How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 50: February 13th.
Updated: Mar 1
At long last, third U.S. death wave finally pulls back, but experts warn fast-spreading mutations may shorten the reprieve; Crystal ball: third U.S. infection wave continues to drop; World round-up: U.K. manages to hold down the lid on the new mutated strain, but only at great economic cost; State Roundup: infections drop again, but health experts claim some states are declaring victory too quickly and this is "no time to be spiking the football"; Economy battered yet again by another huge jolt of fresh unemployment; Financial cliff: "Large Stimulus" party inches closer to passing $1.9 trillion pandemic-aid bill; Mutation Watch: Florida becomes new hotspot for U.K. strain as Tampa throws a Super-Bowl-sized street party and massive parade; Mutant Watch Part 2: CDC recommends upping mask protection against variants by double-masking and tightening ear loops; Mutant watch Part 3: AstraZeneca vaccine experiences trouble battling South African variant; 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 worrisome 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.
At long last, third U.S. death wave finally pulls back, but experts warn fast-spreading mutations may shorten the reprieve
For the 55th 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 496,063 (versus 472,991 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 spread 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 unlike earlier waves, was led by rural areas. Later though, it spread across the entire country and surged in all areas, which made it more difficult to contain and fight than earlier waves. In late October, this caused acute shortages of critical drugs and key medical personnel needed to fight the disease and limit deaths. Then in November, it caused hospitals to overload in certain areas of the country. When overload 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.
How did things go this week?
After treading water and plateauing for the last three weeks, deaths finally went down this week. So that was a very welcome sign. Deaths still remained elevated and higher than the worst of the two previous waves. But, all in all, this was one of the best weeks since the third wave started in early October 2020.
And in response to the good news, some states began reversing lockdowns (see more on this in the state section below). And many expressed encouragement based on the continued rollout of vaccines.
However, health experts warned that it could be a mistake to assume this is the last wave we’ll see. That’s because lurking behind the scenes are new, mutated strains, which are spreading rapidly and are 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.
On Monday, U.S. Centers for Disease Control (CDC) Director, Dr. Rochelle Walensky, said:
"The continued proliferation of variants remains of great concern and is a threat that could reverse the recent positive trends we are seeing.”
Dr. Peter Hotez, dean of the National School of Tropical Medicine at Baylor College of Medicine, compared the current drop in deaths to the calmness found in the center of a hurricane:
"New variants circulating in the U.S. put the country in the eye of the hurricane. I've been on Zoom calls for the last two weeks about how we're going to manage this. The big wall is about to hit us again and these are the new variants. This could be really, very dire for our country as we head into the spring. Now, we're in a race. We're in a race to see how quickly we can vaccinate the American people."
So we’ll be watching all of this very closely to see what happens.
Crystal ball: third U.S. infection wave continues to drop
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 was another very positive week as infections fell for the fourth week in a row.
This was another good week with infections dropping. And this extended the streak to create the largest and most sustained drop since the third wave started, several months ago.
At the same time, the virus is still spreading at extremely high levels (far in excess of the worst of the second wave). And many economists believe that until viral spread is brought down to a low level, a broad, sustainable economic recovery cannot begin.
Still, the progress from previous weeks remained very welcome.
World round-up: U.K. manages to hold down the lid on the new mutated strain, but only at great economic cost
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 fifth week in a row, deaths have dropped. And they appear to have firmly put a lid on their third wave. Meanwhile, 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 switched to a two-month schedule, and will look at them in detail in seven 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. But then, countries loosened travel restrictions and reopened schools (despite warnings from many health experts). And, as colder weather hit, the death toll skyrocketed. So authorities were forced to enact a variety of new lockdowns (which we've described in detail in previous weeks). And in many countries, this began to work to bring the virus under control.
But then, many countries suffered a relapse at the start of 2021 when hit by new, mutant strains that are much more contagious than the original version, and more difficult to stop. As hospitals overloaded, this forced many of them to enact economically crippling, full lockdowns.
So how did things go this week?
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:
This wasn't the best week for Spain, as deaths continued to climb. But on the other hand, the pace has continued to slow. And perhaps this might be a sign that they will turn the corner in the future. We’ll keep our fingers crossed and continue to watch.
How about Portugal? Two weeks ago, we saw that many of their hospitals were completely overwhelmed. How are they doing?
This week brought Portugal some more welcome news: the second week in a row of dropping deaths. And they appear to have firmly turned the corner.
Now let’s look at the U.K., France, the Netherlands and Belgium:
Both the Netherlands and Belgium continued their streak of success against the virus. And while France continued to edge higher, it also had a large drop at the end of the week. It’s too soon to consider this a turnaround, but nonetheless it was a welcome sign.
Meanwhile, the U.K. has been hit hardest by the new, faster-spreading U.K. variant B.1.1.7 (See “Mutant Watch” below for more info). And to prevent hospitals from overloading, it’s had to implement some of the strictest lockdowns. But this week brought some more good news as deaths continued to drop.
This week, the U.K. also announced it was concerned that other variants from Brazil and South Africa might destroy the country’s fragile progress. So they launched the toughest travel restrictions in Europe on travel from 33 countries, including mandatory hotel quarantines (which will cost travelers about $2400). Those who attempt to evade quarantine will be fined up to $14,000. And those who lie on entry forms about being on a “red list” country will face prison terms of 10 years.
Meanwhile, in the U.S., the CDC has projected that the more contagious U.K. variant will become the dominant strain by late February or early March. And some analysts warily noted that the strict lockdowns that appear to be working successfully in the U.K. and Europe might be difficult to replicate in a country like the U.S. (where resistance to even more basic restrictions is high in some areas). As an example, in the U.K., there is a stay-at-home order until at least February 22 for everything other than: work that cannot be done remotely; essential shopping; exercise; and medical appointments. Restaurants, bars, leisure and entertainment venues are all closed along with most schools. Households may not mix with others either indoors or outdoors, and there are stiff penalties for breaking the rules. For example, people who attend house parties in the U.K. of more than 15 people are fined 800 pounds sterling (about $1098) and the organizers are fined £10,000 (about $13,736).
So the interplay of all these factors is something that we'll be watching closely in the coming weeks.
State Roundup: infections drop again, but health experts claim some states are declaring victory too quickly, and this is "no time to be spiking the football"
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. 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.
Then, a few weeks ago came the first reprieve, with multiple states peaking and dropping.
What happened this week?
The Covid Tracking Project puts out a very helpful map showing the locations of hotspots in the U.S. Here’s what it showed this week.
This map looks a lot better than it did even just a week ago. Last week, seven states were in the 51+ categories and, this week, that dropped to just one. So that was a first for this third wave and very welcome news. Let’s take a look at that one state: South Carolina:
Infections, hospitalizations and deaths were all down for the week. So this was a good week for all three trends, and a dramatic improvement from just a month ago.
However, many experts raised concerns that it may be too soon to celebrate the vanquishing of the virus. Jeffrey Shaman, an epidemiologist at Columbia University, explained that even when a pandemic is growing, it doesn’t continue to run upward forever like a bicycle ramp. Instead, it always has wave-like ebbs and flows:
“Outbreaks are self-limiting. As you burn through susceptibles, as more people become infected and transition to recovered or deceased, there are fewer people who can be infected in the short term. So the natural shape that an outbreak takes is a bell-shaped curve.”
But the ending of a single outbreak/wave doesn’t mean another one can’t follow. And we’ve seen that happen three times already with three different waves. And this time around, many experts are concerned about a potential tsunami from faster-spreading mutations in late February and early March.
James Lawler, an infectious-disease physician at the University of Nebraska Medical Center, said this week:
“While it’s great that we’ve made progress, and we certainly should acknowledge that, this is not the time to be spiking the football. Our case counts are still what they were in early November, which at the time we thought was horrendous. This is probably the most uncertain part of the pandemic that we’ve faced yet.”
Roger Lewis, who leads the Los Angeles County Department of Health Services modeling team, said:
“The biggest threat is an ill-placed perception that continued decline is inevitable, leading to complacency."
Despite this, governors in multiple areas of the country are loosening restrictions in response to complaints from hard-hit businesses and restriction-weary citizens.
Iowa Gov. Kim Reynolds (R) was heavily criticized by health experts and local leaders this week after she decided to lift the state mask mandate and limits on gatherings. The Iowa Public Health Association, an organization of public health professionals, said in a letter:
"The new message from you is that it is no longer necessary to be conscientious in protecting ourselves and our communities. This is wrong, and for many, will be dead wrong. Without a universal mask mandate, modeling projects a 30 fold difference in new daily cases of coronavirus and more than 400 avoidable deaths by Memorial Day weekend. ... We all want to celebrate the end of the pandemic as soon as possible. But we are not there yet. Lifting the mask, social distancing and gathering restrictions may obstruct our road to a healthy Iowa and a robust economic and social recovery. Please help us help Iowans.”
Meanwhile, in Tennessee, Gov. Bill Lee lifted restrictions on youth sports, effective February 1st. And in New Jersey and Massachusetts, Gov. Phil Murphy and Gov. Charlie Baker allowed restaurants and gyms to seek more customers indoors earlier this month. Additionally, North Dakota Gov. Burgum allowed bars and restaurants to increase capacity from 65% to 80% effective January 29.
Economy battered yet again by another huge jolt of fresh 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 47 weeks, the economy has been hammered week after week by massive levels of new unemployment. This week 793,000 people were newly unemployed. This was essentially unchanged from the 779,000 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.
In addition, this week’s report showed:
Unemployed gig-workers and self-employed individuals (as reported by the Pandemic Unemployment Assistance program created by Congress for them) rose 1.5 million to 8.7 million
An additional 4.8 million unemployed are currently relying on Pandemic Emergency Unemployment Compensation (which gives extended jobless benefits to the chronically unemployed who have run out of state benefits).
"Employment last month was nearly 10 million below February 2020 levels. We are still very far from a strong labor market whose benefits are broadly shared. Achieving and sustaining maximum employment will require more than supportive monetary policy [i.e will require more stimulus].”
We’ll discuss the prospects for more stimulus in the section below on the “financial cliff.”
Financial cliff: "Large Stimulus" party inches closer to passing $1.9 trillion pandemic-aid bill
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 on 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 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. The December 2020 stimulus act allocated $25 billion in rental assistance towards this and was a step in the right direction. But analysts said it’s “not enough to avoid eviction crisis”.
Hard-hit restaurants and bars left out in the cold: for reasons we've discussed in past weeks, neither of the two previous pandemic aid laws were effectively able to help out restaurants and bars. Some analysts calculate that, if unaddressed, this will "leave millions more out of work."
Not enough funding for crucial transit industry: the December 2020 stimulus act allocated $14 billion to help but this is less than half of what the transit industry needs to avoid “devastating service cuts and layoffs”. And the loss of service could cause negative economic repercussions across the wider economy.
$600 Stimulus checks criticized for being insufficient for the unemployed.
No aid for U.S. states hammered by covid-19 bankruptcies and layoffs.
(Not as urgent.) In the past, there has also been another issue: Student loan payment 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. And originally this was set to expire in January. However, last week, it was extended to September 1st. So this was good news and makes it a much less urgent issue (and we are taking it off the list for now).
So, what actions are being taken to prevent the financial cliff, currently?
A few weeks ago, the new President proposed a $1.9 trillion stimulus package, which included spending for all the above issues. But initially, this was panned by the opposing party (which we will call the "small stimulus party").
So last week, the large stimulus party used the budget reconciliation to unilaterally pass the $1.9 trillion package in the Senate. As mentioned previously, this allows certain bills to pass with just a simple majority. And this is something that the large stimulus party can now do completely on their own and without any help from the opposition party (with 50 unanimous votes plus the tiebreaker vote of the Vice President).
Now the ball is in the court of the House of Representatives. The leader of the large stimulus party in the House has predicted a bill will be passed and sent back to the Senate for final reconciliation in one week. As mentioned above, there is a looming deadline of March 14 before unemployment benefits expire. When asked about this, the large stimulus party House leader said it would be passed by then, "absolutely without any question”.
We'll continue to watch and see how this evolves.
Mutation Watch: Florida becomes new hotspot for U.K. strain as Tampa throws a Super-Bowl-sized street party and massive parade
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 (with many 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, creating 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 certain types of investments.
Currently, there are four major variants that health experts are most concerned about:
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. As of this week the U.K. variant had been detected in more than half of US states (37).
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.
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.)
However, the U.S. has very limited ability to track the variants (currently ranking 34th in the world) because it didn’t invest in the infrastructure and coordination necessary to do so effectively. As of late January, the CDC’s surveillance system could test only about 750 samples per week. In contrast, the U.K. had analyzed 210,000 samples by early February. The CDC is now contracting with commercial labs to add capacity. But it will take time to ramp up. And in the meantime, the country risks flying at least partially blind into what may be the next crucial stage of the pandemic.
So what happened this week? Early in the week, a new study came out from U.S. researchers who attempted to track the variants better than has been done so far. The report is not yet peer-reviewed. But if accurate, the research shows that the U.K. variant is spreading with alarming speed and doubling every 9.1 days:
"The U.S. is on a similar trajectory as other countries where B.1.1.7 rapidly became the dominant SARS-CoV-2 variant, requiring immediate and decisive action to minimize covid-19 morbidity and mortality.”
The data is also shown on the U.S. Centers for Disease Control (CDC) site, which now maintains a dashboard on variants. And currently, Florida is believed to be the epicenter of the U.K. variant:
Meanwhile, this week, social media users posted pictures of large gatherings of football fans in Tampa, Florida. Parties were thrown throughout the Bay Area in honor of being the first to both host and play in the Super Bowl. And when the Tampa Bay Buccaneers won, there were mass celebrations in the street.
Jay Wolfson, a professor of public health at the University of South Florida, called the situation a “potential super spreader event.” A few days later, a massive parade was also held outside to celebrate the victory, and epidemiologists said it "was the largest regional gathering since the pandemic began." It drew visitors from far and wide, and pictures showed that many were maskless and not following any social distancing rules.
Cindy Prins, an epidemiologist at the University of Florida, said:
“People like to think, well, it’s outside, so it’s okay. But that’s not true. You can still get COVID-19 outside. It lowers the risk a little bit, but when you get people that close together, it mitigates that lower risk. … You’re taking away some of the benefit of being outside.”
Mutant Watch Part 2: CDC recommends upping mask protection against variants by double-masking and tightening ear loops
Meanwhile, on Tuesday, the CDC announced new guidelines for masks. The first new recommendation was double-masking a cloth mask over a disposable surgical mask. And, the second was to improve the fit of a single surgical mask by knotting the ear loops and tucking in the sides to achieve a closer fit.
John T. Brooks, medical officer for the Centers for Disease Control and Prevention’s Covid-19 response, said:
“We know that universal masking works. And now these variants are circulating … whatever we can do to improve the fit of a mask to make it work better, the faster we can end this pandemic.”
Then, on Wednesday, CDC Director Rochelle Walensky said, at a White House briefing:
"Some people may be both tired of hearing about masks as well as tired of wearing them. Masks can be cumbersome, [and] they can be inconvenient. [But] the science is clear. Everyone needs to be wearing a mask when they’re in public or when they are in their own home but with people who do not live in their household. This is especially true with our ongoing concern about new variants spreading in the United States.”
Mutant watch Part 3: AstraZeneca vaccine experiences trouble battling South African variant
Meanwhile, South Africa announced it's delaying the planned rollout of the AstraZeneca vaccine after the shot was stymied by its local variant (which now makes up almost 90% of cases in the country). Human trials of 2000 patients found the vaccine experienced a "marked reduction in vaccine effectiveness against mild and moderate disease" against B.1.351., versus the original strain.
Salim Abdool Karim, one of the South African government's top advisers on COVID-19, explained:
"We don't want to end up with a situation in which we vaccinate a million or 2 million people with a vaccine that's not effective in preventing hospitalization and severe disease.”
This news has contributed to a growing number of health experts questioning if earlier hopes of completely eradicating Covid-19 with a vaccine (similar to measles and polio) may have been premature. This week, Shane Crotty, a virologist at the La Jolla Institute for Immunology, said:
"In December, the measles situation was on the table, and the polio situation was on the table. If you’ve got a vaccine so good it prevents almost all cases, and it prevents transmission, you vaccinate your population, and you’re fine even though it still exists elsewhere in the world. That was the perspective, which was legitimate. [But] now … that’s looking like a stretch.”
Now, more immunologists are suspecting that Covid-19 may turn out to be a more wily foe. And if it evolves too quickly to eradicate, it may become an endemic disease that humanity must learn to live with (similar to the common cold). But like the common cold, the hope is that it would evolve over time into a much less severe disease than it is now.
Still, at this stage, so little is known, that it's difficult to make predictions. Even without mutations, many experts pointed out that we don't even know if existing vaccines prevent the spread of the virus, nor how long immunity lasts. So these are important, unanswered questions that could shorten or lengthen the time spent battling the virus.
Shabir A. Madhi, a professor of vaccinology at the University of the Witwatersrand in Johannesburg is one of those who believes the battle will be long. This week, he said:
“This [i.e., the result of the AstraZeneca study] has tremendous implications … in terms of what you can expect with future resurgences of the virus, in terms of how long the virus will continue — and for all intents and purposes, SARS-CoV2 virus, Covid-19, is likely to be with us during the course of our lifetimes.”
Yonatan Grad, an immunology expert at the Harvard T.H. Chan School of Public Health, also said this week that he’s skeptical that the virus can be completely eliminated. And if so, then humanity's victory over it may not be what many people are expecting:
“What’s the endgame? When does it stop? When do we wave a checkered flag and say all this is over? It has to do with watching the ICUs return to normal and seeing the excess deaths diminish. I don’t think the virus will be eliminated, and there won’t be a clear moment to celebrate, because the pandemic is so hyperlocal — there will be no synchronized conclusion.”
Meanwhile, the South African news was the latest in a series of setbacks for AstraZeneca. Beforehand, Switzerland had refused to authorize the vaccine, and doubts were raised by France, Germany and Portugal about its efficacy in older people. And the U.S. has declined to approve it due to insufficient data.
AstraZeneca’s woes affect not only itself, but the globe. Worldwide implications may ensue, because it has pledged to manufacture the vaccine on a nonprofit basis. And so the developing world is overwhelmingly relying on it to pull their countries and economies out of the pandemic mess.
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 minor 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. And in early 2021 more are potentially set to come online. 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. [2/7/2021 update: That is exactly what happened:]
If we get a second (or third) lockdown, then this step (2) will become W-shaped and more painful. So it's a race between vaccines vs. new mutant strains. 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.