How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 43: December 19th
Updated: Feb 8, 2021
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 its 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 one week; Economy once again hammered by record new unemployment, as jobs recovery backs up into unwanted reverse; Financial cliff: Huge progress, a stumbling block, and extra time added to make a deal; 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; 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.
Part 2: The Economy: What are possible scenarios, and how would they affect the economy?
Part 3: Strategy. How will scenarios effect alternative investments and my personal strategy?
3rd U.S. Death Wave Soars To New Records
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 322,186 (versus 302,762 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 areas).
How did things go this week?
This week, deaths again skyrocketed to new heights. And they continued to shatter 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). 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: reprieve or calm before the storm? Third wave of infections slows while holidays loom.
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?
On one hand, the United States’ infection numbers continued to climb and set new record highs for the pandemic. But, for the third week in a row, the rate of increase has slowed down. And it’s giving an early sign that we’re possibly reaching the peak. If that happens, it would be welcome news. And we’ll continue monitoring to see. On the other hand, 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 during the holidays. And if this happens, we would expect to see another surge. 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: disastrous week as South Korea loses its 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
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:
Unfortunately, this was a very bad week for South Korea. Not only have they accelerated into a third death wave, but they have now exceeded the peak of their first wave.
On the other hand, the biggest positive for Southern Korea is that (at least so far) their rates have been extraordinarily low compared to virtually every other country in the world. 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? We used to look at Sweden’s stats in depth every week, because it was following an unorthodox lockdown-lite strategy. And the hope was that it 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 strategy is becoming much more similar to others. And so far, lockdown-lite has resulted in worse economic damage and a stratospheric death toll (versus the top countries). So we are now switching to a one-month schedule (and we will look at their stats in detail in three weeks).
But this week, the country made headlines when Swedish King Carl XVI Gustaf offered an unusual and scathing commentary on the country's strategy:
“I think we have failed. The people of Sweden have suffered tremendously in difficult conditions. We have a large number who have died and that is terrible.”
Prime Minister Stefan Lofven couldn’t disagree, saying:
“Of course, the fact that so many have died can't be considered as anything other than a failure.”
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 continued, welcome progress. Let’s hope this continues. How did some of their neighbors in Europe do? Here's the U.K., France, the Netherlands and Belgium.
This was a disappointing week for Belgium and the Netherlands. Both previously appeared to have gotten control of the second wave, but this week backtracked, and moved in the opposite direction. The United Kingdom and France both very slightly improved over last week, potentially turning the corner on their second wave. But, progress has been agonizingly slow. And this weakness leaves both countries more open to backsliding. So overall, Europe is showing a lot more mixed signals than it was a week ago. Will continue to watch them and see what happens.
State Roundup: Covid-19 patients overload hospitals and the dead overload mortuaries in hard-hit states like California, Missouri and North Carolina
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 start with California first.
These are all very bad-looking graphs. Infections, deaths and hospitalizations all skyrocketed. And all three set pandemic highs. Last week, automatic “circuit breakers” kicked in and enforced lockdowns when ICU capacity dropped below 15% in many areas. But it generally takes time (weeks) for these countermeasures to take effect. In the meantime, here’s what happened to infections, deaths and hospitalizations: This week, multiple ICU's in hospitals across Southern California eclipsed full capacity. Randy Loveless, the interim director of St. Mary’s Emergency Department in Southern California, said:
“Every day we’re running at 200, 250 percent capacity. That includes the emergency department, the ICU, all of the inpatient units. We have well over double the number of patients that we were built to house.”
As a result, patients are being treated in hallways, lobbies and other improvised wards.
“I don’t think that most of the general public around the area really understands what’s going on inside the walls of the hospital. I’ve been doing this 25 years. I’ve been all over the country with my career. I’ve never seen anything like this.… And one of the worst things about it is there’s no end in sight.”
The hospital's quality director, Mendey Hickey, said she and all the staff have been working 12 to 15 hour shifts.
“Today we have 140 Covid patients in a 213-bed hospital. It’s only going to get worse before it gets better. We are canceling surgeries. We’re canceling all procedures. We’re pulling staff from administrative offices. We are getting nurses competent to take care of patients that have not done so in years."
Staff shortages can be particularly painful, because many procedures can't be done without staff. For example, as we discussed in previous weeks, "proning" (or laying a patient on their stomach) has been found to drastically improve outcomes of intubated patients. But this strenuous and delicate task can require half a dozen staff members and has to be repeated every 18 hours.
Additionally, anti-mask sentiment runs high in Apple Valley, and healthcare workers say the public approach to following health measures has been cavalier. Charlie Abraham, St. Mary’s Chief Medical Officer, said:
“There are some of us, you know, that had the initial doubts about how real this virus is, how aggressive it is. What’s happening here in this hospital particularly, is just an example of how threatening it is and how aggressively this virus tends to evolve. This virus is not only attacking our bodies, but also threatening our way of life.”
Meanwhile, the Sunset Hills Memorial Park and Mortuary in Apple Valley, California, has staff working 24-hour shifts to keep up with Covid-19 deaths. Nearby, the Victor Valley Memorial Park and Mortuary ran out of space and is storing dead bodies in cold storage units.
This week, Gov. Gavin Newsom announced the state had ordered an additional 5000 body bags along with 60 refrigeration units to store dead bodies. Let’s switch gears and look at North Carolina. How did it do this week?
These are also tragic graphs. North Carolina’s new infections, hospitalizations and deaths all increased and all set pandemic high records. The secretary of the North Carolina Department of Health and Human Services, Dr. Mandy Cohan, said:
"I am very worried for our state. Everyone must act right now to protect each other. Do not wait until it's you or your loved one sick with COVID-19 to wear a mask, stay apart from others and wash your hands often. Do not wait until it's you or your loved one alone in a hospital bed. Do not wait until you've lost a loved one to this pandemic. Take personal responsibility for you, your loved ones and your community now."
Doris Pope, of Harnett County, could barely breathe when she tested positive for Covid-19 a few weeks ago. A few days later, her husband of 61 years, Sherwood Pope, also went to the hospital. Both had beds next to each other. This week, both died, holding hands, with their hospital beds pushed together. Shelton Pope, their youngest son, said, “She loved that man and he loved her. It was the hardest thing anybody had to do… They passed away holding hands. Apparently, dad left first, and she was a minute or two later."
Although their story was tragic, in their demographic, this situation has actually been quite typical for Harnett County, where the majority of Covid-19 deaths are occurring in older white people. This is in contrast to the country overall, where minorities have been hit harder. In Harnett, 63% of the deaths are happening to whites, and 59% of deaths to those aged 75 or more. This same trend has been in place in the county since March. Let’s look at another state: Missouri:
These are also terrible-looking graphs. Missouri’s new infections, hospitalizations and deaths are all moving in the wrong direction. And all set pandemic high records. For weeks, Missouri doctors and Gov. Mike Parson have been at odds. The doctors warned that hospitals were reaching a critical point. But the governor insisted data showed that was plenty of room. Last week, an analysis by Kansas City public radio found that the Missouri hospital data’s numbers have been overinflated for months. After a reporting change, they started including beds for things like psychiatric, obstetric, outpatients and even pediatric beds, which had not been included previously. The Missouri health department’s spokeswoman Lisa Cox claimed this was "to provide a full sense of healthcare system capacity." However, many hospital doctors said it would never be feasible for many of these types of beds to treat Covid-19 patients. Dr. Mary Anne Jackson is Dean of the University of Missouri – Kansas City School of Medicine and an infectious disease specialist who serves on a COVID-19 task force that advises the Governor. She said:
“That clearly muddied the view of what we have available."
Even after hospitals warned they were being overloaded, inflated bed numbers stayed uncorrected for weeks. A Kansas City nurse said:
“The current mood is very bleak. No one knows there are no beds, that we’re in this crisis, and we’re coming to a point where we’re going to be completely overwhelmed. But no one’s talking about it, and no one knows about it.”
Mercy Hospital chief operating officer Brent Hubbard said:
“We’re seeing the surge right now. We’re seeing a record number of COVID-positive patients being hospitalized, and that’s not just overwhelming our [emergency rooms], it’s overwhelming our inpatient staff, and is a growing concern for us.”
Like in other states, the biggest issue though, is not raw beds themselves, but the staff required to maintain beds.
Dr. Mary Anne Jackson of University of Missouri Kansas City Hospital, said
“We’re going to find the beds, more than likely. But we’re not going to find the health care workers to man those beds. That’s what I’m most concerned about.”
Georgia’s bellwether economic recovery: revisited in one 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 once again hammered by record new unemployment, as jobs recovery backs up into unwanted reverse;
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 885,000 people newly unemployed. Not only was this no improvement from last week (85,3000), but for the second week in a row, the number went up.
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 declined by 273,000 to 5.51 million. Bloomberg economist Eliza Winger said:
“The labor market is showing clear signs of deterioration. We expect the trend to persist amid a sharp rise in virus cases and subsequent business restrictions weighing on employment conditions.”
Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said:
“The health crisis is likely to get worse after the upcoming holiday which will translate into even wider limitations on activity, business closures and mounting job losses.
Combined with lapsing federal support programs, the impact on incomes and spending will be substantial, which will weigh on growth prospects in the near term.”
However, if Congress and the President can agree on additional aid and stimulus, then that collapse could be averted. More on this in the next section on the financial cliff.
Financial cliff: Huge progress, a stumbling block, and extra time added to make a deal
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 that 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 will 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 compromise plan as a “down payment” for further action later.
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 additional stimulus 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.
What happened this week?
From Monday through Friday, the $908 billion compromise plan gained momentum. And all three parties agreed progress was being made, and expressed optimism early in the week that a deal might happen by Friday.
However, on Thursday night, Senator Pat Toomey (from the small stimulus party) threw a potential monkey wrench into the works. He demanded a provision that would bar the Federal Reserve from restarting the five coronavirus relief programs that expire at the end of the year.
Jeremy Kress, an assistant professor of business law at the University of Michigan, and a former Fed attorney, said:
“I am concerned that this provision would tie the Fed’s hands, not just in the short term during the coronavirus pandemic, but also handcuff the Fed in the long-term when responding to unforeseen crises in the future.”
Additionally, Federal Reserve Chairman Jerome Powell and colleagues had already made clear they opposed such a plan, for those reasons. And senators from the large stimulus party also objected, claiming that this was an attempt to sabotage the bill.
As of Saturday night, there was still no agreement. And technically, time had runout. That's because any stimulus bill passed before the end of the year would need to be tied to a new omnibus government spending bill that secures funding through September and would avert a government shutdown.
Fortunately, both sides were able to extend the clock into overtime. Late Friday night, the White House announced that it had signed a bill passed by both houses of Congress that would extend current funding for two more days (until midnight Sunday). So this gives everyone two more days to reach an agreement. And technically, another short-term extension could be done if necessary.
Steny Hoyer, the number two House member of the large stimulus party advised lawmakers to be available through the weekend and into next week.
Moderna vaccine authorized by FDA for emergency use in the U.S.
On Friday, the Food and Drug Administration (FDA) authorized the emergency use of the Moderna vaccine pretreatment of Covid-19. That makes it the second vaccine to receive authorization in two weeks. Like the previous vaccine from Pfizer, it is also utilizes the revolutionary mRNA technique. Not only did this allow development in record time, but also achieved a much better than expected 94.1% effectiveness.
Unlike Pfizer’s, Moderna’s vaccine can be stored in normal freezers and doesn't require expensive, new freezers to store at ultra low temperatures. This should make it much easier and cheaper to deploy.