Coronavirus Update 3/18/2020

By Whitney Tilson

Wednesday, March 18, 2020
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– If you haven’t had a chance to do so yet, please take a moment to fill out the two-question survey about how many CV cases and deaths you think we’ll have in the U.S. by three dates, the end of this month, the end of May (two and a half months from now), and the end of this year. You can do so here. Thank you! 

– I just sent out my investing email, which is posted here. Here are the headings:

Lower stock prices are good news; Survey results of where the market bottoms and when it hits a new high; New survey on coronavirus cases and deaths in the U.S.; The bull and bear cases; Goldman Sachs note; Support your local restaurants!

– Everyone is trying to figure out why Italy has been hit so badly. Are they just ahead of the curve, getting hit first, perhaps because of their manufacturers’ ties to China, and we’re all doomed to follow in their footsteps? This chart would certainly indicate so (note the U.S. is on a 10-day lag):

This is the same chart in yesterday’s email that I copied from a tweet, with data updated to today. My comment yesterday about this was: 

The bad news is that we’re following in lockstep with Italy. The good news is that we’re 10 days behind, so the actions we’re taking today will hopefully help us avoid Italy’s outcome. Also, note that this chart is tracking number of cases, but we’re a massively larger and wealthier country, with a population 5.5x larger than Italy’s (~330 million vs. ~60 million).

– There are reasons, however, to believe that there were some unique circumstances in Italy. Here’s one: Italy’s love for grandparents may have worsened the spread of coronavirus. Excerpt:

Italy’s social and multigenerational way of life, in which the young and old live and spend quality time together often, could be why rates of infection and death are so high, according to a new paper published on the Open Science Framework by researchers at the University of Oxford.

The paper says that Italy has one of the oldest populations in the world — 23.3% of people are over age 65 — and in many households, multiple generations live together or close by, and interact often.

“It is becoming clear that the pandemic’s progression and impact may be strongly related to the demographic composition of the population, specifically population age structure,” the researchers write.

– Here’s another: 99% of Those Who Died From Virus Had Other Illness, Italy Says. Excerpt: 

More than 99% of Italy’s coronavirus fatalities were people who suffered from previous medical conditions, according to a study by the country’s national health authority. After deaths from the virus reached more than 2,500, with a 150% increase in the past week, health authorities have been combing through data to provide clues to help combat the spread of the disease.

… The new study could provide insight into why Italy’s death rate, at about 8% of total infected people, is higher than in other countries. 

– A friend sent me this:

Take this as one man’s opinion in a roaring cacophony, but I was playing with some data on this and had a couple thoughts emerge which I thought I would share.

The most interesting data I am looking at is the time from start to “flat” on the incidence curve, which I define as a flattening of the logarithmic growth rate (all data from https://www.worldometers.info/coronavirus/) and the number of absolute deaths per capita in countries that have reached flat on the incidence curve. The logic below is all based on data from the four countries that area ahead of us on this issue – China, South Korea, Italy & Iran. This view will firm up as we get more of that data, and is more oriented towards an investors mindset (which I am). 

Based on this data, I *currently* disagree with the biggest bears on COVID-19 who worry about 1m+ deaths, and even disagree with embedded consensus on where this is going in the US (which I peg at 300-500k deaths). My base case is 10k deaths in the US – yes, that is bad, but minor in the context of historical pandemics (and yes, minor in context of a typical season flu. There. I said it.). Let’s agree on something self-evident: almost the only stat that ultimately will matter is the # of deaths in each country, which is obviously tied to the time it takes to flatten the curve. Hence #flattenthecurve. Of course we should flatten the curve. I simply ask, at what cost?

We know that in countries that went into complete lock down (China & South Korea) the curve flattened quickly (26 days and 15 days, respectively, from start to flat) with almost infinitesimal percentages of the population dead (0.0002% in China, 0.0002% in South Korea). We are not China or South Korea. We are already 22 days into our crisis with exponential growth going strong. The most fascinating data to me (which I am watching daily) is the data from Italy and Iran, two countries who bungled the response and did not widely test or lock-down (i.e. closer to the US). HOWEVER, after 30 days in Italy and 23 days in Iran, the curve actually flattened somewhat on a log basis (still not nearly as flat as China or South Korea). Thus, that suggests to me this goddamned thing might have a shorter half-life even outside of draconian lock-downs (a tenuous thesis, but it’s what the data tells me). Yes, more people died, which is awful – 0.0041% of the population in Italy and 0.0012% in Iran, 25x and 5x the death rate per capita as China/South Korea. This is the data to watch – Iran & Italy. If it continues to flatten, it’s a super bullish comp to the US. But, to be very callous, these are still small numbers of deaths on an absolute basis – 2,500 in Italy and 988 in Iran. My working hypothesis is that our curve will flatten slightly in 1-2 weeks in the US (well ahead of the July/August that Trump communicated) and surprise the world to the upside. At this point this might be more hopeful than anything, but I think i see this thesis in the data. I’ll check this daily. For those who like conspiracy theories, I don’t think it is implausible that Trump set a very low bar here (August) then will hail himself as a hero when the curve flattens in 3 weeks. Think about it for a bit – it’s a savvy move from a guy who, love him or hate him, has exhibited incredible political savvy in the past.

I also think that there has been way too much attention to cases and not enough attention to deaths. Deaths are what matters, and almost all that matters here. The bear case for the US is this rips through city by city killing tens or hundreds of thousands of people in each major metro and we cannot restart our economy for 6-9 months, or more, as you cannot re-start an economy into a deadly pandemic once you stopped it. We sink into a recession driven by sinking confidence that feeds upon itself given the leverage in the system, and likely leads to rolling bankruptcies of large swaths of US corporates, with a sub 2,000 S&P 500. This is a scary reality, and I’ve got a long list of stocks down 50-70% in a month that seem to be embedding this base case (most with lots of leverage). This is possible, but right now seems like a 5-10% case to me.

On the matter of incidence & deaths, Harvard & Mass Gen are suggesting incidence is understated by 50x which seems reasonable to me – and suggests we have had closer to 10m cases worldwide, but importantly with that adjusted denominator the death rate is only 0.1% (similar to seasonal flu). In that countries that have declared victory – China & South Korea, very small numbers of people died (this is not getting enough press). Even in Italy & Iran (where the response was bungled), very small numbers of people died. I think the over-under for investors now is 300-500k deaths in the US with bear case fears of 1-2m people dead. This just doesn’t make sense to me given 988 died in Iran and 2,500 died in Italy (with curves flattening, slightly) and 3,237 died in China and only 84 died in South Korea (with curves flat). These numbers of 1m seem based on conjecture & fear, not comparable data analysis. Based on these 4 priors (which are still fluid, to be clear), my base case for deaths in the US is under 10,000. For society’s sake, I sure hope I’m right. People also forget that the US has, by far, the best healthcare system in the world – if you disagree, ask any oligarch you know where he flies to get a heart surgery. We have the best hospitals, the best doctors & nurses and the best equipment and it’s not even close (why do you think it’s so damned expensive?). Don’t believe the hype – if you get this disease anywhere in the world, the US is the best place to get it, and that should meaningfully help our per capita death rates.

Yeah, I get the social movement to stay inside, protect the elderly from exposure – that certainly will help to flatten the curve, but we have no idea how much, and I just ask whether the side effects are worth the cure. 

This is obviously subject to revision and very data dependent on the daily death rate from the 4 countries that are ahead of us on the curve and serve as our only data prior.

So what if I’m right? It’s a controversial and contrarian view. What if the curve flattens in 2 weeks. And we declare victory by mid-April? We have 0% short term rates, likely $1.2trn stimulus running through the system (a massive 6% of GDP), and immense pent up demand into H2. That’s almost scary bullish mix of factors. Is Trump an even genius engineering this response? Possible. Trump will be hailed for flattening the curve and the S&P 500 will hit 3,500 by election day – meaning 4 more years of Trump. The risk to this all is obviously inflation, but $28 glut-driven oil and a strong dollar is a deflationary offset. It should be a wild ride.

Please poke holes in this logic wherever you see them…

– He argues that we should be focused on Iran and Italy. Here are the latest charts for Iran (new cases and deaths by day) (Italy charts were in my previous email):

– Not sure the source of this, but interesting:

More cautiously optimistic good news re: the novel coronavirus outbreak. Just to reiterate why I’m interested in this particular angle, I have a Master’s in infectious disease epidemiology, have fieldwork experience in epidemic control, and did a year’s postgraduate work at Oxford on the mathematical modeling of infectious epidemics.

The superb modeling group at Imperial College released a widely circulated paper yesterday showing- as many predicted- that there is substantial, significant asymptomatic infection with SARS-coV-19. There are between 5 and 8 entirely asymptomatic cases for each confirmed case (and remember, confirmed cases range in severity from mild to lethal; around 15% or so globally are requiring hospitalization). Transmission is largely driven by these asymptomatic cases.

Why is that good news, you might ask? Well, it massively downwardly revises the morbidity and mortality rates for infection. Testing is still scarce and rationed, meaning we have a positive bias towards severity for testing  (only the sickest-seeming people are being tested). South Korea’s mortality rate, 0.6%, was calculated via aggressive case-searching and widescale testing, but not true point-prevalent testing of the asymptomatic. If there are 8 asymptomatic infections for every case, we can multiply the denominator for the case fatality rate by 8- generating, conservatively, a mortality rate of 0.075% instead. And that is WITH the positive testing bias. Once milder cases begin to be tested, I expect it to fall below that.

The second bit of interesting modelling data quantitates the effect of social distancing. Using China, which imposed a strict cordon sanitaire on Wuhan/Hubei, and strong social distancing measures on the rest of the country, the attack rate dropped from 2.4 to 1.05. That means, prior to social distancing, each case successfully generated 2.4 additional cases; after distancing, that dropped to a bit over 1. Fantastic, and proves those measures work.

But it ALSO proves that transmission does not cease with distancing, it’s just cut down by 60%. Instead, in all likelihood, the epidemic “burns itself out.” It actually might have an attack rate many fold higher, but 86% of people infected simply mount an immune response and never sicken.

Importantly- these asymptomatic people are still infectious. They still spread the virus. They aren’t sickened, they certainly won’t be hospitalized or die, but they can and do still transmit to those who will become sickened and/or die.

So: let’s assume a mortality rate of 0.075%. Let’s assume, as is being circulated, that US herd immunity requires 70 million infections (estimates range between 40 and 70 million, so I will use the largest number). That will generate, over the course of a year, 52,500 deaths. That’s a lot of deaths. Each is a human being, each leaves a grieving family, each leaves us contemplating the mystery of death and suffering. But 52,500 deaths, over a year, when over 2.8 million people die annually in the United States, is not significant excess mortality and will not lead to societal collapse.

Imperial paper in Science:
https://science.sciencemag.org/content/early/2020/03/13/science.abb3221

Lancet paper on modeling attack rate in Wuhan:
https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(20)30144-4/fulltext

Trump Slowly Enlisting More Agencies in ‘Whole of Government’ Response to Virus. Excerpt:

The shift came four days after an internal report from the Department of Health and Human Services — not yet shared with the public — concluded that the “pandemic will last 18 months or longer and could include multiple waves of illness.”

The virus, the agency assumed, will likely cause “significant shortages for government, private sector, and individual U.S. consumers,” and coordination by the federal government would be imperative…

Humanity Is Rising to the Challenge of the Coronavirus. Excerpt:

The pandemic caused by the new coronavirus (COVID-19) from Wuhan, China, is now a serious and global problem. And that problem has been made even worse by a culture of constant alarmism making it hard to distinguish real threats from exaggerated claims, as the well-known science writer Matt Ridley has pointed out. But even when faced with the genuine threat of a pandemic, there are reasons to take heart and think that humanity will rise to the challenges ahead. 

First, humanity has never been better prepared technologically to deal with a pandemic. We are fortunate to live in an age of drive-through diagnostic test stations, advanced computer modeling that can help predict where and how fast the virus will spread, real-time interactive online outbreak-tracking maps, and medical supplies delivered by self-driving cars. An AI epidemiologist sent the first warnings about the novel coronavirus. Information about the virus is able to travel faster than the virus itself, arming individuals with knowledge about how to slow the disease’s spread.

In addition to progress toward a vaccine, several promising treatments for those who have been infected are currently being tested.

There is currently no vaccine and no cure for the disease. However, medical research is faster and of higher quality than at any other time in history. The amount of time that it takes to successfully create a vaccine for a disease has come down thanks to scientific advances, better communications technology and more extensive cooperation among scientists across the globe.

Research for a vaccine to help stem the COVID-19 outbreak got under way within just hours of the virus being identified. Animal testing of the vaccine has shown promise. Human trials are now just weeks away, with a vaccine expected to be ready for public use within the next 12 to 18 months. That means that a vaccine could become available within two years of the virus’s emergence. For comparison, it took 48 years to create a successful vaccine for the polio virus.

In addition to progress toward a vaccine, several promising treatments for those who have been infected are currently being tested. Potential treatments under evaluation range from repurposed HIV-fighting drugs, such as lopinavir and ritonavir, as well as chloroquine phosphate, which is normally used to treat malaria and certain liver infections.

Second, human beings have an incredible capacity for voluntary cooperation, particularly in times of adversity….

– Three stories from ProPublica:

– There’s a lot of bad info circulating – this is the latest: Is Ibuprofen Really Risky for Coronavirus Patients? (NYT). Excerpt: 

But there was no research to back up the contention. “No data,” said Dr. Michele Barry, director of the Center for Innovation in Global Health at Stanford University. There is no reason to think that infected patients should avoid temporary use of ibuprofen, she added.

“It’s all anecdote, and fake news off the anecdotes,” said Dr. Garret FitzGerald, chair of the department of pharmacology at the Perelman School of Medicine at the University of Pennsylvania. “That’s the world we are living in.”

“Until there is evidence, there is no reason at all to be issuing public health guidance” about Nsaids and the coronavirus, he added.

Whitney Tilson

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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor's degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

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