FYI, you can find all prior entries on the virus here.
There are too many corona related topics going on to do full posts on each of them, so time for another (not so) brief to address as many as I can!
Updated Virus Trajectory
OK, let’s start with the conclusion. My initial 10,000 US fatality estimate is likely going to be light, not by magnitudes but perhaps by half, largely due to the spread in NYC.
The fact the the White House is now talking about keeping it under 100K suggests they’re pretty confident that’s the worst, worst case because if it tops that Biden will certainly be President.
The New York Data
Roughly half of US cases are in NY as well as close to half of deaths. NYC is our Wuhan. While your first reaction may be, c’mon, NYC is a much bigger city than Wuhan. No, actually it isn’t. Both metropolitan areas are around 20M people.
Anyway, since NY has the best state level data available, we can start our analysis there. Per Gov. Cuomo’s daily briefings, relative to those who have tested positive, 15% have needed hospitalization with 3% migrating to the ICU. The fatality rate has been ~1.5%.
Remember though, this is all relative to people who have tested positive. The estimates of positive tests to actual infections have been estimated as low as 1%. That seems a bit hyperbolic and most estimates I have seen suggest the infection rate is perhaps 5-10X the diagnosed rate.
Let’s use the 5X I used previously. That means the true % of the population that needs ICU treatment is only 0.6% and the mortality rate is 0.3%. Yes, we are getting much closer to the flu now though more severe at older ages and less harmful for those younger.
The Italy and Spain Curves
With that as background, the question moves to how many people are going to get infected. It is helpful here to look at the experience of other countries. This gets complicated because of the different testing practices. For example, we have more cases than Italy and Spain but much fewer deaths.
Thus, I think it’s better to eliminate as many variables as possible and focus mainly on the mortality curves. The conclusion is we are about 2 weeks behind Italy and a week behind Spain. If we continue our present trajectory, this means we will reach Italy’s 10K fatalities just after Easter.
How do I draw this conclusion? Our deaths have been doubling about every 3 days as you can see below. This is pretty similar to Italy and Spain.
| Daily Deaths | US | Italy | Spain | ||
| 3/19 | 56 | 3/6 | 49 | 3/15 | 98 |
| 3/22 | 113 | 3/9 | 97 | 3/19 | 193 |
| 3/25 | 247 | 3/12 | 189 | 3/22 | 391 |
| 3/28 | 525 | 3/15 | 368 | 3/25 | 656 |
The good news is this tripling doesn’t continue. Once you get past 500/day it starts to slow thankfully. So why do I think we will continue to follow Spain and Italy’s trajectory? Look at the next table.
| Date First Reached 250 Daily Deaths | Italy | Spain | US |
| ~250/day | 3/13 | 3/20 | 3/25 |
| Cumulative deaths at that date | 1266 | 1093 | 1027 |
The way to read this is the first time Italy hit about 250 deaths in a single day, it’s cumulative deaths reach 1266. Spain hit that mark a week later with similar total deaths and we did five days after that with similar total deaths.
In other words, the early curves are nearly identical. If you look at the days since then, they continue to track similarly. This suggests Spain will hit 10K in about a week and we will make it there around Easter.
The China and South Korea Curves
The good news is there are signs Italy is nearing its peak. If that’s true, we can turn to the limited data from Asia about what happens after a region’s cases start to decline.
While we’re dealing with small samples (and perhaps inaccurate Chinese official data), once active cases began to decline, the death count was more than halfway to its ultimate total.
Given Italy isn’t quite there yet, we don’t know the exact death count to start that extrapolation from, but if it happens in the next few days, then perhaps it’s 12-13K which would mean we are looking at 20-25K deaths total in Italy.
If our experience continues to follow Italy, that would in turn be a good estimate for the US barring another city replicating NYC.
To close the loop with the incidence data, 25K deaths takes around 8M infections which equates to 1.6M reported cases which is more than 10X what we have today. To get to 100K deaths requires a 50X growth in cases to ~10% of the population.
Explaining the Market Volatility
Earlier in the year I warned about what might happen if a market selloff is exacerbated by unmonitored computer trading.
“So how does this play out? Something will change exogenously…when they see the humans begin to sell, do they correctly see how bad the downside will be and accelerate the path downwards?”
I admittedly thought it would take longer than two months for that to play out, but that’s exactly what happened.
So much trading in the last month has been forced selling, whether that be a computer rushing for the exits, hedge funds shrinking their exposure, or ETFs seeing withdrawals. If you see a stock down 50% or more in the last month, that doesn’t necessarily reflect a fundamental concern – or at least not an outsized one relative to the market.
No, what it reflects is holders who needed to sell for whatever reason and an absence of available buyers on the other side. Note, that absence of buyers doesn’t mean there aren’t people who think the stock is too cheap. It means those people may not have the funds available to act on that conviction.
I am not suggesting there aren’t fundamental reasons for stocks to be down. There clearly are, but don’t get confused by the price action and think it’s conveying information about the fundamentals, because it likely isn’t.
One last thought on this topic. Given the disconnect between stock prices and fundamentals, we should see CEOs increasing their insider purchases. And we are. Disappointingly, we have not seen the same kind of follow through in the insurance sector even in places where stocks are approaching 10 year lows.
The Big Flaw in the Stimulus
The more I think about the stimulus the more I think Washington really Fd up. It is so centered towards restaurants and hotels which should obviously be a big part, but it overlooks so many other affected industries.
The problem is the only thing small businesses are being helped with is payroll and rent. That’s great if your expenses are largely people. That doesn’t describe most businesses though.
What does the bakery or the florist do? Most of their costs are raw materials. Sure, they can stop ordering but that means the wholesaler is out of business so who are they going to order from when they are able to re-open? Beef prices are tanking because restaurants aren’t ordering from meat producers. Wholesalers across most industries will suffer, yet they get no relief in this bill. They will not survive.
Next, think of the dry cleaner. Very few people required so no assistance. You need to finance a lot of expensive equipment and buy a lot of chemicals. You can stop the latter, but there’s no way out of the assets. Hard to see how they make it. The auto mechanic is in a similar boat. Fewer people driving, fewer people need repairs, but they still have to finance the parts, diagnostics, etc.
What about the hair stylist or personal trainer or masseuse? Many of these people are self employed. Covering the rent helps some but it doesn’t replace income. For all the insistence on businesses paying employees, nobody thought of all the self employed who require revenue to get a paycheck. Sure, they can get unemployment, but when they are allowed to re-open their doors how many customers will be too nervous to return?
Finally, our non-emergency medical professionals. The local doctor and dentist. Patients are scared to go to the office. Like the mechanic, there is a lot of expensive equipment and inventory that needs to get paid for. There are the office management systems and other services that are under contract.
But at least they get payroll covered, right? Nope, most private practices aren’t being treated as small businesses because so many are now affiliated with larger medical groups to survive. Nobody in DC thought about that and we might end up with a doctor shortage as a result.
Bottom line, there needs to be some bridge facilities formed to allow small businesses to finance equipment and inventory. We can’t really be this dumb. At least I hope not.
Herd Immunity vs Herd Mentality
The pace of the eventual economic recovery is likely going to come down to the two above forces. Namely, when the government gives the all clear will they be able to do so in a way that people will feel confident to resume a normal life?
If we give an all clear to everyone, it’s not going to work. There is too much fear out there that people still won’t travel or dine out. Businesses won’t want to risk the liability of opening without certainty sick people won’t come to work. The herd mentality will win and fear will freeze people in place.
The best way to engender confidence is to do something similar to what China did which is to sort people into various degrees of safety or threat. This requires not just the current testing for the virus, but a blood test to assess immunity.
This would let us open things up in stages. People who are at high risk would continue to shelter in place. Those who are immune would be given a green light to return.
The tougher call will be those in the middle, but a smart policy would create levels of engagement tied to one’s own risk. For instance, a 25 year old who lives with a 20 something roommate, works in a small company where only the boss is over 40, and whose parents live out of town, would be able to choose to go back to a normal existence. They may get the virus but have a low risk of complications and are unlikely to infect high risk people.
On the other hand, if you’re 35 but your workplace is mostly 50 and up and you count on your 65 year old parents for childcare once you go back to the office, then you should probably keep working at home, but can resume some normal activity like getting your hair cut or even sending your kids to school.
The more low risk people we can get to safely acquire mild cases the safer we are making things for the high risk population once they leave their homes.
The Pending Insuretech Crash
It’s not a good time to be a young growing company dependent on capital to fund your growth. It’s going to be very hard to fund the next expected round. Investors are likely to ask companies to focus on generating cash rather than spending it.
If you’re an insurance company, you really only have two options to slow your capital burn. One, start making an underwriting profit (not that likely) or two, slow your premium growth. It doesn’t mean these companies can’t adjust, but they’re going to have to re-assess their future.
We Are Replaying the 70s
I’m not talking about disco or bell bottoms. I’m talking about malaise. If you want to compare the timelines, election of JFK = election of Obama, the boomers hitting college = the millenials hitting college, election of Nixon as reaction to the changing culture = election of Trump as reaction to the changing cultures, and now we have our war.
It’s obviously a lot different than Vietnam, but there is the similarity in the impact it has on the economy and the mood of the country. We are likely next headed to the Ford and Nixon years trying to recover from the massive strains we have put on the economy. I’ll have more to say on this soon.
The other thing I’d note is this may begin the end of this era of polarization. Let’s be honest: a lot of what we, as a country, have fought about over the last decade are rich people’s problems. When there is no outside threat, we fight more about our internal differences, whether it be political correctness, expanding civil rights, gun laws, etc.
I’m not suggesting these issues are not worthy of discussion, but it is similar to the climate of the 60s. When a common enemy emerges, we table those debates and move on to the more urgent threats. The political debate is going to be more about jobs, paying down the deficit, and health care. It is going to be a lot more like the late 70s and the 80s.