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How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 47: January 23rd

Updated: Feb 8, 2021

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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Quick Summary

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:

  1. The first U.S. death wave started in early March. It was overwhelmingly in urban areas (like New York City in the Northeast). It peaked on April 21st and the country fought it down until July 6th.

  2. The second death wave started on July 7th. This ran predominantly through urban areas in the Sun Belt. It peaked on August 1st, before falling until October 8th.

  3. Then the third death wave began on October 9th and is currently tracking upwards. Unlike earlier waves, this was led by rural areas (although now it is spreading across the entire country and surging in all 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:

  1. Second Wave: After the Memorial Day weekend (in May), we saw the second wave of infections (and eventually deaths) start in the Sunbelt and then spread to the Midwest and Northeast. And the people getting infected were significantly younger than those afflicted by the first wave (many of whom were going to parties and bars). In response, many states put in place virus control measures, including reinstatements of key portions of lockdowns and rules mandating the wearing of masks (in more than 50% of states). And the Sunbelt states made huge progress and fought the wave back down.

  2. Third Wave: Then after the Labor Day weekend (in September) the U.S. also reopened schools and cooler weather began in the north. Almost immediately, a third wave began. While this started in just the Midwest and Northeast, it then spread across every major area of the country. And while earlier waves hit mostly urban areas, this new wave was led by rural places Also, since the wave is spreading much wider spread than before, there are now chronic shortages of 29 of the 40 most crucial drugs needed to treat Covid-19 as well as crucially needed medical personnel in many areas.

What happened this week?

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 (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:

  1. 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.

  2. 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.

  3. Student loan resumption: The CARES Act suspended payments and interest on $1.7 trillion in student debt during the pandemic. And the Federal Reserve estimated this saved borrowers from paying about $7 billion a month. But on January 1st, this protection 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.

  1. Hard hit Restaurants and bars left out in the cold: Some analysts calculate this will "leave millions more out of work."

  2. $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.

  3. Not enough funding for economically crucial transit industry: $14 billion is less than half of what the transit industry needs to avoiddevastating service cuts and layoffs”.

  4. $600 Stimulus checks criticized for being insufficient for the unemployed

  5. 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: