How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 6: April 5th Update
Updated: Aug 16, 2020
Pummeled Italy crawls out of the abyss and plans for what's next; Other countries show how to "bend the curve"; U.S. fails to lower mortality rate and U.S. Surgeon General warns of "hardest and saddest week" in "most Americans' lives" ; U.S. lock-downs update; Unemployment claims shatter the previous staggering record; The promise (and controversy) of South Korean "contact tracing"; Promising drug trials and new anti-body tests.
(Usual disclaimer: I'm just an investor expressing my personal opinion and not a registered financial advisor, attorney or accountant. Consult your own financial professionals before making any financial decisions. Code of Ethics: I/we do not accept any money from any sponsor or platform for anything, including postings, reviews, referring investors, affiliate leads or advertising. Nor do we negotiate special terms for ourselves in the club above what we negotiate for the benefit of members.).
As usual, a lot has happened over the last week.
By the way, this is one article in a multi-part series that has been published weekly since the pandemic began back in March 2020. The series started with three introductory articles on the virus, effect on the economy and alternative investment classes. And 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.
Pummeled Italy Crawls out of Abyss and Plans for What's Next
Italy was the first European country to get hit hard by Covid and it still leads the world in deaths (at 15,362). In some areas, morgues have been overflowing and hospitals continue to be overloaded. To preserve scarce resources, doctors have been forced to deny treatment to older/less healthy patients who could have survived (essentially sentencing them to death from suffocation, pneumonia, etc.)
But the silver lining that started 2 weeks ago, continues to get brighter and brighter. On March 9, Italy imposed the first countrywide lockdown in Europe and the Western world. And its continued enforcement has caused a dramatic reduction in the death doubling rate. It started off at an unsustainable 2 days (i.e. the number killed was doubled every 2 days). Then, 2 weeks ago, the rate dropped to the still brutal but much lower 4 days. Finally, one week ago, Italy turned the corner and saw a reduction to every 7 days. And this week, this has flattened even further to once every 12 days. As a result, on today, April 5, Italy reported that the number of patients in intensive care had fallen for the 2nd day in a row. And it also reported the smallest rise in deaths in 2 weeks at 525.
So Italy's health minister, Roberto Speranza, has actually able to shift focus and talk about what's next. Some had initially hoped that once the hospital overload was contained, things would immediately bounce back to normal. But Speranza warned that "if we're not rigorous we risk throwing away all the efforts we've made". So it'll be handled in steps. Phase 1 was dealing with the immediate crisis of hospital overload. Phase 2 will be easing the lockdowns (most likely in certain locations first and only in certain ways). The main 5 principals will include:
The continuation of social distancing.
Wider use of individual protection devices such as facemasks.
Strengthening of local health systems to allow faster and more efficient treatment of suspected cases.
More and better testing.
Contact tracing through smart phone apps and other digital technology to root out new infection clusters before they can spread widely.
Contact tracing has been proven to be extremely effective but is also very controversial in the West. So we'll talk more about this more, later.
Other Countries Prove the Curve can be Bent
Spain (which has the second-highest death count in the world at 12,418) has also reported success in reducing its doubling rate to 7 days. It implemented its nationwide lockdown on March 16. Today, it reported that the 674 people who died in the last 24 hours was a step down from Saturday's 809 and well below Thursday's record of 950. So it appears to have hit a key inflection point.
Germany is earlier in its process, but has reduced its doubling rate to every 4 days. It implemented a nationwide ban on meetings of 3 or more people on March 22. Meanwhile, the U.K. and the U.S. are still the laggards of the Western world. Both are unchanged from each of the last 2 weekly updates and still doubling at an unsustainable every 3 days. The U.K. implemented a lockdown on March 23, but reports that some people are still continuing to congregate in public places, like parks, etc. Today, Health Secretary Matt Hancock warned that if people continue to ignore the restrictions the country will be forced to tighten them further. Additionally, the U.K. Prime Minister Boris Johnson was hospitalized today for "persistent" Covid-19 symptoms. He had tested positive 10 days ago and had been self-isolating in his official residence.
United States Overall Fails to "Bend the Curve"
As mentioned above, the U.S. death doubling rate is currently unchanged from 2 weeks ago (and even 3 weeks ago) and is stuck at 3 days. At the current rate it's poised to overtake both Spain and Italy (the current #2 and #1 by deaths) for most Covid-19 deaths in the world in the next week or two.
At the regional level, New York City is in deep crisis and hospitals continue to suffer overcapacity. Morgues are at full capacity and expected to overflow. And the city is currently projected to run out of ventilators by Wednesday (needing 1000-1500 over the next week with only 135 in stock). The arrival of the 1,000 bed Navy hospital ship U.S. Comfort was cheered when it pulled into New York Harbor, but is not expected to be enough.
In a silver lining, the city has promisingly reduced its infection doubling rate to every 6 days. But until yesterday, this had not helped the crucial death doubling rate, which remained stubbornly at 3 days. However, at noon today, Gov. Andrew Cuomo said there had been a slight plateauing. He warned it could be just a "blip". But it's also possible it could be a long-hoped-for sign of turning the corner. We'll know more in a few days. Meanwhile, second-wave Covid cities like Detroit, Philadelphia and Chicago also remain, stubbornly, at 3 day death doubling rates. Some models (like the University of Michigan model touted by the White House), show that these cities are only a week (or two) away themselves from severe hospital overload.
Today, U.S. Surgeon General Jerome Adams warned Americans: "This is going to be the hardest and the saddest week of most Americans’ lives, quite frankly....This is going to be our Pearl Harbor moment, our 9/11 moment, only it’s not going to be localized. It’s going to be happening all over the country. And I want America to understand that."
U.S. Lockdown Updates
Like last week, the U.S. currently has no nationwide lockdown. Although the states alone have the explicit power needed to coordinate to do this, the national government has the ability to use the bully pulpit to force it to happen. But, there is still currently no unified political will to do this. On Friday, U.S. health officials weighed in with their opinions. The U.S. Surgeon General advised all Americans to interpret the current guidelines as a national stay at home policy. And the Director of the National Institute of Allergy and Infectious Diseases (Dr. Anthony Fauci) said he "does not understand" why all U.S. states aren't already under a stay-at-home order. Same as last week, the states themselves continue to be divided in the way they're individually responding. As of yesterday, half of states still had not imposed lockdown measures restricting gatherings and social contact. In addition, although the public is much more united in fighting the virus than a month ago, there continues to be a divide on how different people view the threat to U.S. health. For example, in a recent poll, people were asked if Covid is a major threat to the health of Americans. A majority (59%) of the members of one political party agreed and only a small percentage of the other party did (33%). On Tuesday, the President gave a grim warning to the nation to expect a "hell of a bad 2 weeks" ahead. And simultaneously, the White House projected 100,000-240,000 deaths. They didn't release the low-level details of their model. But if the stated "best-case" scenario of 100,000 deaths occurs, then that would be more than the deaths the U.S. suffered from 9/11, Iraq war, Korean War and Pearl Harbor combined. The White House also said that 1.5 million to 2.2 million would die from the virus if virus-control measures were removed on all states (i.e. if it were treated similar to the flu). If accurate, the most optimistic projection (1.5 million deaths) would make Covid 19 about 65x more deadly than the flu (which is projected to kill 23,000 this year)
Unemployment Claims Shatter the Previous Staggering Record
Last week the unemployment report had a staggering 3.3 million unemployment claims. This blew away the previous record of 671,000 in of August 1982. Well, that new record lasted only one week and was shattered this week, more than tripling, now at 9.95 million.
The newest report also showed the economic damage is spreading beyond just hotels and restaurants. States reported impacts in health and social assistance, factories, retail and construction. And the 9.96 million combined initial claims in the last two weeks is equivalent to the total in the first 6.5 months of the 2007-2009 recession. The hardest hit states were (in order) California, Pennsylvania, New York, Michigan, Texas, Ohio, Florida and New Jersey. But there's a few important caveats to the data. First, the department’s seasonal adjustments are believed to make the claims look worse than they actually are. According to Jacob Oubina of RBC Capital Markets, there were actually only 5.82 million applications during this reported period, following 2.92 million the prior week (on an unadjusted basis). These numbers are still stunningly bad, but still not quite as horrible. The other caveat is that through the entire great recession there were 37 million unemployment claims filed (on an adjusted basis).
At this point, we're currently at about 13.3 million (on an adjusted basis). So at this point, even though the numbers are huge and flooded us quickly, we're still currently only at about 1/3 of the last recession's numbers. In other words, we are not yet to the point of the Great Recession. And while this week's is unlikely to be the last of the huge job loss reports, the government stimulus package this time around is many times larger than 2008's (see last article series). So it remains to be seen exactly how these conflicting factors will play out.
The Promise and Controversy of South Korean "contact tracing"
As we talked about above, Italy is going to be using cell phone data to track down and eliminate infection clusters before they have a chance to spread widely. This strategy has been used very successfully in South Korea, but it's also very controversial. South Korea was one of the first countries to get hit by a major Covid outbreak outside of China. So they had months less preparation time than others. Yet, despite this, they have done amazingly well. Not only did they contain the virus quickly, but since then, they've suffered only 183 deaths (in total). And their current doubling rate is the envy of the world (at only once every 28 days). While most of the world is closing restaurants and stores, many of South Korea's are open for business and have customers. Even 83% of their infamous hagwons (cutthroat test prep centers for students) are in full swing. And all public schools are scheduled to reopen this upcoming week for the new school year. To accomplish this, South Korea did very aggressive mass testing (which experts say is crucial to containment). The country had also been hammered by previous virus outbreaks, so ordinary people were very quick to mobilize and take Covid 19 very seriously. And they have also used a controversial, high tech, "Big Data" approach called "contact tracing": if someone tests positive for Covid, the authorities take their cell phone and look at every place they've been in the preceding weeks. They coordinate this with other records, such as credit card statements, bus routes, surveillance camera footage, etc.. And anyone who has been on their route is alerted with a notification on their phone. While no names or addresses are shared publicly, the log shows minute by minute details of everything else, including which bus they took, whether they were wearing a mask or not etc. These details make it possible for others to figure out if they came in contact with the person or not. And if they did, they're encouraged to go in for testing. Additionally, if someone is told to self-quarantine, they're required to download another app to confirm they're actually sheltering at home. South Korea is a democracy, so unlike China, the police do not forcibly contain anyone. But if a South Korean breaks quarantine they're fined as much as $2500. And having suffered from previous virus outbreaks, most South Koreans support the system. Contact tracing has been extremely successful in allowing South Korea to quickly identify and then eliminate infection clusters and stop them from spreading widely to the general population. But it also involves some elements that we in the West often consider to be private and off-limits to the government. Here's an example of one alert:
"A 43-year-old man, resident of Nowon district, tested positive for coronavirus. He was at his work in Mapo district attending a sexual harassment class. He contracted the virus from the instructor of the class."
After this, people local to that area received a series of alerts detailing where the men had been, including a bar nearby until 11:03 p.m. at night. While the people's identities are kept anonymous, many in the public have been able to piece together who the infected people are. Two of the infected even had such a suspicious-looking record that many South Koreans concluded they were engaged in extramarital affair. It's not clear yet exactly how Italy intends to do its contact tracing and how this idea will be received in a Western democracy. Right off the bat, the E.U.'s GDPR law is very strict and makes it very difficult to implement this governmental use of individuals' smart phone GPS. However, as a workaround, Europe is launching a coronavirus contact tracing app that would comply with the law. It uses Bluetooth (which would not track the location of the individuals, but simply whether they are close to another known infected) and would not report the identity of the individual (instead replacing that data with a unique ID). Whether this would be as effective as the South Korean app remains to be seen. On the plus side, it's the same method used by Singapore, which has also had great success containing the virus. On the other hand, they are a small city-state, and their experience may or may not translate at a country level. Italy is expected to release more information shortly on what they intend to do. And other Western countries (including the U.S.) will be watching closely.
Promising drug trials and new tests
Pfizer announced positive data for a small drug trial involving a combination of azithromycin (an antibiotic often called Zithromax), along with hydroxychloroquine (an anti-malaria drug we discussed in previous articles) in France. Patients who received just hydroxychloroquine for 6 days, were observed to have a higher rate of virological cure than the 16 control patients who didn't. And those who also got azithromycin as well did better than both groups. The downside is that the sample sizes were very small (only 20 people and only 6 taking both), which makes the results much less reliable. Pfizer has had trouble doing larger studies due to providers being overwhelmed simply treating the infected. Eli Lilly also had to cancel its earlier plans for study due to this issue.
Larger Studies Coming Online
On Friday, the U.K. government announced it will be doing a much larger 1000 patient study on repurposed drugs (including anti-malaria). However, they also warned that it would take months to get finalized results. Meanwhile, the University of Pennsylvania announced that it will be performing clinical trials on the anti-malaria drug hydroxychloroquine with 400 people. This will be one of the first double-blind studies, which is what's truly needed to determine effectiveness. After that they expect that there would be a delay before the FDA approved it. So far they haven't given an estimate on when that process might end.
Meanwhile, the U.K. and German governments have discussed plans to exit lockdowns by issuing "immunity passports" and "immunity certificates" (respectively). People who have had the disease are presumed to hopefully be immune for at least several months. So they would be tested for Covid antibodies (to prove they had the infection previously). These are sometimes called serological tests. After testing positive (and having no symptoms) a person would be allowed to leave lockdown. However, there is still concern over the accuracy of these tests. Senior public health of England official John Newton said that results of the many early tests had been "poor" while remaining hopeful about some of the newer tests. In the meantime, the University of Stanford has produced an antibody test which was rolled out to 2,500 people today in California. California Govorner Gavin Newsom said that the FDA is poised to authorize this test in "hours, not days". At the current time, it's unclear if this will be a full authorization (where the FDA confirms the accuracy of the test) or an emergency authorization (where it doesn't block the test but neither confirms nor denies the accuracy). Many are hoping that it will be the former, rather than the latter. If a reliable antibody test can be created, it will be a game changer and allow a much quicker rebooting of the economy. So we will see. In the meantime, we here in the U.S. are expecting a couple of very rocky weeks. I wish you and your family health and safety in these challenging times.
In Part 7: US Gets Hammered but Finally Bends the Death Curve; The U.S.S. (Limited) Comfort; Another Unemployment Gut-punch; Problems with the Gargantuan Stimulus Package (CARES law); The Fed Looks Out-of-the-box and Discovers a $2.3 Trillion Bazooka; Covid may Spread through Simple Breathing (and Spread Further than 6 feet).