How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 48: January 31
Updated: Feb 8
Third U.S. death wave holds onto tenuous plateau for second week in a row, giving hope of a turnaround; World round up: South Korea puts a lid on their third wave while Spain, Portugal and South Africa are battered by new variants; State Roundup: Finally some welcome news for overstretched and beleaguered hospitals; Yet again more massive new unemployment weighs down economy; What “Great Recession”? 2020’s dismal year dwarfs the damage and is economy's worst year since 1946; Financial cliff: Outlook for bipartisan cooperation fades and then rekindles with last-minute Sunday morning counter-offer.;Study finds sending stimulus checks to higher income households doesn’t really stimulate economy and is poor return on investment;Merck surprises many and is forced to abandon its two Covid-19 vaccines after overwhelmingly poor results; Mutant strain knocks much anticipated Novavax vaccine off-balance after its "tried-and-true" technology produces mixed results in final human trials; Behemoth Johnson & Johnson's vaccine not the virus knockout-punch many expected, and its less effective results are further depressed by mutant strains; Mutant Watch: Health expert warns that rules of pandemic are changing, calling it the “Dawning of a New Age of the Variants”; Moderna’s lab test shows vaccine only generates 1/6th the usual antibodies against South African mutant strain; Long-Haul Covid finally explained? Researchers find Covid-19 lives on in brains of mice long after the disease has cleared the rest of the body; 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, vaccines and the 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 holds onto tenuous plateau for second week in a row, giving hope of a turnaround
For the 53rd 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 447,558 (versus 424,187 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 it later spread across the entire country and surged in all areas).
How did things go this week?
The label is obscuring what happened, so let's change the zoom to get a better look:
This was a moderately positive week for U.S. deaths, which plateaued for the second week in a row. While they remained elevated at record-setting levels, the reduced slope was still a huge improvement over the rapid increases of only a month ago.
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. And vaccines are also being rolled out which are expected to eventually stop the spread. But, lurking behind this is the threat of new mutated strains, which may prove much more difficult to contain than the original. And the longer it takes to finish-off the virus, the more new mutations we may see. So we’ll be watching all of this very closely to see what happens.
Crystal ball: Third U.S. infection wave
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?
This week brought some very welcome news. The U.S.’s infections dropped for a second week in a row. This is the largest and longest drop since the third wave started, several months ago.
At the same time, despite the drop, the virus is still spreading at extremely high levels (far in excess of the worst of the second wave). Still, the progress from previous weeks was very welcome.
World round up: South Korea puts a lid on their third wave while Spain, Portugal and South Africa are battered by new variants
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 -3.5% 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 another good week for South Korea. For the third week in a row, deaths have dropped. And they appear to have put a lid on their 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 one more week).
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 come the emergence in 2021 of mutant strains that 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. After 2 months, 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. But more recently the country has been battling mutated strains and deaths have rebounded. How did they do this week?
This is not a good graph for Spain. For the third week in a row, deaths increased rapidly. And this week, they eclipsed the previous peak of their second wave.
Meanwhile, next-door neighbor Portugal closed its border with Spain in an attempt to control the virus. Their week looked like this:
This is a disturbingly bad graph. After initially getting control of their most recent death wave about a month ago, Spain saw the virus rapidly rebound. And this week, deaths shot up into the stratosphere. Portugal’s Prime Minister, Antonio Cost, said hospitals are being overwhelmed:
“There is no point in feeding the illusion that we are not facing the worst moment. The situation is not bad but terrible. And we’ll face this worst moment for a few more weeks, that is for sure.”
How did some of their neighbors in Europe do? Let’s look at the U.K., France, the Netherlands and Belgium. All of them were hammered by a second wave from fall to early December and then turned the corner around near the end of 2020. But then some of them were hit by mutated strains (the U.K., especially) which caused them to go into even stricter lockdown than early in the pandemic. So what’s happening now?
The Netherlands had a decent week, with deaths trending downwards for the second week in a row.
On the other hand, Belgium (which had been very successful for several weeks in pushing down deaths), experienced a plateau and an uptick at the end of the week. So this was disappointing, and a potentially troubling sign.
France has been less successful than Belgium for the last couple of weeks, and that continued this week. This week, they suffered a small increase in deaths, which put them close to the previous highs for the second wave.
The U.K. has been one of the hardest hammered countries, due to the widespread presence of the more contagious “U.K. variant.” This week was okay for them, with deaths rising and then falling. So it essentially plateaued, and perhaps this is a sign they may be turning things around. We’ll watch and see. Meanwhile, the U.K. also passed the unwelcome milestone, this week, of 100,000 deaths. And it continues to suffer one of highest deaths per million of any country in the world (ranked #5).
British Prime Minister Boris Johnson said this week:
"We do not yet have enough data to know exactly how soon it will be safe to reopen our society and economy. And if we relax restrictions too soon, we run the risk of our NHS [National Health System] coming still under greater pressure."
He also announced that the strict lockdowns will continue for at least another three weeks, with schools not reopening until March 8th at the earliest.
Meanwhile, let’s take a look at a country we haven’t previously examined in this series: South Africa. How did South Africa do this week?
This week, South Africa’s deaths leveled off, which might be a welcome sign.
The country has continued a strict lockdown with a curfew in place. Still, its health system remains under siege, with staffing, space and critical supplies stretched past the breaking point.
For example, Gift of the Givers is one of the largest charities in the country. And its founder, Imtiaz Sooliman said this week that the situation for many is beyond desperate:
“Doctors will tell you that people died in cars while waiting to be admitted to the casualty ward, or they died in casualty before they could be seen. Ambulances and family members have said they would drive from hospital to hospital for up to six hours looking for a spot to get some oxygen.”
And as we discussed in last week’s “mutant strain update,” South Africa is the source of a new variant of the virus that is more contagious and can re-infect people who recovered from the original. And despite the extremely strict lockdowns, it still appears to be spreading with shocking speed.
KwaZulu-Natal Research and Innovation Sequencing Platform (KRISP) has played a pivotal role in identifying the South African variants and others. And lead researcher Richard Lessells said, this week:
“Of the cases we’ve [DNA-]sequenced in South Africa, more than 90 percent are the new variant. It’s amazing and terrifying how quickly it came to dominate, and it does feel like we’re in the beginning stages of watching this variant, and the other new ones, become more dominant around the world.”
Meanwhile let’s look at another country that’s new to our reports, Mexico. The country has done an unusually ineffective job of controlling the virus with its first wave barely subsiding before the second one hit. How did it do this week?
This was another bad week for Mexico. Deaths continue to climb and set pandemic high records. Meanwhile, Mexico's President, Andres Manuel Lopez Obrador (often called AMLO for short), announced he had become infected by the coronavirus and was undergoing medical treatment.
In the past, AMLO had refused to wear a mask in public and advised Mexicans that masks were unnecessary. Instead, he claimed, the best health defense against the virus was to maintain a clean conscience:
“No lying, no stealing, no betraying. That helps a lot to not get coronavirus.”
As of Saturday morning, there was no word as to whether AMLO still believed this (and if so, which of the three portions of his own advice he had chosen not to follow). Health experts also noted that hours before AMLO disclosed he had contracted the virus, he had sat in coach class on a flight from San Luis Potosi to Mexico City.
Carlos Magis Rodríguez, a professor of medicine at the National Autonomous University in Mexico, said:
“One even expected or assumed, because of his way of exposing himself to so many people and not wearing a mask, that he would have been infected earlier."
In all the public appearances of López Obrador, except for when he went to visit [U.S. President] Trump, we saw him without a face mask.”
Rodríguez also pointed out that the Mexican president is at higher risk because he is 67 and had a heart attack in 2013.
State Roundup: Finally some welcome news for overstretched and beleaguered hospitals
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 . This caused 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.
3. Then, last week came the first reprieve, with multiple states appearing to peak.
What happened this week?
The Covid Tracking Project now puts out a very helpful map showing the locations of hotspots in the U.S. Here’s what it showed this week.
Let’s take a look at South Carolina, first.
This is much improved from only two weeks ago. Both infections and hospitalizations are sky high, but have also peaked and are coming down. Deaths are still rising, but that's a lagging statistic to the other two and would be expected to fall shortly along with them.
So overall, this is very welcome news.
Let’s switch to Arizona. How’s it looking this week?
Arizona has also had a rapid turnaround in just a few weeks. New infections have fallen sharply, as well as hospitalizations. And even deaths have begun to trend lower as well. So this is good to see.
How about Oklahoma?
Oklahoma’s numbers here are also good to see. New infections and hospitalizations have been trending down for the last two weeks. And while deaths rose, they again are a lagging statistic. And at the end of the week, there were even signs of perhaps the start of a drop. So let's hope that continues.
So overall, the states’ data gives some great news and continues to suggest that the U.S. is at the peak of the thirdwave, and may be headed downward. This was reiterated in the national hospitalization data, which also showed a drop:
This was also very welcome news for the overstretched and beleaguered health workers and hospitals.
At the same time, some health experts warned this may not mean final victory over the virus. As we discussed in previous weeks, many expect new, more contagious mutations to become widespread by late February and early March. If that happens, this may change the game completely and cause another wave (as has happened in other countries already). If that does occur, then the current drops could end up being just a temporary reprieve.
We’ll continue to monitor and see.
Yet again more massive new unemployment weighs down economy
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 45 weeks, the economy has been hammered week after week by massive levels of new unemployment. This week 875,000 people were newly unemployed. This was a slight improvement over the 900,000 people newly unemployed last week.
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. On Wednesday, the chair of the Federal Reserve, Jerome Powell, emphasized the human toll exacted by this continuing situation, and the challenges it presents to the country:
“A resurgence in recent months in Covid-19 cases, hospitalizations and deaths is causing great hardship for millions of Americans and is weighing on economic activity and job creation.”
What “Great Recession”? 2020’s dismal year dwarfs the damage and is economy's worst year since 1946
This week, the Commerce Department released its much anticipated quarterly report on the entire economy (gross domestic product or GDP).
And those expecting a robust V-shaped recovery were disappointed, as the fourth quarter produced only a weak 4% (annualized) increase:
This fell far short of recovering from the deep hole of losses earlier in the year. This resulted in an overall 2020 total of -3.5%. This performance made 2020 significantly worse than even the brutal battering of the 2007-2009 financial crisis (-2.5%). And it was the largest decline the country has suffered since just after World War II in 1946:
And as a result of the tepid fourth quarter performance, the economy is still a massive $473 billion smaller than it was before the pandemic hit.
The Chief Economist of business advisory firm RSM, Joseph Brusuelas, summed it up this week, saying:
“The report represents a major disappointment and hit to the nascent recovery in the domestic economy.”
Financial cliff: Outlook for bipartisan cooperation fades and then rekindles with last-minute Sunday morning counter-offer.
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 March 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 former President could have agreed on a new pandemic aid 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, utilities and late fees 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 avoid “devastating 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 the new President proposed a $1.9 trillion stimulus package, which included spending for all the above issues. Last week, it met with stiff opposition from moderate members of the opposing party (which we will call the "small stimulus party"). This week, the White House went on a charm offensive to reach out to members of the opposing party and get their support. However, they were largely rebuffed. In response, the President indicated he would come down from the $1.9 trillion number. But the opposing party still didn’t budge, and largely rejected it. So, the large stimulus party announced late in the week that it would move forward to push through the legislation, using the budget reconciliation process. 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. Then, on Sunday, there was some potentially significant news. A group of 10 of the small stimulus party’s senators wrote to the President offering an alternative proposal for more Covid-19 pandemic-aid and stimulus.
Senator Bill Cassidy of Louisiana (and a member of the small stimulus party) said that the proposal comes to "about $600 billion" and would include $160 billion for virus control measures and some form of more targeted direct stimulus checks.
Cassidy suggested the stimulus checks might be as high as $1000 and done in a more targeted fashion (versus the $1400 original proposal from the White House).
In addition to Senator Cassidy, the other senators who signed Sunday’s letter were Sen. Rob Portman of Ohio, Susan Collins of Maine, Todd Young of Indiana, Mike Rounds of South Dakota, Lisa Murkowski of Alaska, Mitt Romney of Utah, Shelley Moore Capito of West Virginia, Jerry Moran of Kansas and Thom Tillis of North Carolina.
The Senators will deliver the details on Monday. And we’ll continue to watch and see what happens.
In addition, the CDC also announced on Friday that the federal moratorium on evictions would be extended from January 31 through March 31. This is welcome news for renters, but no additional relief was given to landlords (many of whom are still required to meet debt payments by lenders).
Study finds sending stimulus checks to higher income households doesn’t really stimulate economy and is poor return on investment
Opportunity Insights (OI) is a nonprofit research organization that was created in cooperation with Harvard University, Brown University, and the Bill and Melinda Gates Foundation. And they have been compiling high-frequency data (such as credit card usage) which are able to more quickly analyze the economic effects of the crisis than government reports (which typically lag by a month or more).
And this week, they reported the data on how Americans have been using the $600 stimulus checks that were issued starting in late December 2020. And what they found surprised many. And, if accurate, it shows how dramatically things have changed since April, and how the fates of different income groups have diverged wildly.
OI’s report looked at consumer debit and credit card spending after the $600 stimulus payment was sent out. And they also analyzed the difference in spending between lower income households (those below $46,000 a year) and higher income ones ($78,000 a year and above). The difference was dramatic:
When the lower income households received their stimulus check, they quickly ramped up their spending. On the other hand, higher income households barely budged. Opportunity Insights (OI) estimated those higher income households spent a mere $45 of the entire $600 payment (7.5%). And while saving money can improve a personal balance sheet, it does nothing to stimulate the economy (which was one of the intentions for Congress sending out the money in the first place).
Even more interestingly, this was a very different dynamic from what OI saw earlier in the pandemic. Back in April 2020, Congress sent out $1400 stimulus checks. And at that time, both low and high income households spent significant portions of it.
Why the difference now? The researchers pointed out that the recession is actually over for most of the most well-off, while most poor households are still in a death-struggle with a deep recession. For example, two weeks ago, Federal Reserve Governor Lael Brainard said:
“The damage from COVID-19 is concentrated among already challenged groups. Federal Reserve staff analysis indicates that unemployment is likely above 20 percent for workers in the bottom wage quartile, while it has fallen below 5 percent for the top wage quartile.”
In comparison, the worst unemployment during the Great Recession was only 10.9% (or half of low wage workers today).
And the differences are even more dramatic when the data is inspected more closely. The OI unemployment report split workers into three groups. Low-wage (less than $27,000 per year), middle-wage ($27,000-$60,000 per year) and high wage ($60,000+). And the found some startling and illuminating results:
Like the Federal Reserve, the OI report found that low-wage workers are in a world of hurt far beyond the Great Recession (and more similar to a depression) at levels of -21% unemployment. In comparison, middle wage workers are taking some pain, but it's more tolerable at only -4.4%. Meanwhile, high wage workers have fully recovered and are actually at slightly higher employment than pre-pandemic at +1.6%.
What does this mean for effective political policy? The OI report took the data and estimated how much money higher income households would spend if they received the full $1600 stimulus checks currently proposed by the White House. And they estimated this would cost about $200 billion, but lead to only about $15 million of additional spending. If accurate, this would be a dismal 7% of actual stimulus and an extremely poor return on investment. John Friedman, who is the co-director of OI and an economics professor at Brown University, concluded that a targeted approach would be much wiser.
“Targeting the stimulus payments to lower-income households would both better support the households most in need and provide a large boost to the economy in the short-run.
“These checks are really impactful for lower-income households.”
Merck surprises many and is forced to abandon its two Covid-19 vaccines after overwhelmingly poor results
This week, Merck announced it’s shelving its two vaccine candidates (V590 and V591) after phase 1 trials were overwhelmingly disappointing.
The news was a surprise to many because the vaccines use the same technology that was harnessed successfully in the Ebola vaccine. And this technology has also been used in the Merck vaccine for measles, which the company has manufactured for decades.
But, when confronted with Covid-19, both the trial vaccines produced lower levels of antibodies (including both binding antibodies and neutralizing antibodies) than occurs naturally among people who have caught the disease and recovered. And this means they fell far short of the levels of immunity generated by the top mRNA vaccines, like Pfizer and Moderna (which produced responses several times higher than in those naturally infected).
Nick Kartsonis, senior vice president of Merck’s clinical research for infectious diseases and vaccines, said the results were “disappointing and a bit of a surprise."
Merck had developed the vaccines in partnership with IAVI. And IAVI President Mark Feinberg offered a possible answer as to why:
"There are biologically plausible explanations. The vaccine was administered by intramuscular injection; an oral or intranasal administration route might work better."
Mutant strain knocks much anticipated Novavax vaccine off-balance after its "tried-and-true" technology produces mixed results in final human trials
This week, Novavax announced the outcome of its dual phase 3 human trials. The announcement was heavily anticipated, because the technology used in this vaccine is considered “tried-and-true.” And the U.S. government had already committed $1.6 billion to the company through Operation Warp Speed (an incubator program for developing virus treatments and vaccines). But the results were decidedly mixed. On one hand, the results from the 15,000 person U.K. trial look good, with the vaccine preventing 9/10 cases (90% effectiveness). And this U.K. trial was trumpeted in company press releases.
On the other hand, the second part of the trial (4,400 volunteers in South Africa) was very disappointing to many. This second study found the vaccine was only a dismal 49% effective. Some health experts presumed this was due to spread of the South African variant in the country (this variant has since been shown to reduce the effectiveness of other vaccines as well).
This resulted in an overall effectiveness of 49.4%.
Health experts said it was unclear if the study would be sufficient for emergency approval in the U.S. In addition to that, the FDA has said it would require (among other things) a minimum 50% effectiveness (which this study appears to have failed to meet).
In the meantime, Operation Warp Speed is running its own large trial of the Novavax vaccine in the U.S. and Mexico. But results won't be available quickly as they don't expect to completely enroll all participants until the first half of February.
Nahid Bhadelia, medical director of the special pathogens unit at Boston Medical Center, said:
"Although the drop in efficacy against the South African variant is bad news, the results aren’t a complete wash. The vaccine can still make a huge difference. But the results also emphasize the important work of figuring out how to develop booster shots against new variants, especially given the news that the South Africa strain, B1351, was found in South Carolina."
Note: more information on the South Carolina discovery is discussed in the “Mutant Watch” section below.
In response to the trial results, Novavax is indeed working on a booster shot to address more infectious strains. But clinical testing will take time and won’t conclude until the second quarter of this year.
Scott Gottlieb, a former FDA commissioner and Pfizer board member, said:
“I think this raises the stakes on putting boosters into development that are based on these new variants, and building a regulatory process that allows this sort of incremental, follow-on innovation to reach the market based on something short of brand new, full-blown outcomes studies.”
Many had thought that the Novavax vaccine would be a shoo-in, because it uses one of the most tried-and-true technologies of any of the vaccine candidates. The company manufactures fragments of the virus's spike protein in insect cells. Then it adds a chemical adjuvant to stimulate the immune system to respond to it. The same approach has already been used successfully in a flu vaccine sold by Sanofi.
And back in July, Operation Warp Speed gave the company $1.6 billion in funding to scale up its manufacturing process (in exchange for the right to purchase 100 million doses of the vaccine).
Early testing data in August also raised hopes when they showed that neutralizing antibody levels were roughly four times that of patients who recovered from Covid-19. And that was the best outcome at the time, for any vaccine in early testing.
Natalie Dean, a biostatistician at the University of Florida, said the story of Novavax shows why it's so important that multiple vaccine technologies have been attempted against Covid-19.
“This is why it’s important to have an open pipeline. At every stage we want to not put all our eggs in one basket. And this is the same situation."
And she pointed out that even the approved vaccines, like Pfizer and Moderna, still may turn out to have significant issues that will make the U.S. glad that it funded a lot of different candidates:
"We still don’t know about durability, we don’t know how the vaccines work against different variants. At all stages we want a diversity of approaches.”
Behemoth Johnson & Johnson's vaccine not the virus knockout-punch many expected, and its less effective results are further depressed by mutant strains
Meanwhile, Johnson & Johnson also announced results of its phase 3 human trials. The vaccine uses a type of virus called an adenovirus, which delivers genes that produce the same protein as the characteristic spike on SARS-CoV-2.
And it has some significant distribution advantages over the already-approved mRNA vaccines from Pfizer and Moderna. J&J’s shot doesn’t require expensive, custom ultra-cold refrigerators, and remains stable for up to three months when kept in a normal refrigerator at 36 to 46°F. And it’s a single shot versus a dual shot, so it can be rolled out to people sooner and is logistically more simple.
So hopes were high that this might provide the knockout punch needed to fully tame the virus. Unfortunately, the trial results were mixed, disappointing many.
On one hand, the shot was 72% effective in trial volunteers in the U.S. However, that dropped to 66% in Latin America and just 57% in South Africa. Overall, this led to a modest 66% effectiveness at preventing moderate to severe disease (28 days after vaccination).
In its press release, Johnson & Johnson trumpeted the fact that if severe disease alone was considered, the vaccine was 85% effective. And the company's chief scientific officer claimed:
"That's what's [most] important for society."
Other health experts took a less enthusiastic point of view. Eric Topol, director and founder of the Scripps Research Translational Institute, said:
"The results are disappointing. But a vaccine that prevents the most serious outcomes, such as hospitalization and death, is still valuable."
He also added:
“It reinforces how lucky we were that the first two were more effective.”
At the same time, Johnson & Johnson hopes that a two dose regimen would actually increase effectiveness. So, they are running a new study with 30,000 patients and testing two doses that are given 57 days apart. However, results aren't expected until summer or fall.
Meanwhile, Akiko Iwasaki, a virologist at Yale University, also pointed out that this vaccine is part of a new stage of the pandemic: a race against time.
“We’ve got to get the first dose to as many people as possible. These variants that are more transmissible and potentially even more lethal are on the rise. I think time is really what we’re fighting against.”
Mutant Watch: Health expert warns that rules of pandemic are changing, calling it the “Dawning of a New Age of the Variants”
As we've discussed, the pandemic entered a new phase in early 2021 with the emergence of several mutations of the original virus in different parts of the world.
The short-term concern is that these variants contain mutations to genes that make them much more contagious. And evidence is growing that they’re able to continue spreading even when confronted with the kinds of partial lockdowns that would’ve stopped the original. So, they may present countries with an unwelcome choice. Either send a “tsunami” of new patients into health systems that are already overloaded and overstressed. Or enact full lockdowns like we saw in the early pandemic (which would be just as economically crippling).
And there are also medium to longer-term concerns. Some of the variants have been proven to re-infect people who recovered from the original disease. So they have the potential to start a second pandemic. Other variants have been shown to render current vaccines less effective. And so these mutations will at least delay a fully effective vaccine rollout. And the longer it takes to fully control the virus, the more chance there is of breeding future mutations (which might be even more problematic). And, it’s even possible that the virus could start mutating so quickly that it becomes like the common cold. If that occurs, then humans would have to play a constant cat-and-mouse game and create yearly vaccines to battle it (similar to the flu shot). And such a scenario could have significant negative long-term consequences for individuals, the economy and many types of investments.
Currently there are four major variants that health experts are most concerned about:
1. 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. Prior to this week, the U.K. variant had been detected in more than half of US states. And this week, South Carolina detected its first case.
2. 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.
3. 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.
4. California variant (L452R): Much less is known about this variant, because the U.S.’s variant tracking systems are not the most effective (ranked 43rd in the world). But L452R has enough similarities to the others to make it a cause of concern. Like the others, the California variant involves changes to the distinctive spike protein, changes that are believed to be the cause of increased contagiousness. And, like the others, the California variant is quickly displacing the original version (skyrocketing from only 3.8% of cases in November to 25.2% in early January.)
All of these variants are believed to have developed completely independently of each other. So how did all of them manage to pull off that trick at approximately the same time?
Richard Lessells, is a lead researcher at the KwaZulu-Natal Research and Innovation Sequencing Platform, which has played a key role in identifying variants in South Africa and around the world. This week, he said:
"The consensus is that it’s no coincidence that new variants emerged in places which suffered some of the world’s biggest initial waves of the virus [United Kingdom, South Africa, Brazil and United States]. It was likely that in places where the virus was running into large numbers of people who already had antibodies that it mutated to more easily find new hosts.”
And he had a chilling warning about the consequences of failing to control the virus going forward:
“Our failures to clamp down on community spread, wherever they may be, will almost certainly lead to even more new variants.”
Meanwhile, the Minnesota Department of Health announced that it had detected a resident infected with the Brazilian mutation. The person had recently traveled to Brazil.
Then later in the week, South Carolina announced the first two known infections in the U.S. by the South African variant. Worryingly, neither has any known travel history. Health experts said this strongly suggested that the strain is already spreading uncontrolled in the community and it’s too late to contain it.
Later in the week, on Friday, Maryland found another case. Governor Larry Hogan said that the Baltimore resident had no history of international travel, either.
Michael T. Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, said:
“This isn’t surprising. It’s a very difficult development, but at the same time not unexpected.”
And, in a phrase that sounded eerily like the opening trailer of a science-fiction dystopia movie, he quite seriously said:
“This is the new reality of Covid. This is now the dawning of the age of the variants.”
“These cases illustrate why it is so important to limit travel during a pandemic as much as possible.”
And this week, the White House announced an extended and enlarged travel ban. People who aren’t U.S. citizens are prohibited from arriving in the country from South Africa, the U.K., Brazil and 26 other European countries.
Additionally, the new U.S. President signed an executive order requiring face coverings on all forms of public transportation including planes, buses and trains. Also, international travelers arriving in the U.S. must prove they’ve tested negative for Covid-19 and will be required to follow self-quarantining guidelines upon arrival.
Then on Friday, the Centers for Disease Control (CDC) announced it was passing a sweeping new mask mandate for U.S. travelers. Masks must be worn by all passengers on public conveyances traveling within the United States, including planes, ships, fairies, trains, subways, buses, taxis and ride shares. Coverings will also be required at transportation hubs like airports, bus terminals, and train and subway stations. All of this will take effect on February 1.
Exceptions are allowed for children under the age of two, anyone with a disability that prevents them from safely wearing a mask, and for brief periods to eat, drink or take medications.
Moderna’s lab test shows vaccine only generates 1/6th the usual antibodies against South African mutant strain
Meanwhile, Moderna announced results from laboratory experiments this week studying the effect of the South African variant (B.1.351) on their vaccine. Scientists took blood samples from people who had received the vaccine and tested them against the South African mutation. And while these types of lab experiments aren’t as conclusive as double-blind studies on humans, they can be completed much faster. And many health experts felt the “quick and dirty” tests were still very helpful and informative.
Ultimately, Moderna did find a significant difference. The vaccine was only able to produce 1/6 of the antibodies it normally would (against the original).
The results caused some health experts to theorize that this may mean that the immunity conferred against the mutation might be less effective than the original. And this might be particularly true in older people (who tend to have a weaker immune reaction to start with, versus younger people).
After producing these results, Moderna said:
"Antibody levels remain above levels that are expected to be protective. [But] these lower titers [of antibodies] may suggest a potential risk of earlier waning of immunity to the new B.1.351 strains.”
The company also announced they are now working on a booster shot to address the new mutation.
Long-Haul Covid finally explained? Researchers find Covid-19 lives on in brains of mice long after the disease has cleared the rest of the body
As we talked about in past weeks, an ever-increasing body of evidence shows that a significant percentage of people infected by Covid-19 can expect to sufferlife-altering symptoms months after first catching the disease. These can include an array of problems, including debilitating chronic fatigue, deep brain fog, extreme weakness, heart palpitations, labored breathing and more. These patients call themselves "Long Haulers" and doctors are increasingly calling this syndrome "Long Covid."
And while scientists have come up with several theories that might explain the mechanism that causes this phenomenon... so far there's been no evidence to support any one of them over the other. So to this point, they've all been stabs in the dark.
That may have changed this week. Georgia State University biology researchers announced some potentially groundbreaking results in their report published in the "Viruses" medical journal.
The studies were done on mice rather than humans. So it’s possible there could be a difference and they may not later translate. But if accurate, the results were stunning and fascinating.
Unsurprisingly, the researchers found that the virus infected the mice’s nasal passages first. And the virus’s presence there peaked about three days after infection and then began to decline.
However, then they found a surprise. Even while the lungs were improving, the virus spread to the brains of all the affected mice on the fifth and sixth days. And that's when symptoms of the severe disease became obvious, and these included labored breathing, disorientation and weakness.
And stunningly, the virus levels in the brain were about 1000 times higher than in other parts of the body.
Assistant professor Mukesh Kumar, the study’s lead researcher, said:
“The brain is one of the regions where a virus likes to hide, because it [the brain] cannot mount the kind of immune response that can clear viruses from other parts of the body.
And while the lungs of mice and humans are designed to fend off infections, the brain is ill equipped to do so. Once viral infections reach the brain, they trigger an inflammatory response that can persist indefinitely, causing ongoing damage."
Again, these were only animal trials. So it's possible the results may not hold up in the human body. But if they do hold up, then this was a seismic discovery.
And, in addition to explaining the mystery of Long-Covid, this finding may also shed light on some of the stranger symptoms of the disease such as the bizarre loss of smell and taste. Mukesh Kumar said:
“The brain is a very sensitive organ. It’s the central processor for everything.
Our thinking that it’s more of a respiratory disease is not necessarily true. And once it infects the brain, it can affect anything because the brain is controlling your lungs, the heart, everything.
That’s why we’re seeing severe disease and all these multiple symptoms …with loss of smell, loss of taste, all of this has to do with the brainrather than with the lungs.”
Kumar said that if the results hold true for humans, then COVID-19 survivors whose infections reached the brain are most likely at increased risk of future health problems as well. That might be expected to include auto-immune diseases, Parkinson’s, multiple sclerosis and general cognitive decline.
“It’s scary. A lot of people think they got COVID and they recovered and now they’re out of the woods. Now I feel like [for some] that [might] never be true. You may never be out of the woods.”
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 well short. For Q4, it looked to me like easy gains were gone and the rest would be a long, tough slog. So I predicated it would be up modestly but it would 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). Ultimately both were correct (Q4 was up 4% but year to date was -3.5% and the worst yearly performance since 1946) What about 2021 Q1? 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.