How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 42: December 12th
Updated: Feb 8
Third death wave continues to run amok as U.S. shatters grisly first wave record; Crystal ball: Infections climb as mobile data shows record numbers of Americans spent Thanksgiving away from home; World round up: South Korea stumbles, Sweden struggles, and rest of Europe continues to turn the corner; State Review: “We have forgotten who we are". Third virus wave continues to batter beleaguered U.S. hospitals; Georgia’s bellwether economic recovery: revisited in 1 week; Economy pummeled by surging wave of new unemployment; Financial cliff: Progress continues despite distractions and political shenanigans; "The tidal wave is coming": 12 million renters will owe staggering average of $5850 in back rent and utilities by end of year; Dr. Fauchi warns of "Dark January" from holiday one-two punch; Food banks face their own “food cliff”; Single-family rentals in suburbs boosted by mass exodus out of urban centers; FDA grants Emergency Use Authorization to first Covid-19 vaccine in the U.S.;U.S. hopes of summer 2021 vaccination delivery relies on successful testing of two un-tried vaccines and higher compliance from a skeptical public; Sanofi-GlaxoSmithKline vaccine flunks out of phase 3 human trials; Genius or desperation? AstraZeneca will try to supercharge its disappointing Covid-19 Vaccine by testing it with Russia’s controversial Sputnik V; The 6-foot rule continues to crumble as student catches Covid-19 from a stranger 20 feet away after only five minutes; Update on my portfolio strategy.
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This week there was a torrent of new information on virus spread, economic impact, investment repercussions, as well as more news on vaccines and 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 continues to run amok as U.S. shatters grisly first wave 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 302,762 (versus 285,705 last Saturday morning). Here's a quick summary of what's happened so far:
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.
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.
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 week, deaths skyrocketed to new heights. And this shattered the grisly death record that was set back in the dark, early days of the pandemic (and which many had assumed we’d never see again).
On Thursday, the U.S. passed another unfortunate milestone. Covid-19 caused more deaths in one day (3,080) than occurred on the September 11 terrorist attacks (2,977).
Additionally, the Covid-19 tracking project reported that 107,000 U.S. citizens were hospitalized for Covid-19, which also set a new record.
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: Infections climb as mobile data shows record numbers of Americans spent Thanksgiving away from home.
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:
Unfortunately, new infections continued to climb and also set a record high for the pandemic. Last week, there was some hope for potential slowdown. But so far, it’s looking minimal at best.
Another lingering concern: epidemiologists have repeatedly expressed the fear that many Americans would be likely to ignore health advice and mingle with family and friends outside of their homes. And if this happens, we would expect to see another surge.
How is that playing out? This week, SafeGraph (a mobile traffic data provider) published a report analyzing U.S. cell phone data during Thanksgiving. The information was anonymized to avoid breaching privacy. And unfortunately, they found that one in five Americans flouted public health guidance and spent Thanksgiving away from their homes. This set a pandemic record.
Additionally, one in eight people traveled more than 30 miles. In total, a startling 80% of all counties actually had higher amounts of Thanksgiving travel than in 2019.
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: South Korea stumbles, Sweden struggles, and rest of Europe continues to turn 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 was a bad one for South Korea. Deaths skyrocketed far past the peak of the second wave and close to the peak of the first. 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, there are disturbing signs that things are not under control.
Still, 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 many more deaths (versus the top countries).
This week, Sweden’s deaths continued to climb. And if it continues at the current rate, they will soon eclipse their peak in the first wave. The other big issue for Sweden to overcome is that their strategy has thus far been a failure in its main goal: protecting its economy. The country is still expected to plunge into a severe recession (their GDP is projected to be -5.6% in 2020, versus -5.9% for the U.S.). This is a bit better than the average -8.1% projected for the Euro Zone, but is not the large benefit many hoped to see. How has the Swedish experiment performed, versus other strategies? To see that, accurately, we have to look at deaths per million (which puts both large and small countries on the same level playing field). Here's how that looks this week:
Unfortunately, Sweden's strategy continues to lag most of the world. At about 744 deaths per million, it's more than three times worse than the average country (many of whom have far less resources). And it’s still firmly stuck in the pack of the worst performing countries (which includes hard-hit Brazil, United States and Italy).
In comparison, other Scandinavian countries with similar demographic advantages (i.e. an unusually large number of single person households) are doing nine times better than Sweden (Finland and Norway). And the top-tier countries (all in Asia and Oceana) have done anywhere from 21 times better (Australia) to 67 times better (South Korea) to 2500 times better (Taiwan). Let’s move to other countries in mainland Europe next. 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, a second wave of deathsskyrocketed across the continent. Authorities then enacted a variety of new lockdowns (which we've described in detail in previous weeks). And in the last two weeks, many countries appeared to have turned the corner. So how are things going this week?
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. How did they do this week?
This was another good week for Spain, as deaths continued to drop. Let’s hope they continue to turn the corner.
How did some of their neighbors in Europe do? Here's the U.K., France, the Netherlands, Italy and Belgium.
This was a good week, as all of these European countries continued to turn the corner.
So overall, Europe is looking a lot better than it did two weeks 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 Review: “We have forgotten who we are". Third virus wave continues to batter beleaguered U.S. hospitals
For the last several months, we've watched individual U.S. states to get insights into what might happen next at the national level. And here's what we saw:
1. 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.
2. 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?
In the second week of December, 26 states experienced daily increases in deaths. And here are the ones that were hammered the hardest:
Additionally, hospitals in many parts of the country continued to be slammed.
A report released this week (based on data from the Covid-19 Tracking Project) found that a third of Americans live in areas where their hospitals are running critically short of intensive care beds. In total, hospitals serving more than 100 million Americans reported having fewer than 15% ICU beds available as of last week.
Even more ominously, one in ten Americans (mostly in the Midwest South and Southwest) live in an area where intensive care beds are already unavailable or fewer than 5% available. Health experts say that at these levels, it’s difficult or impossible to maintain existing standards of care. This means that some patients end up left to die, unnecessarily.
Beth Blauer, director of the Centers for Civic Impact at Johns Hopkins University, said:
“There’s only so much our frontline care can offer, particularly when you get to these really rural counties which are being hit hard by the pandemic right now.”
Let’s take a closer look at one of those states: North Carolina.
These are three disastrous graphs. New infections, hospitalizations and deaths all increased and all three simultaneously set pandemic-high records.
Currently, more than 95% of ICU hospital beds are occupied in at least eight cities and towns in the state, including Durham.
Dr. Howard Markel, a professor at the University of Michigan School of Public Health, said:
“Many emergency rooms and hospitals already operate close to capacity on a good day, without coronavirus. Adding a sharp spike of very ill COVID-19 patients to that traffic could mean some people don’t get the care they need – whether they have coronavirus or not.”
On Tuesday, North Carolina Gov. Roy Cooper announced a 10 PM curfew for the state:
“We know that hospital capacity is threatened here, and we can do things to prevent that. The study showed what would happenif we aren’t doing anything else, and so we are doing that something else today to try to affect this trajectory.”
Let’s take a look at another state: Mississippi.
Mississippi also has three very bad looking graphs. New infections, hospitalizations and deaths are all surging. And both infections and hospitalizations have set pandemic high records.
Mississippi Gov. Reeves ignored state health officials’ advice over the Thanksgiving holiday and declined to even ask Mississippians to forego visiting family. He said:
"I'm not gonna stand up here and tell you that you can't be with family. Because each Mississippian has to make their own decisions."
On Thursday, Mississippi State Health Officer. Dr. Thomas Dobbs announced that all intensive care units across the state are 100% full. Additionally, all elective surgeries in the state will now be postponed.
Dr. Justin Turner, the CEO of TurnerCare, a Jackson internal medicine clinic, said this week:
"In April, when things were getting bad, I thought we'd lose some battles, but come together. Because that's what America does. Now that hope is fading. At this point in history, we have forgotten who we are."
Dr. Aaron Browne is a physician at University of Mississippi Medical Center (UMMC), said this week:
"For most of 2020 we have lived in hell. Like worker bees thrown into the fire.
You go in, you gown up in all the protective gear. You often get four days a month off, max. You work weekends. You come in at 6 in the morning and see COVID until you leave at 7 at night.
You leave, and you can't even get home before you hear it on the radio. Downplaying what you just saw for the last 12-hour shift. You have to be the mouthpiece for your friends, your family, people you don't even know. You have to convince them that it's real. [But] eventually it just becomes too tiring. You have to learn to tune it out. [But] it keeps eating away at you. Suicide rates among physicians are incredibly high. Especially training physicians.”
Yesterday, the executive director for communications and marketing for UMMC, Marc Rolph, announced that as of Friday morning, 13 people were waiting for an ICU bed that wasn’t available.
Georgia’s bellwether economic recovery: revisited in 1 week
(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 one week.)
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 one more week.
Economy pummeled by surging wave of new unemployment
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 853,000 people newly unemployed. Not only was this no improvement from last week (712,000), but it actually was a significant backtracking.
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 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.
Also, as we talked about in early December, the U.S. Government Accountability Office (a non-partisan government watchdog) found that statistical issues are causing both under- and over-counting of the PEUC stats. So they should not be viewed as individual people. Still, virtually all economists agree that over time, many of the inaccuracies tend to even out and the trend is still useful to look at.
So how did continuing claims look this week? This week, continuing claims also climbed to 5.76 million (from 5.5 million last week). And the Pandemic Emergency Unemployment Compensation (PEUC) program decreased to 8.56 million (from 8.87 million last week). So these numbers were mixed. And both were still disappointing to those hoping for a more meaningful drop.
The chief economist at Wells Fargo, Jay Bryson, commented:
“In general, the trend of employment growth clearly is slowing. Clearly, we’ve lost momentum in terms of the job market.”
The economist at Bloomberg, Eliza Winger, agreed:
“The jump in claims is consistent with our expectation that the next jobs report will likely deliver a negative print, reinforcing the need for immediate fiscal stimulus to support the economy.”
However, fiscal stimulus would require both houses of Congress and the President to agree on a package. And so far, that hasn't happened, at least not since the initial stimulus package back in May. But, we’ll cover that in more detail in the section below on the Financial Cliff.
Financial cliff: Progress continues despite distractions and political shenanigans
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:
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.
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 12 million more delinquent renters (owing an average of $5850 in back rent and utilities and $7.2 billion in total by the end of the year) will be evicted, as well. If the tsunami is allowed to occur, then it would have a devastating effect on real estate and the wider economy.
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 if Congress and the President could agree 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:
One political party (which we’ll call the "large stimulus party") controls the House of Representatives and passed a $3.5 trillion stimulus bill in May. They later downsized it and passed a $2.2 trillion bill in October. In early December they dropped further and agreed to a $908 trillion baseline compromise plan created by a group of senators in both parties.
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 had insufficient internal consensus to pass a bill. Then in December, some small stimulus party senators contributed to the bi-partisan compromise plan for $908 trillion dollars.
The White House has held a variety of positions, from less than $1 billion to higher than $2.2 trillion. After the election it temporarily withdrew from negotiations but more recently returned.
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 large stimulus party position.
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.
So what happened this week?
The $908 billion plan that was created by a bipartisan group of senators continued to be drafted and worked on.
However, the waters were muddied on Wednesday by a rival plan that was put forward by U.S. Treasury Secretary Steven Mnuchin. While this plan totaled $916 billion (similar to the $908 billion bipartisan plan), it slashed unemployment insurance from $180 billion to $40 billion. So, instead of providing the unemployed $300 weekly, this plan would send one-time $600 payments to all individuals (whether unemployed or not). Later in the day, the leader of the small stimulus party backed this rival plan as well.
Analysts and economists were not enthralled with the proposal. Mark Zandi, chief economist at Moody's Analytics was befuddled by the plan, saying:
“The first priority is, bottom line, those households who don’t have a job, don’t have any savings."
Michelle Meyer, head of U.S. economics at Bank of America, agreed, saying:
"Unemployment insurance is critical, and not just the dollar amount but the various programs. At the end of the year, the pandemic unemployment programs are set to expire. Those are the ones that expand eligibility to self-employed and gig workers.”
Later that same day, the leader of the large stimulus party in the House said the proposal was "unacceptable" and said it "must not be allowed to obstruct the current bipartisan talks."
The clock continued to tick, as a deal must be made by December 18 to be included in the year-end spending law.
The small stimulus party’s House Minority Leader, Kevin McCarthy, said on Thursday:
“I think next week will be the week we get it done.”
The number two Senate leader of the large stimulus party, Dick Durbin, said of the compromise bill:
“It’s a good bill. It’s far from perfect. [But] it deserves a vote on the floor of the United States Senate.”
Still, it’s unclear if the small stimulus party Senate leader will support the ultimate compromise bill or not. And so the fate of the stimulus package is still in doubt.
Meanwhile, the extremely poor weekly Jobless Claims report (discussed above) came out. And many analysts believe this should provide an additional incentive for a compromise deal.
Let's keep our fingers crossed and we’ll see what happens.
"The tidal wave is coming": 12 million renters will owe staggering average of $5850 in back rent and utilities by end of year.
Meanwhile, the financial cliff got steeper for many Americans this month. Last month, a Census Bureau survey found that 9 million renters were behind on rent. And this week, Moody Analytics released a report saying that nearly 12 million renters owe an average of $5850 in back rent and utilities by January.
Before the pandemic, most U.S. citizens didn't have enough savings to even pay an unexpected $500 expense. And this was while the overwhelming majority had jobs. So this backlog represents a potentially unsurmountable obstacle for millions of people, when moratoriums expire in January.
The senior attorney at the National Consumer Law Center, Charlie Harak, said:
"The tidal wave is coming. It’s going to be really horrible for people. The number of people who are now 90 days behind and the dollars they are behind are growing quite significantly.”
Families with children have been especially hit hard with 21% falling behind on rent. Minorities are also being hammered harder with 17% of Hispanic families and 29% of black families unable to pay.
Mark Wolfe, executive director of the National Energy Assistance Directors’ Association, said this week:
“This is like a Charles Dickens novel. It’s an evolving story of how people at the bottom are suffering.”
Meanwhile, the Federal Reserve posted its own report this week. They analyzed 1.3 million rental households where someone lost a job during the pandemic. And they calculated that the average home is $5,379 behind on rent and utilities (similar to the Moody's figure). This unsustainable bad-debt load is almost 10 times higher than it was in March.
The community development economic adviser at the FederalReserve Bank of Philadelphia, Davin Reed said:
“The longer employment stays suppressed, and people stay out of work, it will make it even harder to catch up on the debt and dig yourself out of that hole.”
But, renters aren’t the only ones struggling. The MortgageBankers Association found that $9 billion in rent wasn’t collected in the third quarter. And without that money, landlords and investors are struggling to pay mortgages as well as property taxes, insurance and other upkeep costs.
So, many agree that the repercussions of not resolving the financial cliff could be severe.
Dr. Fauci warns of "Dark January" from holiday one-two punch
Meanwhile, Dr. Anthony Fauci, the U.S. government’s top infectious-disease expert, warned that the one-two punch of Thanksgiving followed by Christmas could cause severe problems in January.
"If you look across the United States, we are really in a public health crisis right now. [This is] a surge that has really surpassed the others. We said that these things would happen as we got into the cold weather and as we began traveling. And they've happened. With the December holidays just around the corner and more people traveling it's going to happen again. We're getting into colder weather and an even larger holiday season. We may see a surge upon a surge. We don't want to frighten people, but that's just the reality. Without substantial mitigation, the middle of January could be a really dark time for us. This is something that is quite problematic, and to say it’s challenging is to really say the least.”
Food banks face their own “food cliff”
As we talked about last week, record unemployment from the pandemic has caused one in six families to go hungry (and one in four children don’t have enough to eat). And this has caused the deluge at U.S. food banks as some experience thousands of people queuing up for hours for a shot at a meal.
This week, multiple food banks warned that now the food banks themselves need more help. And without it they won't have be able to keep up with the incredible demand and feed everyone in need.
The Houston Food Bank, which is the largest in Texas, says that it expects to need 20 million pounds of food monthly over the next 3 to 6 months. But currently, they have only 15 million pounds. So they are 5 million pounds per month short (almost 25%). And when that happens, the hungry will have to be turned away.
The El Paso Food Bank reported things even worse in their city. They expect to be 11 million pounds of food short each month.
Celia Cole is the CEO of Feeding Texas, which is a nonprofit that coordinates the 21 food banks in the state. She said:
“We are seeing a different population, lots of people that have never come to a food bank before, people that didn't have the assets to weather a period of unemployment. We are facing a kind of a food cliff and we are worried about how long we are going to be able to keep up with demand without the help of the federal government.”
One example is 32-year-old West Houston resident Quinn Smoot. Before the pandemic, Quinn and her family of three (including a nine-year-old boy) were financially secure and even donated to the food pantry from time to time.
This week, Smoot said: “We were financially set. I never thought I would ever have to go to the food pantry.”
Smoot and her partner both lost income when their companies shed workers and hours. She was able to find a new job as technical support person for a telecommunications company. But even that hasn’t been enough:
“We are still behind on things. I’m behind on rent, behind on my home internet, which I rely on to work. I’ve been sick with no health insurance. Fresh food is super expensive here in the neighborhood, but there I can get apples, potatoes and not just canned and processed food.”
Personal note: if you are looking for a way to help out, Feeding America needs volunteers to hand out food as well as donations to make the food pantries possible. They have the highest four-star rating from Charity Navigator and a one dollar donation allows them to provide ten meals. My wife and I have donated multiple times before and during this pandemic and have only good things to say about them. To learn more, click here. (Like all links on this site, this is a non-affiliate and non-compensated link).
Single-family rentals in suburbs boosted by mass exodus out of urban centers
This week, the Single-Family Rental Market Index (produced by The National Rental Home Council and John Burns Real Estate Consulting) reported that in the third quarter, 59% of new single-family rental home residents relocated from urban residential environments.
Redfin, a real estate firm, also reported that homes in the suburbs rose 14.9% year on year to an average of $345,000 in October. That's the biggest increase since the firm started tracking this data in 2014.
Redfin chief economist Daryl Fairweather said:
"With restaurants, bars and shops temporarily or permanently closed due to the pandemic, much of what makes walkable neighborhoods so desirable and valuable has been diminished this year."
FDA grants Emergency Use Authorization to first Covid-19 vaccine in the U.S.
This week, Pfizer's vaccine was authorized by the Food and Drug Administration (FDA) for emergency use. The vaccines are being packaged to arrive at the first administration sites on Monday. The first in line will be healthcare workers and seniors living in long-term care facilities.
The authorization marked a dramatic triumph for science in creating a vaccine in months rather than years. And the brand-new mRNA technology, which harnesses the body's own cells to become vaccine-producing factories, looks like it will upend vaccine production in the future.
And in other good news, the Moderna vaccine, which also uses the same mRNA technology, is expected to be cleared this upcoming week.
Meanwhile, the Pfizer shot was previously cleared by regulators in the U.K., Canada and other countries. And the U.K. began its vaccination program on Tuesday, but ran into a hitch less than a day into it when two people unexpectedly experienced severe allergic reactions. The National Health Service had already warned that people allergic to any ingredient in the vaccine shouldn't take it. But after this experience, they widened the advice to include anyone with a significant allergy to any medicine or food, saying:
“Anyone with a history of anaphylaxis to a medicine or food should not get the Pfizer-BioNTech COVID-19 vaccine.”
Stephen Powis, national medical director for the NHS in England, said in a statement:
“As is common with new vaccines, the MHRA have advised on a precautionary basis that people with a significant history of allergic reactions do not receive this vaccination. We know from the very extensive clinical trials that this wasn’t a feature... now that we’ve had this experience in the vulnerable populations, we get that advice to the field immediately.”
Meanwhile, the Pfizer phase 3 human trials didn’t study a key fact: whether the vaccine is effective at preventing Covid 19 from spreading to others (or not). Even if it doesn’t prevent spread, it will still help the person who gets the shot. But if vaccinated people are still carriers, that renders the vaccine much less useful in stopping the pandemic. This week, the FDA announced they are on top of this very important issue and expect more data on this in "a few months."
Additionally, the trials didn’t study the effect on pregnant or lactating women, nor did they have much data on the vaccine’s use in 16 or 17-year-olds. Nevertheless, the FDA granted emergency use authorization for all of these groups.
After the good news of the emergency authorization came out, many analysts and health experts switched gears to think about distribution. And there, the picture is more challenging.
Pfizer has a deal with the United States to supply 100 million doses by March 2021. This corresponds to vaccinating 50 million people (since the regimen requires two shots per person). In comparison, there are about 335 million people in the United States, so this will fall well short of the need. (More about this is in the next section).
If the Moderna vaccine is approved, the U.S. expects to have about 40 million doses by the end of the year. This would be enough to treat 20 million people and should cover the approximately 18 million health workers in the country. Federal officials currently hope to have those 20 million people take the first dose of the vaccine by the end of the year (with a follow-up dose to occur three weeks later).
U.S. hopes of summer 2021 vaccination delivery relies on successful testing of two un-tried vaccines and higher compliance from a skeptical public
Operation Warp Speed is the U.S. government's effort to bring Covid-19 vaccines and treatments to market quicker. And when they were allocating money to different companies, they didn't know which would succeed and which would fail. So they chose a venture capital-like “portfolio” approach, where they didn’t bet it all on a few horses. Instead, they spread it out among several of the most promising candidates.
As a result, the U.S. has pre-existing contracts to purchase vaccines from Pfizer and Moderna, but only in fairly limited amounts. And these are far short of what would be needed to immunize the entire country. If the vaccine doesn’t stop the spread, then a very high percentage of the population would need to take it. Even if the U.S. only needed the lowest estimate of 70% of the population to be immune in order to reach herd immunity, the vaccine doses purchased are still far too low. At the same time, the government plans to vaccinate most Americans by next summer. So in order to hit this goal, some luck will be required. Both the Johnson & Johnson and AstraZeneca vaccine candidates (which currently are only in phase 3 trials) will need to be proven effective. This is not guaranteed (see next section on the failures this week in phase 3 trials of the Sanofi-GlaxoSmithKlein vaccine candidate). And then they will need to be able to hit their distribution targets. (In comparison, Pfizer was unable to meet its original target of 100 million doses and had to downsize that goal). How are these two vaccines looking right now?
Johnson & Johnson: This vaccine trial has recruited more than 35,000 participants in hopes to eventually enroll 60,000. They expect early results at the end of December or early January. If successful, Warp Speed's chief scientists anticipate they might get the green light from the FDA for emergency authorization in late January or early February.
AstraZeneca/University of Oxford: This trial has recruited 17,000 participants out of its 40,000 target and won't give results until late January or early February. Moncef Slaoui, the scientific head of Operation Warp Speed, says that if the trial is successful, emergency use authorization could come at the end of February or early March. This vaccine also did a separate trial outside the U.S., but was relatively disappointing with only moderate effectiveness (and significantly less than either Pfizer or Moderna). See next section for more details.
If both end up being successful, then this would provide enough shots to immunize 110- 150 million more people in the first and early second quarters. Then on top of that, the Pfizer and Moderna vaccines are expected to have enough doses by then to immunize 100 million more (in total). So that would be a total of 220-250 million, which would still short of the country’s 335 million people. But then if more supply becomes available later in Q2, then eventually the entire population could be covered.
Moncef Slaoui also pointed out that a third group of vaccines (one from Novavax and the other from Sanofi and GlaxoSmithKline) could be authorized in the spring for use in April or May. Altogether, that third group could theoretically produce hundreds of millions of doses. (Although, see next section for problems with the second group of vaccines in human trials).
This week, though, Slaoui came under criticism when news came out that Pfizer had offered the U.S. government an additional 100 million doses (for 50 million people), but was declined. Slaoui said this was a result of Operation Warp Speed's portfolio strategy of spreading out its bets, and because Pfizer could not guarantee the timeframe for delivery. As a result, those doses were sold to other countries and are no longer available.
If and when all of these distribution headaches can be overcome, more challenges remain.
One of the biggest potential issues is public acceptance.
In a Pew Research poll this week, 40% said they were unlikely to take a vaccine (with 21% saying they would "probably not" and 18% said they would "definitely not"). Unless this changes, it could throw a monkey wrench into any mass vaccination plans.
The poll also found significant differences based on a person's gender, race, age, education, income and political party.
On the plus side, the percentage of people who are likely to take a vaccine is much higher than it was even just a couple months ago. Currently, that’s at 60% (with 29% saying “definitely” and 31% saying “probably”).
Sanofi-GlaxoSmithKline vaccine flunks out of phase 3 human trials
On Friday, two of the world's biggest vaccine makers, Sanofi and GlaxoSmithKline, announced that their experimental Covid 19 shot failed to produce a strong enough response in older people. And this will send them back to the drawing board. The partners said they will be launching a new phase 2 study with a more concentrated antigen in February. If that is successful, it would mean the earliest potential availability for the vaccine would be next year (i.e. end of 2021).
Also, there was some other bad vaccine news this week. Earlier in the week, the Australian government announced that it was canceling an order for 51 million doses of a trial vaccine from a partnership between CSL Limited and the University of Queensland (after it had also done poorly).
Genius or desperation? AstraZeneca will try to supercharge its disappointing Covid-19 Vaccine by testing it with Russia’s controversial Sputnik V
As mentioned above, the U.S. has set a target to vaccinate the country bysummer. And in order to have any chance of hitting that goal, it needs a number of things to fall into place. And one of them is that AstraZeneca’s vaccine candidate (which is currently in phase 3 testing) has to be successful.
Early results won’t be in until late January or early February. But as we’ve discussed in previous weeks, trials outside of the U.S. haven’t been that great. After they initially claimed 90% effectiveness, many scientists and regulators pointed out that the testing methodology they used was questionable. And when those results were removed, the vaccine only had a very mediocre 62% effectiveness. See “AstraZeneca Vaccine’s Rollercoaster Ride from Hero to Zero in Under a Week.”
So perhaps it wasn't a surprise that AstraZeneca announced this week that they would partner with another company to try to create a double inoculation. Perhaps by combining with a second vaccine candidate, the company could get a more reliable result.
But what was a surprise was the entity with which the company decided to join forces. This week, they announced that they would cooperate with Russia's Sputnik V vaccine. This shot is based on the human adenovirus, which is somewhat similar to the monkey adenovirus used by Astra Zeneca.
The choice raised eyebrows, because Sputnik V was dubiously “approved” by Russian authorities before it had even completed phase 3 trials. And many scientists pointed out strange anomalies in its phase 2 data which were strongly suggestive of being faked. (See "Scientists Say 'Nyet' To Test Results from Russia's Claimed Covid-19 Vaccine").
AstraZeneca said the trial will begin before the end of the year.
The 6-foot rule continues to crumble as student catches Covid-19 from a stranger 20 feet away after only five minutes
The general public believes that as long as they stand 6 feet away from someone else, they can't catch SARS-CoV-2. After all, the CDC guidelines recommend that 6 feet is the safe distance to keep away from others. From the CDC website:
Social distancing, also called “physical distancing,” means keeping a safe space between yourself and other people who are not from your household. To practice social or physical distancing, stay at least 6 feet (about two arms’ length) from other people who are not from your household in both indoor and outdoor spaces.
However, as we've talked about in previous weeks, the CDC didn’t actually come up with this number by doing a scientific test on the virus. Instead, it's just a shortcut/general rule of thumb for generic respiratory diseases. And it initially came about from fairly limited, early studies in the mid-20th century.
And since then, there’s been multiple documented studies of coronavirus infections and superspreader events occurring between people who stayed more than 6 feet apart at all times. However, none of this has yet seeped into the CDC guidance.
This week, another piece of incriminating evidence was added to the growing list of reasons to change that rule.
Researchers in South Korea were initially mystified when a high school student suddenly got the disease, despite living in a city that hadn’t seen a single infection for two months.
Fortunately, South Korea has one of the most sophisticated contact tracing systems in the world. So an epidemiological team went to work analyzing medical histories, mobile phone data, credit card information and eventually even video footage. And they solved the mystery and published the fascinating results in the Journal of Korean Medical Sciences.
It turned out that the student had gone into a restaurant at the same time as an out-of-town business visitor. And that visitor later tested positive.
The encounter was very brief and lasted only five minutes. During the entire time, the student was more than 20 feet away from the out-of-town visitor. The two never talked nor even touched the same doorknob.
Ultimately, two other people in the restaurant also caught the disease. And all three were in the flow trajectory of the restaurant’s air-conditioning system and downwind from the infected visitor. Other diners who were upwind or outside the flow were fine.
Dr. Lee Ju-hyung, an epidemiologist and one of the authors of the study, said:
"Incredibly, despite sitting a far distance away, the airflow came down the wall and created a valley of wind. People who were along that line were infected. We concluded this was a droplet transmission, and beyond 2 meters (6.5 feet)."
The distance between the two was 6.5 m, which is equivalent to 21 feet. The report went on to conclude:
"Droplet transmission can occur at a distance greater than 2 m (6.5 feet) if there is direct air flow from an infected person. Therefore, updated guidelines involving prevention, contact tracing, and quarantine for COVID-19 are required for control of this highly contagious disease."
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 no 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 and 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 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.
3rd U.S. death wave soars to new records; Crystal ball: Reprieve or calm before the storm? Third wave of infections slow while holidays loom; World round up: Disastrous week as South Korea loses it’s lid on the virus, Sweden's King says the country "has failed", much of Europe backtracks and U.K. stumbles against super contagious and concerning mutation; State Roundup: Covid-19 patients overload hospitals and the dead overload mortuaries in hard-hit states like California, Missouri and North Carolina; Georgia’s Bellwether economic recovery: revisited in 1 week; Economy once again hammered by record new unemployment, as jobs recovery backs-up into unwanted reverse ; Moderna vaccine authorized by FDA for emergency use in the U.S.; London hammered by highly contagious virus mutation that's "70% more transmissible" than original and forced to go into major lockdown; Sunday morning update: U.K. says super-contagious mutation is "out of control", harsh lockdowns may not be lifted for “months” and it has already spread elsewhere; Covid 19 “long haulers” may take more than a year to recover