which I personally am not counting on), I would be happy to take a small loss here given that the rest of my portfolio would be doing extremely well. On other hand, if Covid-19 doesn't disappear and things go as I expect (or worse), then this investment could provide a welcome profit boost and improve my diversification.
Continue to hold cash and be patient for dislocated and distressed opportunities. The worse the economic damage, the more chance there will be for those once-in-a-generation or once-in-a-lifetime opportunities.
My opinions and strategy will change if we get some better or worse news on the science side or in some of the other X factors. For example, a new stimulus law could shift things in a more positive direction. And, as I mentioned above, the virus getting out of control again in large areas and forcing large lock-downs a second or third time, could easily make things worse.