Coronavirus Update 3/22/2020

By Whitney Tilson

Sunday, March 22, 2020
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1) In response to the email I sent out last night, entitled “The multi-TRILLION dollar mistake we may be making,” one of my friends replied:

Thanks. Good work! But what is the mistake? And if there is a mistake, tell me what to do. Unless we’re serious about distancing it will get worse and the economic damage is going to be huge, even if this thing goes away by end of May.

It’s a great question and I should have been more clear. I think what we are doing right now is roughly right: very strong measures in places where there are significant outbreaks, but less strong measures in areas with little or no known cases – accompanied by a massive increase in testing so we’ll have the information we need to fight the virus effectively and wisely.

That’s what China did. There’s the myth that the government locked down the entire country – as some are calling for us to do here – but this isn’t what happened. Instead, the government completely locked down Wuhan (let’s call that 10 of 10), mostly locked down Hubei province (8.5 of 10), partially locked down major cities (7 of 10), and took lesser measures in rural/remote areas with no known cases of the virus (5 of 10). 

In other words, they attacked the problem with a scalpel, not a sledgehammer. They focused their resources and most draconian measures on the hard-hit areas, while simultaneously, across the entire country, trying to minimize the economic damage and hardship on the country’s citizens.

We’re also doing this balancing. 

However, I am extremely concerned that we go too far – that’s why I said “may be making” instead of “are making” a multi-trillion dollar mistake.

The following words and phrases are currently on the home page of the New York Times:

  • “Terrified”
  • “Mask Shortage”
  • “Recession Looms, Course Unrecognizable”
  • “Won’t Work”
  • “Eerie Streetscapes”
  • “Harrowing”
  • “Infections Explode”
  • “Plummet”
  • “Soar”
  • “Shut Down”
  • “Dashed Hopes”
  • “Looming Disaster”
  • “Stripped of Commerce”
  • “Alarm”
  • “To the Brink”
  • “Who Will Be Saved?”
  • “Economic Unraveling”

In media, fear = engagement!

Similarly, NY and CA Governors Cuomo and Newsome said that 40-80% of their state populations will eventually become infected with the coronavirus. If so, those two states will have ~34.3 million infections (up from 16,686 currently, 2,056 times more) and, assuming a 1% mortality rate, ~343,000 deaths (up from 141, 2,433 times more).

This is complete madness, contradicted by every country that’s been hit by the virus – even Italy. China has had 81,008 cases vs. a population of 1.4 billion. So, the governors are projecting that one of every two citizens of their states will become infected, whereas the actual experience in China is that one of every 17,387 citizens have gotten it. If you don’t believe China’s numbers, fine: it’s one in 5,850 in South Korea.

What could possibly explain this nonsense? I can think of four reasons: a) They’re getting bad information from researchers running bad models (discussed in last night’s email); b) they’re trying to scare people into doing more social distancing; c) they’re trying to offset criticism that they’re over-reacting; and d) they both plan to run for President someday, and want to be able to claim that their leadership stopped the largest pandemic in modern American history. 

In light of the 24/7 politician- and media-fueled fear mongering going on, there’s a high risk that we over-react and do far more harm than good

There is going to be enormous economic damage due to the ongoing measures we’ve taken so far – but there’s a huge difference between a recession and another Great Depression.

2) Here are four articles cautioning about over-reaction:

If the shutdown extends for a few months “…we might face not a recession but a full-blown depression, which would be financially ruinous for hundreds of millions and have its own disastrous knock-on effects in mental, emotional, and physical health, including for the elderly and sick who already face the greatest risks from the virus.”

And if it “lasts 18 months — the estimate of how long it might take to develop and distribute a safe and effective vaccine?

 In that case, we are looking at a century-defining calamity that could bankrupt the government; wreck nearly every business in America, large or small; disrupt supply chains and create critical shortfalls of food, medicines, and other essential items; lead to dramatic increases in deaths of loneliness and despair; tempt political leaders, including the president, to disavow democratic norms in the name of public health (including by seeking to postpone elections); and create widespread, perhaps deadly, civil unrest. 

As we battle the coronavirus pandemic, and heads of state declare that we are “at war” with this contagion, the same dichotomy applies. This can be open war, with all the fallout that portends, or it could be something more surgical. The United States and much of the world so far have gone in for the former. I write now with a sense of urgency to make sure we consider the surgical approach, while there is still time. 

…Such is the collateral damage of this diffuse form of warfare, aimed at “flattening” the epidemic curve generally rather than preferentially protecting the especially vulnerable. I believe we may be ineffectively fighting the contagion even as we are causing economic collapse.

…So what is the alternative? Well, we could focus our resources on testing and protecting, in every way possible, all those people the data indicate are especially vulnerable to severe infection: the elderly, people with chronic diseases and the immunologically compromised.

… This focus on a much smaller portion of the population would allow most of society to return to life as usual and perhaps prevent vast segments of the economy from collapsing. Healthy children could return to school and healthy adults go back to their jobs. Theaters and restaurants could reopen, though we might be wise to avoid very large social gatherings like stadium sporting events and concerts.

So long as we were protecting the truly vulnerable, a sense of calm could be restored to society. 

…A pivot right now from trying to protect all people to focusing on the most vulnerable remains entirely plausible. With each passing day, however, it becomes more difficult. The path we are on may well lead to uncontained viral contagion and monumental collateral damage to our society and economy. A more surgical approach is what we need.

Perhaps we will be lucky, and the human and capitalist genius for innovation will produce a vaccine faster than expected—or at least treatments that reduce Covid-19 symptoms. But barring that, our leaders and our society will very soon need to shift their virus-fighting strategy to something that is sustainable.

 Dr. Fauci has explained this severe lockdown policy as lasting 14 days in its initial term. The national guidance would then be reconsidered depending on the spread of the disease. That should be the moment, if not sooner, to offer new guidance on what might be called phase two of the coronavirus pandemic campaign.

 That will surely include strict measures to isolate and protect the most vulnerable—our elderly and those with underlying medical problems. This should not become a debate over how many lives to sacrifice against how many lost jobs we can tolerate. Substantial social distancing and other measures will have to continue for some time in some form, depending on how our knowledge of the virus and its effects evolves.

 But no society can safeguard public health for long at the cost of its overall economic health. Even America’s resources to fight a viral plague aren’t limitless—and they will become more limited by the day as individuals lose jobs, businesses close, and American prosperity gives way to poverty. America urgently needs a pandemic strategy that is more economically and socially sustainable than the current national lockdown. 

Dr Anthony Fauci appears to have had President Trump’s ear for the last two weeks, convincing Trump that “flattening the curve” is the ultimate goal.

The problem with that conclusion is that there is no economic cost-benefit analysis attached to it. What if the cure is more lethal than the disease?

Dr Fauci knows how to limit the spread of a disease — if resources are unlimited and those resources don’t matter.

But the problem is that the country is going out of business trying to fight this virus.  People are losing their lives, and civil unrest is almost here. 

If the business shutdowns continue, many of us will soon know more people who committed suicide or died in riots or home invasions, than from any virus.

3) Following up on my comments in last night’s email whether China’s data can be believed, a friend in Singapore writes:

I have close friends in Wuhan, with whom I have calls weekly just to touch base.

The situation has improved significantly. Zero new infections is a stretch; slowing down is maybe more appropriate.

China’s media is similar to your Fox News – leave it to your better judgement :) 

To be clear, I don’t trust the Chinese government as far as I can throw it. They’re no doubt spinning things. Five days ago, they reported 13 new cases nationwide, then they “jumped” to 34, 39, 41 and 46 the last four days.

Do I believe these numbers? No. They’re probably 10 times higher.

My point it that it doesn’t matter, as long as they’re not 1,000 times higher – and I’m 99.9% certain they’re not.

Here’s what matters: they got hit first and bungled the response – failing to recognize the problem and then trying to hide it – for well over a month. As a result, the number of cases took off like a rocket, rising 96 times in only 11 days (from 62 on Jan. 18th to 5,974 on Jan. 29th) – that’s 51.5% compounded daily.

But once they took it seriously and clamped down starting on January 23, it took only 13 days for the number of new cases to peak, and they quickly declined to almost zero.

Here’s the chart that shows this:

So rather than dismissing the Chinese, saying their numbers are bogus, we should be learning from them!

4) I continue to think it’s likely (though far from certain) that the coronavirus will be very seasonal, like its cousin the flu. If so, this would be huge, giving the hardest hit countries some much-needed room during the upcoming warmer months to restart their economies, test their entire populations, etc.

While the evidence is far from conclusive, here’s an article about a study (different than the one I cited in last night’s email) of 100 cities in China: New study says ‘high temperature and high relative humidity significantly reduce’ spread of COVID-19. Excerpt: 

According to the researchers’ findings, “High temperature and high relative humidity significantly reduce the transmission of COVID-19.” An increase of just one degree Celsius and 1% relative humidity increase substantially lower the virus’s transmission, according to the data analyzed by the researchers.

The study is the latest in a limited but growing body of research, not all of which has been peer-reviewed, that examines the effect of weather on the spread of the SARS-Cov-2 virus, which causes the COVID-19 illness.

… UV light has been proven to kill other strains from the coronavirus family, like SARS and MERS, but there isn’t research yet showing the same is true for SARS-CoV-2. 

… Projected temperature increases over the next few months are expected to align favorably for U.S. residents if the findings of the published paper prove true. With much of the U.S. forecast to see higher-than-normal temperatures in March and April, according to AccuWeather meteorologists, there is a chance that the virus could eventually “burn itself out,”

This chart from the article shows how the R value – the transmission rate – of the coronavirus will be much lower in most of the world by July: 

5) Here are today’s key daily charts…

I don’t know if the dip in new cases yesterday in the U.S. is good or bad – probably just a weekend head-fake. I expect rising numbers of cases for a while, simply reflecting a surge in testing (discussed in last night’s email):

New cases in the rest of the world (ex. the U.S. and China) also dipped a bit yesterday:

Here’s the state by state day on new cases in the six worst-hit states. Four stable or down, NJ and WA up sharply. Disappointing to see WA up (also discussed in last night’s email): 

This is unequivocally good news – the number of coronavirus deaths in the U.S. has declined the past two days:

Our overall mortality rate so far is 1.3%, among the best in the world (Italy’s is a shocking 9.0%). This is a very fuzzy number because the denominator, number of confirmed cases, depends on how many people are tested – but our rate so far is still good to see.

6) Speaking of Italy, amidst the calamity there, there’s a tiny bright spot that shows us what we ultimately need to do. The little town of Vo, in the hardest hit northern part of the country, had Italy’s first confirmed coronavirus-related death, a 78-year-old man, on February 23. Its response was to test every one of the town’s 3,300 residents, even those with no symptoms. This was critical because most of the 89 residents (2.7%) who tested positive “were completely asymptomatic.”

Rather than sending them to the hospital, where they could spread the disease, they were home-quarantined, told not to go outside or interact with anyone. 

Within a mere two weeks, the virus had been virtually eradicated. When every villager was retested, the infection rate had dropped to only 0.41%.

For more on this, see: In one Italian town, we showed mass testing could eradicate the coronavirus

7) Sadly, the rest of Italy didn’t learn from Vo, as this story on the front page of today’s NYT documents: Italy, Pandemic’s New Epicenter, Has Lessons for the World

It has lessons for all of us: namely, if you screw around, you will pay a big price.

Though we screwed around for way too long, I’m cautiously optimistic that the virus won’t hit us nearly as hard for the many reasons I outlined in last night’s email (being ~16 days behind the curve, etc.).

8) Here are three articles that, if you just read the headlines, appear very troubling – a rise in new cases hitting various Asian countries. But when I read them, the numbers are microscopic and almost entirely due to infected citizens returning home, who are identified and quarantined. More lousy, panic-inducing journalism…

I just heard a story from a friend that Hong Kong is quarantining everyone who arrives (or maybe just people who test postive or are symptomatic?) for 14 days in their homes – and, to enfore it, puts an electronic bracelet on them that notifies the authorities if they leave their home.

9) It’s quite surprising that Japan has apparently dodged the coronavirus bullet (for now anyway), given its proximity and many ties to China and its location in the most at-risk “green zone” (per the world map in last night’s email): A coronavirus explosion was expected in Japan, but where is it? Excerpt: 

Japan was one of first countries outside of China hit by the coronavirus and now, it is one of the least-affected among developed nations. That’s puzzling health experts.

Unlike China’s draconian isolation measures, the mass quarantine in much of Europe and big United States cities ordering people to shelter in place, Japan had imposed no lockdown. While there have been disruptions caused by school closures, life continues as normal for much of the population. Tokyo rush hour trains are still packed and restaurants remain open.

The looming question is whether Japan dodged a bullet or is about to be hit. The government contends it has been aggressive in identifying clusters and containing the spread, which makes its overall and per capita number for infections among the lowest among developed economies. Critics argue Japan has been lax in testing, perhaps looking to keep the infection numbers low, as it’s set to host the Olympics in Tokyo in July. 

I asked a friend in Tokyo to comment and he replied:

It is true that I still commute by a rush hour packed train every day without much concern to be infected with COVID-19 and enjoy having lunch/dinner at restaurants. I know that critics argue Japan has been lax in testing. I think they might be right, but they cannot deny the fact that number of death due to COVID-19 is very low in Japan thanks to good healthcare setting. This is mainly why people are not scared of the virus.

Another reason people are not scared to be infected is the state-run health insurance program which cover all the Japanese at reasonable cost. In addition, Japanese are famous for cleanliness and self-restraint not only because education level of people even at the lower end is still quite high but also because densely populated Japanese towns do not have the luxury of keeping poor hygiene or of acting selfishness. 

Having said that I think there still remains a chance that COVID-19 hits Japan seriously in the near future because Japanese people are bit tired of shut-in and the government does not have the luxury of leaving the stagnant economy.  So let’s see.

Looking at the gloomy atmosphere around the world, I would say, very unfortunately, that we have no chance to have Tokyo Olympic Game this year.

10) Along the same lines: Why does Russia, population 146 million, have fewer coronavirus cases than Luxembourg? Is Russia faking its data, or has it gotten lucky (so far) due to the harsh winter temperatures? If so, watch out when warmer weather returns…

11) A clever five-second GIF showing the benefits of social distancing: https://twitter.com/i/status/1241520087418515462

12) An interesting “Epidemic calculator” that lets you see what happens based on 11 inputs that you can adjust:

13) The comic below is really funny!

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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