How will Covid-19/Coronavirus Affect my Alternative Investment Portfolio? Part 55: May 1st, 2021
Updated: Sep 20, 2023
After troubling surge, U.S. resumes progress on third death wave before plateauing; Crystal ball: Best news of Spring 2021? New infections drop for first time since since mid-March; The change of focus for this article series: The race against time (Humanity’s vaccines vs. The evolving virus); Europe turns the corner on first-generation mutations as India plunges into crisis over what may be a second-generation threat; Mutant watch; Study finds two in three vaccine hold-outs say they’re “very unlikely” to change their minds; Vaccine resistors unpersuaded by doctors and political leaders; but widely agree that booster shots are a deal-breaker and fake vaccination cards are “1000 percent” a wonderful thing; ‘Long Hauler’ Study Shows Covid Can Kill Months After Infection; FDA and CDC reinstate Johnson & Johnson Covid 19 vaccine after safety review; The Mouse returns to recovering California; Update on my portfolio.
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Quick Summary
This article is part of a multi-article series that's been published regularly 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). Then in February 2021 it moved to bi-weekly updates and in May 2020 it changed to once every three weeks. You can see the links to every article in the series here.
After troubling surge, U.S. resumes progress on third death wave before plateauing
For the 66th 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 590,987 (versus 574,840 on Saturday morning, three weeks ago).
Here's a quick summary of what's happened so far:
The first U.S. death wave started in early March 2020. 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 2020. This ran predominantly through urban areas in the Sun Belt. It peaked on August 1st, before falling until October 8th 2020.
The third death wave began on October 9th, 2020. It was initially led by rural areas and later spread across the entire country. This made it more difficult to contain and fight than earlier waves. By late October 2020, it had caused acute shortages of critical drugs and key medical personnel needed to fight the disease and limit deaths. Then in November 2020, 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) resulting in higher deaths than necessary. This wave peaked in late January of 2021 and began to subside in mid-February 2021.
How did things look like this week?
On one hand, deaths didn’t increase, which was good. And the troubling reversal from three weeks ago turned itself around and stabilized. On the other hand, there was also very little improvement as deaths essentially plateaued for three weeks (and even ticked up at the end). And currently, they are at very high levels.
Crystal ball: Best news of Spring 2021? New infections drop for first time since since mid-March.
Virtually every regulator and economist agrees that controlling the pandemic is key to economic recovery. And if this happens, then it paves the way for many investments to do well.
On the other hand, if we're unable to make clear progress and deaths remain high, then the overwhelming consensus is that this would sabotage hopes of a quicker, 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?
After having risen steadily for a week and half, the trend reversed and there has been a clear drop for two and half weeks.
And this is the most positive graph we’ve seen since mid-March. That’s when the U.S. started seriously battling a series of mutations that are more contagious, more deadly and more resistant to antibody defenses than the original (see “mutant watch” below).
It’s too early to declare this a definitive trend. But, if it continues, then it could signal a seismic event.
Europe, South Africa and South America were hit with the mutants much earlier than the U.S. And as infections and deaths soared, they were forced to enact harsh and economically crippling shutdowns. As a result, Europe announced on Friday that it’s fallen back into recession. Their first quarter 2021 GDP suffered a discouraging 0.6% drop and the continent is now officially in a double-dip recession.
In comparison, the U.S. economy is relatively open, and yet getting a very different result. And this week, the Bureau of Economic Analysis announced that the U.S. economic recovery is continuing. The economy grew in the first quarter of 2021 by 6.4% (or 4.3% on a “real” basis, meaning adjusted for inflation):
Additionally, there’s talk in Washington about potentially trillions of dollars of additional stimulus via two new spending bills. If even a watered-down version of this occurs, most economists are expecting economic growth to be boosted even more. And this would be fertile ground for many investments to do well.
So, if we are indeed at the start of a new trend, this may be an important turning point.
How could this even be possible?
Some health experts are speculating that this could be an early sign that the U.S. vaccination campaign (which has been extremely aggressive and second best in the entire world after Israel)...may finally be kicking in.
Regardless of the reason, let’s hope it continues, in the next report.
The change of focus for this article series: The race against time (Humanity’s vaccines vs. The evolving virus)
Even if the U.S. has dodged a huge bullet with the first round of mutations (see previous section), the end of the pandemic may not yet be assured.
Most people in the U.S. don’t understand this and believe the pandemic is essentially over. They believe that all the country needs to do is coast along the home stretch of vaccinations. And then, a return to the pre-covid good times of 2019 will be right around the corner.
This could happen. But a growing number of health experts, economic experts and policymakers are also warning that this may be an oversimplified point of view.
And we’ve actually started a new and potentially critical phase: a race against time. And it’s not just a fight being waged by the U.S., but by the entire world. And while everyone hopes that humanity will be the winner, it's not yet guaranteed, and there are many unknowns.
What is the race against time?
On one hand, vaccinations are moving forward, holding the promise of establishing "herd immunity" and ending the pandemic.
This happens when a virus can no longer find enough susceptible people to infect, and then it peters out. Scientists don't yet know the "magic percentage" of people that would need to be vaccinated (or previously infected) to do this for Covid-19. But the current consensus is that it’s probably somewhere in the 60 to 80% range.
On the other hand, almost a third of the U.S. population currently says they will not take the vaccine. So unless this changes dramatically, this refusal alone may make herd immunity impossible.
And even if this issue can be overcome, there’s a still larger challenge.
The longer the virus is only “half-crushed” in the world, the more evolutionary pressure we put on it to evolve more dangerous mutations. And if a mutation evolves that’s resistant to vaccines (called “achieving escape velocity”), then the country and world will be in for a new round of hurt. And many economists, policy experts and regulators say that the new damage could mount for months (or even years).
Throughout 2020, a broad consensus of health experts and pundits claimed that harmful mutations were highly unlikely. As we covered in past articles, most claimed that the coronavirus’s genetic code was too fragile to remain viable after a mutation. So mutations would weaken the virus rather than strengthen it.
Unfortunately, 2021 came along and defied the predictions. And the new year brought not just one but several mutations. All of them developed independently and many use different strategies. But all are either more contagious, more deadly and/or more resistant to antibodies and vaccines than the original. (See “mutation watch” in later sections).
So far, humans are winning the race because most vaccines continue to be effective. But there are some problems looming ahead on the race track as well.
First, the rollout of vaccines is slow and only partial. For example, even in the U.S. (which leads the world), children aren’t currently expected to be vaccinated until 2022. And poorer countries are expected to fare worse. Due to numerous challenges, world-wide vaccine coverage is not currently expected to occur for another 7 years (2028). (Although this is based on current vaccination rates and production is expected to increase dramatically at the end of the year).
And on top of this, large percentages of people are either refusing to follow health recommendations to control the virus or have gotten tired of doing so.
So, all of these factors are putting pressure on the virus to mutate, and/or giving mutations more opportunities to spread. And those things increase the chance of the virus achieving “escape velocity.”
If this happens, many health experts believe we could be battling the virus’s mutations for months or years longer. And most economists and policy experts believe the negative economic effects of this would be crippling.
So, this series will now shift its focus to mostly:
The latest scientific news on mutations and vaccines.
The spread of mutations (and what’s working and what isn’t).
Public opinion polls on vaccines
So let’s kick it off by taking a look at the rest of the world.
Europe turns the corner on first-generation mutations as India plunges into crisis over what may be a second-generation threat
Europe was one of the earliest continents to get hit with the first wave of the virus. And during the summer and fall of 2020, it was the poster child of success by bringing deaths down to low levels (even while other countries, like the U.S. and Brazil, suffered a crippling second wave).
But, in late 2020, Europe was hit with more powerful mutations, and it suffered its own second death wave. In response, many countries were forced to enact strict lockdowns (as severe as the beginning of the pandemic). And while economically crippling, these worked in pushing down the second wave.
However, then in March of 2021, even that progress halted. And multiple countries entered into a third wave (especially Italy).
What happened this week?
This is a good-trending graph. After peaking about three weeks ago, both Italy and all of Europe turned things around and have experienced decreases. If this continues, then Europe may have officially turned the corner on first-generation mutations.
How does the leading indicator of infections look?
This is also a very encouraging graph. Both Italy and all of Europe are clearly trending down and appear to have turned the corner. Let’s hope this continues.
How about the Philippines? In the last report, their hospital system was in collapse due to mutations. Here’s how things look now:
The Philippines peaked and then came down. So this was very good to see.
Next, let’s look at India. As we discussed in a previous update, the Indian Health Ministry announced a new “double-mutant.” And they believe this "confers immune escape and increased infectivity." If true, this may make it one of the first “second-generation mutation” of concern. But last time, it was unclear how widespread this variant was. Here’s how things are looking in India, right now:
This is essentially a doomsday scenario graph with deaths escalating wildly out of control. Let’s look at India’s infections:
In the last three weeks, India’s infections have also spiraled out of control. The one potential silver lining is that for the last several days, there appears to have been a slowing down of the increase. So perhaps this is the sign of something positive. But it’s too early to tell for sure.
Meanwhile, the situation in India has become dire, and the health system is reported to be in “collapse.” Hospitals report being overrun and overwhelmed, with many of the sick being turned away to die untreated (via suffocation). The country has run out of oxygen and the black market price has skyrocketed. And a crematorium in the Indian city of Surat reported that it’s getting five times more bodies than usual, and round-the-clock overuse has melted steel pipes in the crematorium’s chimneys. Dr. Ramanan Laxminarayan, an epidemiologist from Princeton University and the director of the Center for Disease Dynamics, Economics and Policy, said:
"It's worse than I could have ever imagined because, to an epidemiologist, this is really what one would expect with a completely new respiratory virus rolled through a population. In India, people [are] in close proximity to each other, [there’s] very easy scope for transmission, and [there’s] a health care system that, even in the best of times, doesn't work for people. And, in a total crisis time like this, [it] has collapsed.
Yesterday, I know of about 15 or 18 people who died. It doesn't matter how connected you are, how influential, how wealthy you are. You cannot get drugs. And most importantly for most people, you can't get oxygen. So people are literally choking to death.
I had a close colleague, 42 years old, perfect health, has a five-year-old daughter. And he had severe COVID. We could not, for the life of us, find him oxygen. And I thought, with all the connections we have, if we can't find this guy a cylinder of oxygen, what's happening to everyone else?
Basically, his hospital turned off the oxygen at night because they didn't have the supply of oxygen. So getting a hospital bed is no guarantee of actually getting oxygen. And a lot of deaths are happening in that way.
Meanwhile, the double mutant (which combines two mutations from two first-generation mutations of concern) is believed to be spreading very quickly and has now become the dominant one.
This week, the Indian state of Maharashtra reported that 60% of all new infections were being driven by this variant.
Rakesh Mishra, the Hyderabad-based director of the Centre for Cellular and Molecular Biology, said:
“It looks like it is spreading faster than the pre-existing variant. Sooner or later, it will become prevalent in the whole country, given the way it is spreading.”
However, other health experts pointed out that Indian genetic sampling is such a small percent of the population that perhaps the statistics could be misleading. And while both mutations have been shown independently to be problematic, there has not yet been enough time to do a study on this double mutation to prove conclusively that it is worse than any of the originals.
The concern for U.S. economists is the scenario where the Indian mutation does turn out to be more problematic and also more resistant to vaccines. If so, it might allow it to "jump the firewall" of vaccination (or lead to a 3rd generation mutation that does). But so far, there are no studies that can definitively answer the basic assumptions behind all of the competing theories.
So we will continue to monitor the situation and see.
Meanwhile, the U.S. announced this week that it plans to deliver more than $100 million worth of coronavirus aid to the country. This includes 1,000 oxygen cylinders, 15 million N95 masks, and 1 million rapid diagnostic tests.
In a rare moment of bipartisan agreement, members of the House of Representatives from both parties signed a letter stating that helping India is not just the right thing to do, but also vital to the U.S.’s self-interest:
“Our support for India to help beat back this latest wave is in the U.S. national interest, as the pandemic will not end anywhere until it ends everywhere.”
Later this week, the U.S. also urged citizens to leave India as soon as possible. And travel to the country will be restricted starting next week.
Additionally, the U.S. Centers for Disease Control (CDC) warned that even fully vaccinated U.S. travelers may be at risk of contracting and spreading the Indian variant.
Mutant watch
The biggest surprise story of 2021 has been the emergence of more powerful and dangerous mutations. In 2020, most health pundits predicted the odds of this happening were extremely unlikely. But now it seems that every week, another new and concerning variant is discovered. And in April 2020, the first potential second-generation mutation of concern was identified (the Indian “double mutant”).
And as mentioned above, the longer the world only "half crushes" the virus, the more evolutionary pressure we put on it to evolve further. If it mutates into something that is resistant to vaccines (achieves "escape velocity"), then the country and the world will probably suffer months (or even years) of more health and economic damage.
Here’s the updated latest list of the major, most-studied variants of concern that have sprung up around the world. To keep it manageable, lesser studied variations or being omitted. New information from this week is notated in blue.
First generation mutations (winter of 2020- spring of 2021)
1) U.K. variant (B.1.1.7): studies found it is 50 to 70% more contagious than the original strain, and has a 30% higher chance of killing its victims. It has also been linked to a higher infection rate in children in the U.K., Italy and Israel.. But further studies are ongoing to determine if this is true cause-and-effect or just coincidence.Another study also found that two doses of the AstraZeneca Oxford Covid-19 vaccine were ineffective in preventing mild to moderate infections of this variant. This week, a study came out from British researchers on the mutation. It found that a single dose of the Pfizer vaccine provided insufficient protection against the U.K. variant, "resulting in the majority of individuals falling below the protective threshold".
This contrasted with earlier studies, which suggested that just a single shot provided a strong level of protection. And this was an important study for the U.K., which has been forced to deal with scarce vaccine supplies by giving the majority of the population only one dose. This caused some health experts to conjecture that perhaps this single factor explains the huge difference between the current status of the U.K. and the U.S.
In good news, an Israeli study found that two Pfizer vaccine shots were highly effective (97%) in a population where B.1.1.7 had become the dominant strain.
2) South African variant (B.1.351): studies found it’s 50% more contagious than the original, can re-infect people who recovered from the original, and reduces the effectiveness of current vaccines "by a small but significant margin." A study released this week concluded that the AstraZeneca vaccine was “not effective” for prevention of mild to moderate Covid-19 against this variant.
3) Brazil variant (P.1.): studies found it’s more contagious than the original strain (but poor data from Brazil makes quantifying the amount difficult). Also, it’s documented as capable of reinfecting people who recovered from the original (who thought they had immunity). A study released this week concluded that P.1. is likely “more transmissible and more likely to evade protective immunity elicited by previous infection with non-P.1” lineages.
4) California variant (L452R): studies found it’s 20% more contagious and showed “moderate but significant resistance to antibodies generated by vaccines and previous coronavirus infection (reducing their effectiveness by about 50%).” 5) New York City variant (B.1.526): contains the “EEK” mutation (E484K), which (when studied in other variants) was highly resistant to the Regeneron monoclonal antibody treatment (rendering its effectiveness "either impaired or abolished"). The "EEK" mutation has also been found to lower vaccine effectiveness 3.4x. Researchers concluded that most likely the New York City mutation shares similar characteristics.
6) French variant: has evolved the ability to evade detection by “gold-standard” PCR coronavirus tests. As a result, the World Health Organization has labeled this a variant of concern, which they’re tracking closely.
7) Angola variant (A.VOI.V2): this week, a team of researchers published a study that has not yet been peer-reviewed. This variant was discovered in the samples of three people who flew to Angola from Tanzania. If the report is accurate, it bristles with more mutations (34) than any other strain previously identified. That includes 14 in the spike protein, and others that are believed to help escape immune response as well. Researchers are studying it further.
Second-generation mutations (spring of 2021)
1) Philippines variant (called “P.3” or “B.1.1.28.3”): As mentioned above, geneticists say it’s an example of a global “mutation of a mutation,” having started with a Brazillian mutation and evolved from there. And while it shares many of the common spike protein mutations in the infamous Brazilian P.1 variant (which is more resistant to antibodies and vaccines than the original), it goes several steps further. The Philippine Department of Health believes these additional mutations may increase “transmission, virulence” and the chance of “immune escape.” Further studies are already underway.
2) India variant (B.1.617): India’s Health Ministry calls this variant the "double mutant." It’s the first variant to combine two problematic mutations, E484K (from Brazil and South Africa variants) and L452R (from California and India), into one package. And they believe this “confers immune escape and increased infectivity." However, it’s too early for studies to have been done on this combined-mutation variant, so this is only a theoretical analysis based on what each of these mutations have done in other studies.
This week, The World Health Organization (WHO) announced the double mutant has now been found in “more than 17 countries” (up from 8 in the last update). Countries include the United Kingdom, Singapore, Australia and the United States. And their modeling suggests it “has a higher growth rate than other circulating variants in India, suggesting potential increased transmissibility". They also noted that this wave has been different than previous ones, saying, “Studies have highlighted that the spread of the second wave has been much faster than the first."
Study finds two in three vaccine hold-outs say they’re “very unlikely” to change their minds.
Meanwhile, on Monday, Axios polled U.S. adults who have not yet taken the vaccine to see how likely they would be to do so.
And they found that two in three adults are “not very likely” or “not at all likely” to get it. Only 14 percent of people who hadn't yet been vaccinated said they were likely to get their shots. And this suggests the vaccination rate could top out at around 70 percent of the adult population.
So with children and adolescents not yet authorized to take the shot, most experts believe this would fall short of the threshold necessary to achieve herd immunity.
KFF (a non-partisan health policy research organization) ran an analysis of the results. And if accurate, the U.S. could run out of adults who are enthusiastic about taking the vaccine toward the middle or end of this month (May 2021).
According to the authors:
"It appears we are quite close to the tipping point where demand for rather than supply of vaccines is our primary challenge.... Federal, state, and local officials, and the private sector, will face the challenge of having to figure out how to increase willingness to get vaccinated among those still on the fence, and ideally among the one-fifth of adults who have consistently said they would not get vaccinated or would do so only if required."
Vaccine resistors unpersuaded by doctors and political leaders; but widely agree that booster shots are a dealbreaker and fake vaccination cards are “1000 percent” a wonderful thing
Meanwhile, vaccine resistance is currently strongest in one U.S. political party. And a recent poll found that 40% of U.S. citizens identifying themselves with that party said that they don't plan to get vaccinated.
This week, a focus group was conducted that included 17 vaccine hesitant participants. They were given pro-vaccine pitches from four doctors, three politicians from the vaccine resistant party and the former director of the Centers for Disease Control and Prevention, Tom Frieden. The results were both surprising and fascinating.
Similar focus groups, conducted earlier in the year, changed a lot of minds. However, this one didn't.
As an example, one attendee (identified as Tammy, from Virgina) held a (scientifically inaccurate) belief that the vaccine would change her DNA. After hearing the panel explain how RNA vaccines don’t have a mechanism to do this, she concluded:
"I was zero [on] the vaccine. I’m still a zero."
With opposition linked so closely to politics, some had expected a political argument would win the day. And Sen. Roger Marshall of Kansas, is a member of the vaccine-skeptical party and an obstetrician. So he appeared well-equipped to do this. And he made an argument based on respect for the ex-President who is still highly admired by many of these voters.
“[The ex-president] busted his butt to get this vaccine for us. He kicked down doors that I’ve never seen kicked down before. And I think to respect him, would you take the vaccine? Would you honor it out of respect for him and his efforts and everything he did to get this country through this crisis?”
Surprisingly, even this fell flat. A man named Allen, from Georgia, said:
“I’m very thankful to [the ex-president] for all his efforts to make it happen. But that don’t have anything to do with its continued or long-term efficacy.”
Others complained that the former President should be getting more credit for the vaccines, which, they added, should be named after him. However, when asked if calling the vaccine by that name would make them take it, they said “no.”
The event had many other surprising outcomes. Experts had expected that the news of the recent Johnson & Johnson vaccine hiatus (due to blood clots) and reinstatement would also weigh heavily on focus group attendees. However, most of them shrugged this off.
Instead, a main problem came from an unexpected source: booster shots.
Last week, Pfizer CEO Albert Bourla told CNBC that Americans who received his company’s two-dose vaccine regimen would probably need a third shot within a year. And that was a dealbreaker for an overwhelming majority.
Erzen, from New York, explained:
“I feel like this is not going to end. I mean, we’re just going to be shot up and shot up and shot up. We can’t live like this. This is not sustainable.”
Such a belief would probably be puzzling to the 45% of Americans (more than 150 million people) who have already been receiving a flu shot every year.
Another unexpected consensus of the focus group was that a surprisingly large number of people wanted fake vaccination cards. When asked about this, one woman said:
“One-thousand percent!”
Another man, who had been forced to turn down free New York Yankees tickets, because of the requirement to show proof of vaccination, said:
“Yeah. If I have a fake vaccine card, I can go anywhere.”
Others said they wanted a fake card to be able to attend concerts, go on trips, etc.
Scientists and officials have consistently warned that fake cards are likely to prolong the pandemic by allowing unvaccinated people to continue to spread the virus. And Americans who make, sell, or use falsified cards will be prosecuted. Despite this, some said the temptation is still strong. One woman even asked the group for personal advice on her philosophical and religious conundrum on the subject:
“My faith wouldn’t allow me to be deceitful. So what do I do?”
In the end, few hesitators changed their minds. And a communications expert, who works for the vaccine-skeptical party, explained:
“The further we go into the vaccination process, the more passionate the hesitancy is. If you've refused to take the vaccine this long, it's going to be hard to switch you."
‘Long Hauler’ Study Shows Covid Can Kill Months After Infection
Meanwhile, a new study came out on Covid-19 "long haulers." Most people believe that Covid-19 lasts for just three weeks and then the body clears it. But there’s a growing body of evidence that at least hundreds of thousands (and perhaps millions) of people suffer from a cascade of debilitating after-effects that won’t leave for months afterwards. Some still have symptoms a year later. These include: extreme chronic fatigue, blood clots, strokes, diabetes, difficulty breathing, liver and kidney damage, depression, anxiety memory loss, severe tinnitus and more.
The new study found that even six months after infection, long haulers have a significantly greater risk of dying (59%).
Ziyad Al-Aly, chief of the research and development service at the St. Louis VA Medical Center in Missouri, said:
“When we are looking at the acute phase [i.e. what people traditionally think of as Covid-19], we’re only pretty much looking at the tip of the iceberg. We’re starting to see a little bit beneath that iceberg. And it’s really alarming.”
He also warned:
“Let’s not act surprised two years down the road, when people start committing suicide. We did not do very well preparing and dealing with Covid. Let’s not make that mistake a second time.”
In March, the 65-year-old Texas Roadhouse CEO (Kent Taylor) killed himself by suicide after suffering from long-haul Covid.
His family said:
“After a battle with post-Covid related symptoms, including severe tinnitus, Kent Taylor took his own life this week. Kent battled and fought hard like the former track champion that he was, but the suffering that greatly intensified in recent days became unbearable.”
Tinnitus is a buzzing in the ears that can be debilitating. A peer-reviewed study published in November concluded that Covid-19 can significantly worsen the syndrome (with 40% of those with the syndrome reporting that the problem got more severe after Covid).
Last year, Taylor had donated $5 million to support the frontline workers in his chain (which now has 600 locations) through the Covid-19 pandemic. A few weeks before dying, he also pledged to pay for a clinical study for military members who also suffer from tinnitus. According to his family:
“In true Kent fashion, he always found a silver lining to help others.”
FDA and CDC reinstate Johnson & Johnson Covid 19 vaccine after safety review
As discussed in the previous update, the Food and Drug Administration and Centers for Disease Control had recommended a pause on the Johnson & Johnson Covid-19 vaccine after data showed it to be associated with rare but severe (and potentially fatal) blood clots.
And at the beginning of last week, both agencies determined that the benefits vastly outweigh the risks, and they recommended that use of the vaccine continue.
The Mouse returns to recovering California
Today, Disneyland California swung open its gates for the first time in 13 months. This marked a dramatic turnaround in a state battered by the more-contagious California variant (L452R). Only four months ago, California was treating patients in outdoor tents due to hospital overload.
Today, excited visitors took selfies in front of the castle and wore Minnie and Mickey Mouse ears.
The park is currently only open to state residents and is operating under limited capacity for now.
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. The vaccine rollout is accelerating quicker than originally expected (at least in the U.S). At the same time, the spread of the variants across the world, the continued resistance of sizable percentages of the public to taking the vaccine, and/or unwillingness of continue to take health precautions remain troubling X-factors that could push the virus to evolve and jump the vaccine firewall. So 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 was very lucky and we ended up with two right before the end of the year. And in early 2021 more have come online. Unfortunately, as I also predicted in late May: these couldn't be manufactured and distributed in large enough quantities to immediately treat everyone. Most in the U.S. are still having to wait until early or mid 2021. 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 extensions on eviction/foreclosure moratoriums. So I am not afraid of an immediate double-dip recession as I was at the beginning of the year. On the other hand, millions are still unemployed and many important areas of the economy are comatose (or on government life-support). And I'm concerned about the mutated variation making the partial lockdowns we have now ineffective and causing significant economic damage. So, if things go the wrong way, I'm concerned we might 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 faster spreading mutations 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 mutated strains). 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 are triggering the third stage and an accelerated recovery. But it takes time to ramp up production and delivery to enough Americans to push towards herd immunity (not until well into 2021...if ever). 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 better). If so, then the third-stage boost would be faster.
Investments: It would be great if we end up being in the home-stretch to recovery. But if we aren't, and the negative scenarios play out, then it might be painful for many individuals and some investors. And some sub-sectors of alternative investing (like certain real estate classes) could come under stress. At the same time, if this happens there could also be an opportunity to purchase dislocated and distressed assets at favorable pricing and significant discounts.
Strategy:
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 mutations 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. In the meantime, that's the review for this week. And I hope you and your loved ones are staying safe and healthy.
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