How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 47: January 23rd
Updated: Feb 8
Third U.S. death wave finally shows hints of plateauing; Crystal ball: Third U.S. infection wave may have peaked; World round up: South Korea manages to put a lid on second death wave while Spain and UK continue to spiral out of control due to new, mutant strain; Denmark’s virus-control success-story set to be upended by U.K. variant, which is spreading at 70% per week and projected to overwhelm defenses "like a tsunami; State Roundup: U.S. finally turns the corner on the third wave. Start of a turnaround or brief reprieve before a fourth wave driven by mutant strains strikes?; Economy pummeled yet again by more massive unemployment; Financial cliff: White House reaches out to bi-partisan group of moderates for more pandemic aid and stimulus; Renters owe apartment investors $70 billion in unpaid rent, as foundation of industry suffers “extreme stress”; Yet another supercharged Covid-19 variant that could up-end everything? Researchers are concerned about the rapidly spreading L452R mutation in California; Two new studies on "Long-Covid" show large numbers still suffering from debilitating symptoms, six months after infection; Update on my portfolio strategy.
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This week there was a flood of new information on virus spread, economic impact, investment repercussions, the financial cliff, and four faster-spreading mutations.
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 U.S. death wave finally shows hints of plateauing
For the 52nd 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 424,187 (versus 402,319 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?
The country label is obscuring some of the weekly data from John Hopkins University. So let’s change the scale to get a closer look:
On the one hand, this is an ugly graph. The U.S.’s third death wave continued to climb (versus last week) and new victims were killed at a rate that set new pandemic records. On the other hand, the rate of increase appears to have slowed and be plateauing. We’ll continue to watch and see. Unlike the two previous waves, this third one is widely distributed throughout the country, which many experts say makes 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. Then 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 behind this is the threat of new mutated strains, 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: Third U.S. infection wave may have peaked
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?
New U.S. infections remained very high for the week. And at the same time, there was also a welcome and unmistakable trend down. Still, our third wave has already seen two similar downturns that turned out to be temporary "fake outs." So we'll continue to watch and see.
The emergence of the third surge was predicted by many health experts. It was triggered by many Americans ignoring health advice over the Thanksgiving and Christmas holidays and mingling with family and friends outside of their homes. 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 multiple vaccines with which to fight the disease. But, the rollout for these has been going much slower than expected (see January 9th issue).
And there’s also now new mutated strains, which spread more easily than previous strains (see section below). Some health experts are now saying this is likely to cause a fourth wave (perhaps in late February or early March). So we’ll watch to see how these conflicting factors play out over the next couple of months.
World round up: South Korea manages to put a lid on second death wave while Spain and UK continue to spiral out of control due to new, mutant strain.
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:
This was a good week for the country, as deaths dropped sharply. And South Korea appears to finally be getting control of its third wave.
How’s 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’ve reversed 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 (and will look at them in two more weeks).
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). But then complicating everything has been the emergence in 2021 of mutant strains which are much more contagious than the original version and more difficult to stop. 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?
This was a very disappointing week for Spain. After successfully battling down the second wave of deaths for almost 2 months, deaths have now accelerated for two weeks in a row. Unfortunately, they appear to have lost control and are arguably entering a third death wave.
Additionally, some health experts are glum about the prospects of a quick turnaround, due to the spread of the new U.K. variant in the country (which is much more difficult to stop than the original). 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?
Let’s start with the good news. Belgium continued to turn the corner. And deaths are still at a high level, but have been dropping for the last two months. And this week, there was some welcome news from the Netherlands, as it also had a drop. Since they’ve had similar drops in the past that turned out to be “fake-outs,” it’s too early to call this a trend. But let’s hope that next week, we see another graph similar to this one for the country.
France didn’t do as well. After flattening for the last month, they’ve climbed this week.
And the U.K. had another very bad week, as deaths continue to spiral out of control.
Additionally, there was some more potentially unwelcome news this week on the new U.K. variant.
The mutation is called B.1.1.7, and it was first identified in Kent, England, in September 2020. Over the next couple of months, it quickly spread around the country and displaced the original as the dominant strain. And now it's spread around the world (and is expected to become the dominant strain in the U.S. in March).
Studies have found that B.1.1.7 is 50 to 70% more transmissible than the original strain. And so far, it appears to be impossible to control using the partial lockdowns that worked before. So if full lockdowns are required to prevent hospitals from overloading around the world, the economic damage could be enormous.
This week, several preliminary studies were released on B.1.1.7. And, while not yet conclusive, the news wasn't great. The London School of Hygiene and Tropical Medicine examined 2583 deaths out of the 1.2 million people tested for coronavirus in the U.K. And they found that those who had the new variant were 30% more likely to die in a 28 day period, versus those infected with other strains.
However, Patrick Valance, the U.K. chief scientific advisor, reminded the public that:
"There's a lot of uncertainty around these numbers and we need more work to get a precise handle on this."
Denmark’s virus-control success-story set to be upended by U.K. variant, which is spreading at 70% per week and projected to overwhelm defenses "like a tsunami"
Meanwhile, Denmark also had some chilling news about the U.K. variant this week and how the rules of the virus fighting game may be changing in a dramatic way. Denmark has so far been one of the more successful European countries in battling the second wave. Here’s a chart of their Covid-19 infections:
Denmark’s second wave peaked five weeks ago, and since then they’ve successfully battled new infections down. This week was no different and continues to show things moving in the right direction. So at surface level, they seem to be doing much better than most.
And so that’s why many eyebrows were raised this week when Denmark’s State Serum Institute sounded an alarm with some surprising news.
In an effort to get in front of the U.K. variant, the country began sequencing every positive coronavirus test last week to check for mutations. And what they found was shocking. Currently, the variant is spreading at an almost unbelievable 70% per week. And at the current rate it will become the dominant strain as early as mid-February.
The co-leader of the study, Camilla Holten Moller, pointed out that if the variant had not thrown a monkey-wrench into things, then the country would be sitting pretty:
“Without this variant, we would be in really good shape."
But, as scientific director Tyra Grove Krause warned, that was according to the rules of the old game. And now the rules are changing:
“We’re losing some of the tools that we have to control the epidemic.”
And, she warned that the general public may not be prepared for what’s coming next:
“This period is going to be a bit like a tsunami, in the way you stand on the beach and then suddenly you can see all the water retracts as cases drop. Then afterward, you will have the tsunami coming in and overwhelming you.”
Meanwhile, Prime Minister Mette Frederiksen said she had a challenging job to explain to the public why restrictions couldn’t be lifted, despite dropping infections. She said:
"Imagine sitting in the top row of Copenhagen’s Parken Stadium [which is a soccer arena with a capacity of 38,000 people]. A dripping tap is filling it up, one drop the first minute, two drops the second, four drops the third. At that rate, the park will be filled in 44 minutes. But it will seem almost empty for the first 42 minutes.
The point is that one only discovers that the water has risen when it is almost too late."
Meanwhile, Danish officials said this week that they’re now in a race to vaccinate as many people as possible before the variant takes hold. But like all countries, they only have access to a limited number of doses. So at best, this isn’t expected to start bending down the curve of transmission until April. And many countries around the world (including the U.S.) are finding that they were unprepared for the logistical challenge and are missing initial projections. If so, this may mean vaccines won’t have an effect until even later.
Meanwhile, in the U.S., the Centers for Disease Control (CDC) has estimated that the U.K. variant will become the dominant strain in March. But unlike Denmark, the U.S. is sequencing only 0.3 % of cases (vs. 100%). This ranks a dismal 43rd in the world. And some health officials have criticized this by saying the U.S. appears to be essentially flying blind into what may be the next critical juncture of the crisis.
State Roundup: U.S. finally turns the corner on the third wave. Start of a turnaround or brief reprieve before a fourth wave driven by mutant strains strikes?
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 revisit some of the most problematic states we’ve monitored in the last two weeks. First, here’s California:
All three of California’s graphs are looking so much better than they were just a few weeks ago. While infections, hospitalizations and deaths are all high, they have also all retreated for two weeks in a row. And the state appears to have peaked and is now getting control of this latest wave. How about Arkansas?
Arkansas’s graph is also a welcome change. Both new infections and hospitalizations have dropped significantly in the last week and a half. And deaths appear to have at least plateaued. Since they lag infections and hospitalizations, they also look likely to improve shortly.
How about North Carolina?
North Carolina is also getting some welcome news. While all three metrics remain very high, infections and deaths declined in the last week and a half. And hospitalizations appear to be declining as well, over the last half of the week. And it’s plausible that the state may see a repeat of the pattern we saw above in North Carolina and California.
Nationwide, the story was similar. For the second week in a row, U.S. hospitalizations have dropped:
And this finally brought the first definitively good news since the third wave started in mid-September (four months ago).
If this continues, then we may have hit the peak of the third wave:
But Johns Hopkins School of Public Health epidemiologist, Caitlin M. Rivers, warned that the reprieve may be temporary:
“We’re definitely on a downward slope, but I’m worried that the new variants will throw us a curveball in late February or March.”
At the University of Washington’s Institute for Health Metrics and Evaluation, Dr. Christopher J. L. Murray agreed, saying:
“We’ve been saying since summer that we thought we’d see a peak in January and I think that, at the national level, we’re around the peak. But variants of the virus could totally change the story.”
We’ll talk more about the latest on the variant strains in a section below. And, we’ll continue to monitor and see what happens.
Economy pummeled yet again by more massive 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 44 weeks, the economy has been hammered week after week by massive levels of new unemployment. This week 900,000 people were newly unemployed. This was a barely noticeable improvement over the 965,000 people newly unemployed last week and still significantly more from the 787,000 the week before.
So at this stage, we’re 12 months into the pandemic, and still getting weekly job losses that are more than three times the pre-pandemic level (216,000 in February of 2020). Back in June, few expected the continuing damage would ever last this long. The lead economist at Indeed.com (an employment site), Ann Elizabeth Konkel, said this week:
“Widespread vaccination is key to stopping the mounting labor-market damage. Until people feel safe again, industries like hospitality and tourism cannot ramp back up. Right now, it’s a muted recovery at best.”
Financial cliff: White House reaches out to bi-partisan group of moderates for more pandemic aid and stimulus.
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: This spring, 10-12 million people who lost jobs due to the crisis are scheduled to lose critical benefits they're currently depending on. These were provided by two government programs (the CARES Act in mid 2020 and extended by the second stimulus passed at the end of 2020). The first safety net 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 24-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. Both of these programs expire in March 14, 2021. If that happens and these workers don't get any additional help, then the damage to the economy would be severe, immediate and potentially long-lasting.
Foreclosure and rental eviction tsunami: on January 31st 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 estimated $70 billion in back rent as of 1/23/2021 and $25 billion more in utilities as of 12/2020) 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 was lifted. So this has the potential to exacerbate the other two issues.
All of these things could have been addressed months ago, if Congress and the President had agreed at that time on a new stimulus bill. However, all efforts to agree were stymied by enough twists and turns to write a novel. (For those who’re interested see the detailed summary here in Part 44 on December 26th, 2020). But, at the very last minute (at the end of December 2019), a new law was successfully passed. The legislation was a combination of $1.4 trillion of regular government funding along with a $908 billion Covid-19 relief bill.
So this was welcome news. But there were some notable issues with this.
Hard hit Restaurants and bars left out in the cold: Some analysts calculate this will "leave millions more out of work."
$25 billion in rental assistance helpful, but “not enough to avoid eviction crisis”: This isn’t enough to cover the $70 billion owed + $25 billion in utilities and late fees. Nor does this cover any new rent that will be owed from January 1 onward.
Not enough funding for economically crucial transit industry: $14 billion is less than half of what the transit industry needs to avoid “devastating service cuts and layoffs”.
$600 Stimulus checks criticized for being insufficient for the unemployed
No aid for U.S. states hammered by covid-19 bankruptcies and layoffs:
So there’s has been a push for more pandemic aid and stimulus.
And last week, the new President proposed a $1.9 trillion stimulus package, which included spending for all the above issues. This week, it met with stiff opposition from moderate members of the opposing party (which we will call the "small stimulus party").
Senators Mitt Romney of Utah and Lisa Murkowski of Alaska were both members of the bipartisan group that was key to enabling the $900 billion stimulus to pass at the end of last year. Early this week, Senator Romney said:
“We just passed a program with over $900 billion in it. I’m not looking for a new program in the immediate future.”
Sen. Murkowski said she doesn't disagree with the concept, but was also not rushing to move forward:
“The ink is just barely dry on the $900 billion, and what the president is proposing is significant -- $1.9 trillion. It’s going to require, I think, a fair amount of debate and consideration.”
White House Press Secretary Jen Psaki said the new administration will be meeting this week with the members of that bipartisan group, to try to sell the new package to them. And West Virginia Senator Joe Manchin, a moderate from the "large stimulus party" who lead the bipartisan group, said talks are expected to begin "within days" and "probably this weekend".
Psaki also pointed out that if talks fail, the White House has other options:
"Our clear preference is to move forward with a bipartisan bill. But the President is willing to use any tools to get the package through."
As discussed previously, the large stimulus party has a majority in the house and a razor-thin effective majority in the Senate. And they could use the "budget reconciliation process" to pass much of the stimulus package with only a simple majority vote. This would require no participation from the other political party. On the other hand, passing a bipartisan bill would require 60 votes in the Senate, meaning that at least 10 "small stimulus party" Senators would need to agree.
We'll continue to monitor and see what happens.
Renters owe apartment investors $70 billion in unpaid rent, as foundation of industry suffers “extreme stress”
This week, Moody's Analytics announced that renters have racked up a stunning $70 billion in unpaid rent since the start of the economic crisis.
And the pain isn't spread evenly. Top-tier (Class A) properties tend to have tenants who have been less affected by the pandemic and have been able to work at home and get paid. On the other hand, class B and class C are more likely to have their hours cut or to have lost their jobs completely. So, many are struggling to pay rent.
There's also a world of difference for investors between professionally managed apartments versus smaller properties (often individually owned mom-and-pops). Most professionally managed properties are on the higher end and the renters are still paying. On the other hand, many smaller and lower tier apartment properties are facing serious problems. This is compounded by the fact that the investors and individuals who own these properties are often more financially exposed and too small to attract additional capital.
The President and CEO of the National Apartment Association, Bob Pinnegar, said:
“The foundation of the rental housing industry is under extreme stress. As cracks widen, the ramifications will be felt throughout all segments of the industry and exacerbate the housing affordability crisis.”
Yet another supercharged Covid-19 variant that could up-end everything? Researchers are concerned about the rapidly spreading L452R mutation in California.
As we've discussed, there are several mutated variants of the disease that emerged in early 2021, that have health experts concerned.
U.K. variant (B.1.1.7): Studies show this mutation is 50 to 70% more contagious than the original strain. This week, health experts announced there is early but preliminary evidence that suggests this variant also has a 30% higher chance of killing its victims.
South African variant (B.1.351): Studies have shown this is 50% more contagious than the original. Early but preliminary studies also suggest it may have the unwelcome ability to re-infect people who recovered from the original, and may reduce the effectiveness of current vaccines "by a small but significant margin." More definitive human trials are underway.
Brazil variant (P.1.): This mutation is believed to be more contagious than the original strain (but poor data from Brazil makes quantifying the amount difficult). But it has definitively been documented as having the ability to reinfect people who recovered from the original. And this week, Germany announced its first case of P.1. The victim was infected while on a flight from Brazil, by another person on board who was asymptomatic (not showing any symptoms).
Now a fourth variant of concern may be rearing its ugly head.
It was discovered in California and is called L452R. And like the other three variants, it appears to be spreading with shocking speed and quickly becoming the dominant strain. In November, it made up only 3.8% of cases that were gene-sequenced. But by early January, that had skyrocketed to 25.2%. Currently, the new variant has been detected in many counties, including Santa Clara County, Humboldt Lake, Los Angeles, Mono, Monterey, Orange, Riverside, San Francisco, San Bernardino, San Diego and San Luis Obispo counties. At the same time, health officials warned that gene sequencing isn't done evenly across all California counties.
And like the other variants, L452R contains mutations that include modifications to the virus’s spike protein. This is the structure that allows the pathogen to attach to its victim's cells and enter. And this is believed to allow some of the other variants to be more contagious, and/or reinfect those who have recovered from the original, and/or be more resistant to vaccines, etc.
So far, though, researchers don't know if L452R has any of those additional abilities. So studies are underway currently to learn more.
Santa Clara County health officer Sara Cody said, this week:
"The fact that this variant was identified in several large outbreaks in our county is a red flag and must be investigated further.'
And a virologist at the University of California, San Francisco, Charles Chiu, said:
"This variant carries three mutations, including L452R, in the spike protein, which the virus uses to attach to and enter cells, and is the target of the two vaccines that are currently available in the United States. Now that we know this variant is on the rise in our local communities, we are prioritizing it for study. Researchers at UCSF and elsewhere will now be able to perform the critical laboratory experiments to determine whether or not this virus is more infectious or affects vaccine performance."
Meanwhile, a vaccine specialist at Vanderbilt University, Dr. Buddy Creech explained this week, that we are entering a new phase of the pandemic with additional risks for more mutations:
“We’ve got an arms race between the vaccines and the virus. The slower we roll out vaccines around the world, the more opportunities we give this virus to escape and develop mutations."
Mayo Clinic vaccine expert, Dr. Gregory Poland, also pointed out that the newly emerging more harmful mutations were probably made possible by earlier policy choices.
"We shot ourselves in the foot by allowing unmitigated transmission of this virus and not doing “common sense” measures such as mandating mask-wearing as some other countries are doing.
How can the bars and restaurants be full? It’s like ‘what pandemic?’
We’ve reaped the seeds we’ve sown.”
He also made this ominous prediction:
“It’s wishful thinking to believe that first-generation vaccines will be enough, or that vaccines alone will solve our problems.”
Two new studies on "Long-Covid" show large numbers still suffering from debilitating symptoms, six months after infection.
The average person thinks that if they get Covid-19, it'll be a short-term inconvenience at best. They believe they'll most likely just be sick for two weeks and then bounce back to normal.
However, as we've discussed many times in the past months, there's a large and growing body of scientific evidence suggesting that this isn't the case for a significant number of people. And some can suffer for months with debilitatingsymptoms. These include chronic fatigue and muscle weakness (inability to perform simple tasks like walking up a flight of stairs), cognitive dysfunction (inability to focus and concentrate enough to perform work, personal tasks, etc.), chronic headaches, heart palpitations, gastrointestinal issues and sleep disturbance issues. Some medical experts are now calling this "Long Covid" and many of the patients are calling themselves "Long Haulers.”
This week, two new studies came out on Long Covid.
First, was a survey of 3,762 patients across 56 different countries on how they were doing six months after receiving a laboratory-confirmed diagnosis of Covid-19.
The report has not yet been peer-reviewed. And since the patients were taken from an online Covid-19 support group, they were not necessarily representative of the entire population. The respondents were predominantly between the ages of 30 and 60 and skewed more towards women (78.9%) than men.
After six months, the average respondent was still experiencing symptoms in an average of 9.08 organ systems. About 80% reported extreme fatigue or post-exertional malaise. About 55% reported cognitive dysfunction.
Wendy Kloiber of Ashland, Wisconsin, was one of the participants. In her case, she caught Covid-19 more than six months ago (March 22) and it was actually mild. She lost her sense of smell and also experienced fever, chills and deep exhaustion like many patients. But her oxygen levels never got low and she was never hospitalized. But she has since suffered a string of relapses and been unable to recover to her baseline of health. In her words:
"I just never got well."
And 10 months later, she battles debilitating fatigue and brain fog. Additionally, she currently lives with the fear of ordinary actions triggering another relapse.
"I'm a person who loves my work and could really very joyfully put in 18-hour days and be very happy doing that. But I just don't have the capacity to do that anymore. An example was a challenging period of work in October. Normally, that would have been tiring but exhilarating and fun. Instead, it left me wiped out and back at square one, with chills, fever, and coughing. There's just no space anymore between cognitive exertion and my body."
Kloiber also recently developed “tachycardia on standing,” which is an abnormal increase in heart rate that occurs after sitting up or standing.
Another participant was Karen Schwartz, of Arlington, Massachusetts. A self-described "hard-core" exerciser, Schwartz used to work out six days a week. Then she got sick on March 18. After two weeks of fever, sore throat, coughing and shortness of breath, she thought she was better. But then came stretches of extreme fatigue, and chest and throat pain that came on after any exercise.
"I was exercising six days a week hard-core before I got sick. Now I can barely handle walking a mile at a slow pace. Any time I try to get my heart rate up really high or try to push it for a real workout, I pay for it for days."
Pulmonologist and Medical Director of the Respiratory Illness Follow-Up Clinic at the University of Iowa Hospitals & Clinics, Alejandro Comellas says that none of the stories are unusual and they detail some of the most common symptoms he sees with Covid Long Haulers. In addition:
"I also see heart palpitations, changes in pulse, chronic headaches, gastrointestinal (GI) issues, sleep disturbance, and depression and anxiety."
Based on his anecdotal experience, he believes the number affected is lower but still significant.
"At this point, I would say 20% of our population are still having a lot of these symptoms a couple of months after having had COVID. Some are experiencing symptoms 8 to 9 months after falling ill.
"We are not sure whether this is unique to COVID, but what is unique is the volume of patients because so many people have been affected."
Then, later in the week, another large study was announced. This was a paper published in the British medical journal, The Lancet. And it described how scientists studied 1,733 patients who were hospitalized in Wuhan, China, between January and March 2020. The median age of people in the study was 57, meaning that about half were working-age adults. And only about 4% were sick enough to have been admitted to intensive care, so it focused more on those who suffered from less serious bouts of the disease.
Still, it found that even half a year (six months) later, a shocking 76% were still battling at least one symptom of Long Covid.
The most common symptom was fatigue and muscle weakness (63%). After that, the most common were sleep disturbances (26%), hair loss (22%) and problems with the sense of smell (11%).
Unsurprisingly, chest imaging done on those who were the sickest when they were in the hospital, also detected abnormalities which suggested long-term organ damage.
Dr. Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases and the U.S. government effort to fight the disease, said:
“This is a phenomenon that is really quite real and quite extensive. The issue urgently needs to be studied, given the number of people who've been infected. Even a small proportion with post-acute sequelae are going to represent a significant public health issue."
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've made no changes and my overall 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 ended 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. I believe Q4 brought 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 thankfully we have now gotten more stimulus and some brief extensions on eviction/foreclosure moratoriums. So I am not as afraid of immediate double-dip recession as I was just a couple weeks ago. On the other hand, the stimulus itself falls short in many important areas such as restaurants and bars, rental assistance, transit, student loans etc.. And I'm very concerned about the mutated variation making the partial lockdowns we have now ineffective and causing significant economic damage. So, without further stimulus (and a little bit of luck), I'm still concerned we could still have 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. And now we have a faster spreading mutation that could cause significant economic harm. So unfortunately, I still 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 (including by the mutated strain). 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 additional 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. Effective vaccines will eventually trigger the third stage and an accelerated recovery. But this most likely won't be a straight-V recovery, because it will 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. And there are obstacles to this that could slow it down more including bungles with distribution, reluctance of people to take the vaccine, no evidence so far that the approved vaccines will actually stop spread to others ("sterilizing immunity") etc. 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 proven to works bette). If so, then the third-stage boost would be faster.
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) could come under heavy stress. Some 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.