How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 45: January 9th
Updated: Feb 8, 2021
Progress against third U.S. death wave appears a temporary blip, as new fatalities climb relentlessly and shatter records; Crystal ball: After brief reprieve, third infection wave accelerates again; World round up: multiple countries losing war to virus as Sweden prepares hard lock-down, U.K. hospitals become "a war zone" and quicker-spreading mutation gains stronger foothold; State Roundup: More hospitals “stretched to the absolute limits” as a record 16 states simultaneously set Covid-19 hospitalization highs; Georgia’s bellwether economic recovery: revisited in three weeks; Unemployment: Strong headwinds to recovery continue; Dual monthly unemployment reports show economic recovery dangerously stalling; Financial cliff (part 1): Covid-19 relief law passed at last; Financial cliff (part 2): Losers of the new pandemic aid law; “Large stimulus” party flips two key seats to control Congress as President-elect demands more pandemic-relief; New faster-spreading mutation found across multiple states as scientists criticize anemic U.S. response as “a scandal”; U.S. vaccination effort comes under intense criticism after falling well short of goals; Update on my portfolio strategy.
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I hope you and your loved ones are having a happy and healthy new year. This week there was a flood of new information on virus spread, economic impact, investment repercussions, the financial cliff, faster-spreading mutations and the lagging vaccination effort.
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.
Progress against third U.S. death wave appears a temporary blip, as new fatalities climb relentlessly and shatter records.
For the 35th 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 381,497 (versus 338,263 2 weeks ago on 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 was a disappointing week. After promising hints last week that things might be turning around, the situation reversed. And once again, deaths continued their relentless climb. Sadly, this not only shattered third wave records but created new highs for the entire pandemic. 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. And in November and December, we talked about how this is causing hospitals to overload in certain areas of the country. When this happens, hospitals are forced to deny care to incoming patients, both those infected with the virus and uninfected. And not only do more people die of Covid-19 unnecessarily, but others (via heart attacks and other completely unrelated problems) die unnecessarily, too. In response, many states have enacted varying lockdowns which may start to kick in and change the trajectory. But, lurking under all of this is the threat of the new mutated strain, which may prove much more difficult to contain than the original. So we’ll be watching this very closely to see what happens.
Crystal ball: After brief reprieve, third infection wave accelerates again
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?
Unfortunately, the last couple of weeks are hidden by the country label. So let’s change the scale so that we can view it closer:
Over the last several weeks, the increase in U.S. infections had been slowing dramatically, and last week, the number even came down. This gave hope that things might be turning a corner.
Unfortunately, infections once again climbed upward this week and set new pandemic highs. This new surge wasn’t a surprise to some. Many health experts have repeatedly noted that many Americans ignored health advice over the holidays and mingled with family and friends outside of their homes. And so many predicted this would happen. Sadly, it looks like they were right. If this feels like déjà vu, it’s because we’ve seen the same story happen twice before. Experts made the same predictions in May for Memorial Day and in September for Labor Day. And sadly, both of these events also triggered surges which ultimately fueled brand-new waves. What could be different this time around is that we now have multiplevaccines with which to fight the disease. But, the rollout for these has been going much slower than expected (see later article). And there’s also now a new mutated strain, which spreads more easily than previous strains. So we’ll watch to see how these conflicting factors play out over the next couple of months.
World round up: multiple countries losing war to virus as Sweden prepares hard lock-down, U.K. hospitals become "a war zone" and quicker-spreading mutation gains stronger foothold.
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).
However, in recent weeks, South Korea has been experiencing a third death wave that's been more difficult to control. And while this wave is minuscule compared to other countries’, South Korean officials are still very concerned and have announced stricter lockdowns. Recently, the country also discovered the presence of the new mutated strain of the virus (which spreads more quickly and may be more difficult to contain). There’s no way to know how widespread it is. But if it becomes widespread, then it may make partial lockdowns much less effective than before.
How are things going now? This week, South Korea looked like this:
So the last two weeks have been better, with deaths slowing. Let’s hope this continues for them next week and we see them turn the corner.
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’re now switching to a one-month schedule.
Here’s how they been doing:
This is not a good-looking graph for Sweden. Over the last month, their second death wave has continued. And this last week’s numbers not only shattered second wave records, but also eclipsed the previous record held by the first wave.
And more potential bad news came last week, when the country announced it had detected a case of the mutated strain of the virus. As mentioned above, this spreads more quickly than the original and may be much more difficult to control with partial lockdowns. Sara Byfors of Sweden's Public Health Agency also added there are probably more cases that have not yet been detected.
This Friday, Sweden's Parliament passed an emergency law empowering the government to impose coronavirus-related lockdowns for the first time. This was something the country has resisted for a long time. Swedish Prime Minister Stefan Löfven said:
“We see a great risk that we will be in a difficult situation for some time ahead. Of course, that means the pandemic law should be utilized, and we will use it in the near term.”
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 month, 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?
For the last couple of weeks, they’ve made great progress. This week though, that flattened out and infections ended up being a little worse at the end of the week than the beginning. Still, one week doesn’t set a trend. So let’s hope that this is just a temporary blip, rather than the start of something new.
Meanwhile, the new, mutated strain of the virus appears to have established a foothold in Spain, as well. Four days ago, scientists announced they had detected it in two patients in the Valencia area of the country. And most worryingly, they couldn’t find any connection between them and the United Kingdom (which was the first country to identify the new strain). So, the authorities believe it has been spreading "in the wild" freely for at least two weeks. And many health experts are concerned that this could throw a monkey-wrench into the fragile progress the country has made.
How did some of their neighbors in Europe do? Let’s look at the U.K., France, the Netherlands and Belgium. In early December, all of them appeared to be turning the corner simultaneously. But two weeks ago, the U.K. and Netherlands lost control, while France flattened out. And only Belgium continued to turn the corner. What happened this week?
Unfortunately, the United Kingdom, France and Netherlands all suffered bad weeks. Deaths increased, and all three appear to have lost the earlier control they had.
The one bit of good news belonged to Belgium. It continued to make progress turning the corner and was the only one of the four countries that had fewer new deaths at the end of the week (versus the beginning).
The U.K. boasts one of the best genetic testing systems in the world, and was the first country to detect the new, mutated strain. And as we talked about in previous weeks, that version has become the dominant variant there. The increase in infections, hospitalizations and deaths caused the country to reverse their previous relaxation of lockdowns and implement tight restrictions in many areas. So far at least, that reaction has not yet shown up as an improvement in the death statistics, as they hit new highs and shattered previous pandemic records.
Meanwhile, many U.K. hospitals announced this week that they’re under siege and being pushed to the brink. Ben Schischa, a London paramedic with eight years' experience, said:
"Covid-19 cases have exploded exponentially compared to even a week or two ago. It's become like a war zone again.
I've seen patients wait in ambulances for hours until the hospital had enough space for them. One patient waited six hours outside a hospital. It's gone completely crazy."
Yesterday, British Prime Minister Boris Johnson agreed, saying:
"Our hospitals are under more pressure from Covid-19 than at any time since the start of the pandemic."
As a result, the country announced on Monday that it would implement even stricter lockdowns (similar to the tightest ones back in March). The public has been asked to stay at home and leave only for very specific reasons. That includes essential shopping, exercise, Covid-19 testing, medical help, escaping domestic abuse and those who absolutely cannot work from home. Additionally, primary and secondary schools, and colleges will have to switch to remote learning starting Tuesday. People who don't live together are not allowed to mix, but support and childcare bubbles are still allowed.
Prime Minister Johnson announced the restrictions and added:
"I know how tough this is and I know how frustrated you are. But now more than ever, we must pull together."
The Prime Minister had previously been a virus skeptic and even bragged about shaking hands with many Covid-19 patients without suffering any bad effects. He later contracted the disease and was hospitalized with a serious case, which he claimed “could have gone either way” and killed him.
Meanwhile, France announced on Wednesday that it had confirmed 19 cases of the more transmissible mutated strain (that some are calling the U.K. variant, because it was first identified there, although it may have originated elsewhere). They’ve also identified three cases of another faster-spreading strain, that some are calling the South African variant (which was first identified in that country). Contact tracing on a patient in the Paris region could not find a link to anyone with any travel history, which caused many to fear that it may be too late to stop its further spread.
As of Saturday morning, scientists reported that the U.K. variant has now been found in 47 countries. This includes North America (both the United States and Canada), Europe (the U.K., Denmark, France, Germany, Ireland, Greece, Belgium and many more), the Middle East (Iran, Oman and Israel and many more), Asia (China, Singapore, South Korea, Vietnam and many more), Oceana (New Zealand, Australia and many more) and South America (Brazil).
State Roundup: More hospitals “stretched to the absolute limits” as a record 16 states simultaneously set Covid-19 hospitalization highs
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?
Covid-19 hospitalization surged in many areas of the country. And a jaw-dropping 16 states reported pandemic-high records. Most were in the South, including Alabama, Arkansas, Maryland, Georgia, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia. Additionally, Arizona, California, Delaware and Maine also set records.
The combination of all these unwanted highs set yet another pandemic record: “most states hitting a high in one week”:
Let’s take a closer look at some of them and start with Arkansas:
These are all terrible graphs for Arkansas. Infections, hospitalizations and deaths all climbed this week. And infections and hospitalizations both broke new records, while deaths remained close to pandemic highs.
Last week, Arkansas hospitals had only 56 ICU beds left out of 1155 statewide.
And in response to the staffing shortage, hospitals announced plans to reduce the usual ratio of 1 to 2 patients per ICU nurse to as high as 3 or 4 by bringing in non-ICU support staff. State doctors and nurses had previously excoriated this strategy (which was called a "team-based care model") for causing worse care for patients, increasing burnout from medical providers and increasing deaths. Few experts disagreed, but they also pointed out that hospitals are stuck between a rock and a hard place and have little choice. Let’s turn our attention to another state. How did North Carolina do?
This week, North Carolina did a “hat trick” by setting three unwanted records at once. Covid-19 infections, hospitalizations and deaths all surged to set pandemic highs.
On Thursday, the State Secretary of Health and Human Services, Dr. Mandy Cohen, said:
"This is the most worried that I have been for our state. The anticipated holiday surge is upon us."
The President of the North Carolina Nurses Association, Dr. Dennis Taylor, said:
“Hospital capacity and ICU capacity are both being stretched to the absolute limits. We’re seeing ICU capacities at 100 percent, and we’re seeing hospital capacities at 90, 95 percent."
WakeMed hospitals' chief medical officer, Dr. Charles Harr, said:
"All of our beds are full. We have some patients who we are maintaining in what we call surge spaces.”
And on Wednesday, this field hospital was opened in Lenoir to accommodate additional patients:
But, as in other states, the North Carolina bed shortage is not actually being driven by a shortage of physical beds or physical space. The problem is insufficient medical personnel to staff them.
“Hospitals are under a lot of strain. It’s not just the increase in cases, it’s also a lack of staff availability.”
Harr agreed, saying:
"Our main challenge is keeping all the staff available to care for patients."
He also admonished the public on being lulled into complacency:
"Folks still are not wearing the masks the way they should. I think that people really need to take the virus very seriously. Unfortunately, I work with COVID patients every day, and I see them die."
Meanwhile, Greensboro-based Cone Health recently posted its hospital system monitoring and forecasting system on the web.
At current rates, the hospital capacity in this area of North Carolina is expected to be exceeded in 10 days. A Cone spokesperson said this would be bad, not only for Covid-19 patients, but for any patient seeking care.
"This would mean delays in care for nonemergency services and could eventually impact urgent care for problems such as heart attacks and strokes."
Georgia’s bellwether economic recovery: revisited in three weeks
(Note: Georgia’s economy is now being reviewed only once a month, as described below. So we'll dive into it in 3 weeks.).
One of the most important questions for investments (as well as for the health of the country) is "what will the shape and speed of the recovery be?" If it's V-shaped and quick, then many investments will be just fine. On the other hand, if it's one of the other shapes (U-shaped, swoosh, etc.), then some or many investments could run into problems. (See part 14 for more information on the possible "recovery shapes" and their ramifications).
To monitor the evolving situation, we've been watching Georgia very closely. It was one of the first states to reopen. So we expected this to make it a useful early indicator of what could be in store for some other parts of the nation.
Back on April 24, Georgia Governor Brian Kemp reopened nail salons, hairdressers, bowling alleys and gyms (as long as they followed state protocols). Then, three days later, restaurants and theaters were also allowed to reopen. So they've effectively been open for about 6 months.
How are they doing? Since there's no official government or state data on this, we've previously looked at Placer.ai. This is a service which tracks mobile phone usage to different types of businesses to measure foot traffic. And we've watched them week by week across all of Georgia's four primary Covid-19 sensitive industries: restaurants, retail, fitness, and hotels.
How’s that gone over the last six or seven months? We've seen different sectors moving back and forth during that time, as well as different individual businesses in those sectors. But overwhelmingly, results have ranged from disappointing to dismal. And while there have been occasional spurts of improvement to celebrate, these have almost always been quickly followed by disappointing backtracking.
So at this point, the Georgia experiment has failed to achieve its goal of a V-shaped recovery. This is why I’ve called a halt to the weekly monitoring of the state and will only be checking in monthly. We will look again in three weeks.
Unemployment: Strong headwinds to recovery continue
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 31 weeks, the economy has been hammered week after week by massive levels of new unemployment. This week was no different, with 787,000 people newly unemployed. This was barely improved from last week (790,000):
Unfortunately, at nine months into the pandemic, we’re still getting weekly job losses that are more than three times the pre-pandemic level (216,000 in February of 2020). 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 slightly to 4.52 million.
The report also showed that long-term unemployment set a seven-year high in November at nearly 4 million.
The chief U.S. economist at JPMorgan Chase & Co., Michael Feroli, said:
“The current wave of infections is weighing on activity. What we are seeing, I think pretty clearly, is a notable deceleration in the labor market over the last several weeks.”
Dual monthly unemployment reports show economic recovery dangerously stalling
This week, two much-anticipated monthly unemployment reports also came out.
First out was the ADP monthly payroll report. And unfortunately, the numbers weren’t good.
Payrolls contracted for the first time since the early pandemic (now declining by 123,000 in December). Leisure and hospitality were hit the hardest, and most of the cuts came from large businesses. ADP also estimated that companies laid off a net 19.4 million workers in April, and only 9.9 million of those have been recovered. If accurate, this would mean a startling 9.5 million workers remain unemployed. And many of these are believed to have been suffering from unemployment from as long ago as March and April.
Later in the week, an even more anticipated monthly unemployment report came out, tracking Nonfarm Payrolls. This is published by the U.S. Bureau of Labor and Statistics. Unfortunately, it also delivered bad news:
Nonfarm payrolls not only failed to increase, but the numbers moved in the wrong direction and decreased by 140,000 from the previous month. And for the first time in eight months, the U.S. lost more jobs than it created. The trend also appears to put a nail in the coffin for the the few remaining “true believers” who had steadfastly held to the theory that the economy would naturally have a V-shaped recovery. Instead, this is exactly what a double dip recession would be expected to start off as. The bad numbers were mostly driven by huge losses in leisure and hospitality:
Senior portfolio manager at investment firm BlackRock Inc., Jeffrey Rosenberg, said:
“The report is remarkably weak with regards to leisure and hospitality. That’s really what’s taking the headline number down. This is very clearly about the Covid resurgence we are seeing and underscoring the need for more fiscal policy.”
The report also said that the headline unemployment rate was 6.7%. This was the same as the previous report and broke a previously positive string of seven successful improvements in a row. And it’s almost double what it was in the pre-pandemic report of December 2019 (3.4%). And unfortunately, it’s known that the headline unemployment rate understates true unemployment in the pandemic and the bigger picture is actually worse. As we've discussed in past articles, this headline unemployment rate statistic was designed for a pre-pandemic age and doesn’t count discouraged workers, workers attached to who lost jobs the labor force who lost jobs and those who want full-time work but are forced to settle for a part-time job.
The more complete U-6 unemployment rate corrects for these issues. So, the true gauge of employment, this month, was at a very unappetizing 11.7% (which is almost double the headline rate). And this also stalled out and was barely improved from the 12% in August.
However, Bloomberg economist Eliza Winger pointed out a potential silver lining.
“While the labor market is stalling, the recent passage of substantial fiscal stimulus will provide critical support to the economy over the next several months."
And we’ll talk about that in the next section on the financial cliff.
Financial cliff (part 1): Covid-19 relief law passed at last
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: At the end of 2021, 10-12 million people who lost jobs due the crisis were 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 1 2021, moratoriums on evictions and foreclosures were scheduled to expire. If this happened, 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 totally $25 billion as well as more in utilities) 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.