Coronavirus Update 3/22/2020

By Whitney Tilson

Sunday, March 22, 2020

1) Run, don’t walk, to read this brilliant op ed by Tom Friedman that was just posted on the NYT website: A Plan to Get America Back to Work. Everyone should read this piece… It’s exactly what I’ve been advocating. Excerpt:

These are days that test every leader – local, state, and national. They are each being asked to make huge life and death decisions, while driving through a fog, with imperfect information, and everyone in the back seat shouting at them. My heart goes out to them all. I know they mean well. But as so many of our businesses shut down and millions begin to be laid off, some experts are beginning to ask: “Wait a minute! What the hell are we doing to ourselves? To our economy? To our next generation? Is this cure – even for a short while – worse than the disease?””

I share these questions. Our leaders are not flying completely blind: They are working off the advice of serious epidemiologists and public health experts. Yet we still need to be careful about “group think,” which is a natural but dangerous reaction when responding to a national and global crisis. We’re making decisions that affect the whole country and our entire economy – therefore, small errors in navigation could have huge consequences…

A lot of health experts want to find a better balance to the medical, economic, and moral issues now tugging at us all at once.

Dr. John P.A. Ioannidis, an epidemiologist and co-director of Stanford’s Meta-Research Innovation Center, pointed out in a March 17 essay on, that we still do not have a firm grasp of the population-wide fatality rate of coronavirus. A look at some of the best available evidence today, though, indicates it may be 1% and could even be lower.

“If that is the true rate,” Ioannidis wrote, “locking down the world with potentially tremendous social and financial consequences may be totally irrational. It’s like an elephant being attacked by a house cat. Frustrated and trying to avoid the cat, the elephant accidentally jumps off a cliff and dies”…

[David L.] Katz wrote an Op-Ed in the Times on Friday [I linked to it in my last e-mail: Is Our Fight Against Coronavirus Worse Than the Disease?] that caught my eye. He argued that we have three goals right now: saving as many lives as we can, making sure that our medical system does not get overwhelmed – but also making sure that in the process of achieving the first two goals we don’t destroy our economy, and as a result of that, even more lives.

For all these reasons, he argued, we need to pivot from the “horizontal interdiction” strategy we’re now deploying – restricting the movement and commerce of the entire population, without consideration of varying risks for severe infection – to a more “surgical” or “vertical interdiction” strategy….

“Use a two-week isolation strategy,” Katz answered. Tell everyone to basically stay home for two weeks, rather than indefinitely. (This includes all the reckless college students packing the beaches of Florida.) If you are infected with the coronavirus it will usually present within a two-week incubation period.

“Those who have symptomatic infection should then self-isolate – with or without testing, which is exactly what we do with the flu,” Katz said. “Those who don’t, if in the low-risk population, should be allowed to return to work or school, after the two weeks end.”

Effectively, we’d “reboot” our society in two or perhaps more weeks from now. “The rejuvenating effect on spirits, and the economy, of knowing where there’s light at the end of this tunnel would be hard to overstate. Risk will not be zero, but the risk of some bad outcome for any of us on any given day is never zero”…

Katz’s approach is both sober and hopeful. He is basically arguing that at this stage there is no way of avoiding the fact that many, many Americans are going to get the coronavirus or already have it. That ship has sailed.

“We missed the opportunity for population-wide containment,” he said, “so now we need to be strategic opportunists: Let those who are inevitably going to get the virus, and are highly likely to make an uneventful recovery, get it and get over it, and get back to work and relative normalcy. And, meanwhile, protect the most vulnerable”…

Once transmission rates are down to near zero, and herd immunity has been established, concluded Katz, we can think about giving the “all-clear” to the most vulnerable. This could take months. But Katz’s plan offers the majority of the population the prospect of normalcy in some relatively small number of weeks, rather than indefinite number of months.

And all the while, of course, there should be brisk work on effective treatments and vaccine. These should be deployed – globally – as soon as reasonable…

I am certain that we need to broaden the debate – I am certain that we need less herd mentality and more herd immunity – as we come to terms with our hellish choice:

Either we let many of us get the coronavirus, recover and get back to work – while doing our utmost to protect those most vulnerable to being killed by it. Or, we shut down for months to try to save everyone everywhere from this virus – no matter their risk profile – and kill many people by other means, kill our economy and maybe kill our future.

3) The only area in which I may disagree with Katz is this:

There seem to be two trains of thought for how this will play out:

No. 1: We take very strong measures up front, which, if successful, will limit the spread of the coronavirus to only a tiny fraction of our population. This is what China, South Korea, and many other Asian countries have apparently done successfully.


No. 2: We fail to limit the spread because we’re unable or unwilling to take strong enough measures (perhaps because we don’t recognize the gravity of the situation until it’s too late), in which case 40% to 80% of our population eventually becomes infected and, through this, we develop herd immunity. Under this scenario, the objective is to: a) try our best to make sure the most vulnerable Americans (elderly, sick, and immunocompromised) never get it… and b) reduce the mortality rate by flattening the curve, so our hospitals don’t get overwhelmed.

Some would argue that, regardless of which outcome you think is more likely, the strategy should be same: take the strongest measures in an attempt to achieve No. 1 because, even if we fail, we’ve at least done our best to reduce the infections among the vulnerable and flatten the curve.

Where people would differ, however, is the question: at what cost? Those who think No. 1 is possible might be willing to pay a very high cost to stop the virus because they think the strongest measures might only be necessary for a short period of time (as appears to be the case in China).

In contrast, those who think No. 1 isn’t achievable here would likely argue that, since the virus is going to be with us for an extended period, slowly spreading throughout our population until we develop herd immunity, we should not take the strongest measures because of the economic and social damage. Rather, we should do just enough to flatten the curve enough to avoid overwhelming our hospitals, but nothing more.

I am firmly in camp No. 1. I think there will be no more than 1 million to 2 million confirmed cases in the U.S. by the end of this year and no more than 10,000 to 20,000 deaths – meaning I’m assuming a 0.5% to 1% mortality rate (likely at the low end of all of these ranges).

4) The single biggest unknown that’s crippling our ability to make good decisions about how to deal with this crisis is that we don’t know how many Americans are infected, and where they are. One of my readers has a simple, quick way to get a decent answer:

Why aren’t we randomly testing 1,000 healthy people in each state to get a baseline as to the prevalence of the disease? It’s critically important for us to know if there are hundreds of thousands (or even millions) of infected Americans who could be spreading the disease without knowing it because they don’t have any symptoms. Conversely, if almost nobody has it, it’s critical to know that as well. We do “polling” for everything else under the sun – why not here?

4) Another reader with some interesting thoughts:

Active cases in Italy were only up about 4,000 today. Yesterday and the day before they were up about 4,800 and 4,600. France active cases were only up 830 today, yesterday they were up about 1,200. They both benefited from significant increases in discharges. Iran new cases were about in line with downward trend, but they didn’t discharge anybody today, so active cases are up.

Basically, I feel like at this point China, South Korea, Japan, Iran and France are over the hump, as are two of our most seriously hit states, WA and CA. One can get fussy about Italy and NY, but mathematically, if you keep knocking off the worst country or state and there is a finite number of both, eventually you will run out of problem areas. I find it very hard to believe Italy and NY cannot be solved given the countries/states that were solved before them. And once you solve one state, you can take the antibodies from recovered patients and use them to help solve other states. 

So even if the anti-malaria and anti-ebola drugs don’t pan out, once the ball starts rolling in the right direction, things could end quickly. And if those drugs do work, it will just be quicker.

Along the same lines, another reader wrote:

FWIW another reason I think politicians are generally screwing this up is that, like most people outside of finance and engineering/science, they are bad at math and don’t understand probability and statistics. They have no feel at all for how models work. Hence they really are driving blind. That and, as you say, making constant political calculations. Hygiene and distancing will stop almost all transmission. The draconian stuff is high-cost, very low return.

5) I thought this was an interesting chart someone tweeted (and my analyst updated):

6) Based on what Gov. Cuomo said at the news conference about the 114 deaths in NY to date (as of when he said it), here’s the distribution:

7) This chart shows how much earlier WA ramped up testing:

8) It’s terrible how we don’t have enough personal protective equipment (PPE) for our healthcare workers. Here’s a meme that captures this:

9) From one of my readers, Brian P.:

Thanks for your (rare) optimistic views on the situation. I am not a virology expert nor an epidemiologist, but I do have a PhD in biology and work for a company that makes water disinfection equipment – I have good general knowledge in the area.

To be quite honest, I spent January and into mid-February absolutely perplexed why the market was hitting all-time highs each day given what was coming…. It is nearly impossible to stop the spread of an infectious virus (witness the seasonal flu), other than by taking drastic world-stopping quarantine measures. Given that weeks passed where any number of infected people in China could travel anywhere prior to the lockdown, it seemed so obvious that the virus had probably spread far and wide, and lack of cases had more to do about lack of testing rather than effective containment. I expected more market response at the time, though I certainly didn’t think the world would shut down and now am amazed at how much response there has been.

I will add some comments to a few key points that you and your readers have commented on:

  • There is for sure a bias in mortality rates (inaccurate denominator), as many untested people are probably infected and asymptomatic or with mild symptoms not triggering tests… False-high mortality rates unfortunately result in unwarranted escalation of fear. It isn’t ever done but a random sampling of the population would probably produce very different infection rates than those reported. For that matter, the total number of infections of previous pandemics, often compared alarmingly with the total infections in the current pandemic, could be false-low due to much more limited testing (e.g. PCR-based test capabilities are much more common and inexpensive now).
  • There aren’t many fundamental biological reasons why mortality rates for the same virus would be different in different countries, and different mortality rates more likely represent differences in government policies and societal attitudes regarding containment, testing rates, and how deaths are categorized (which appears to be part of the reason Italy’s reported mortality rate is such an outlier). It may also be correlated with hospital capacity (if a surge of patients exceeds critical care capacity, mortality rates will step up).
  • One of your readers lamented that everyone was not using nitrile gloves, but their use will do little to impact spread. They will stop your hands from contacting the virus on a surface, but if you don’t change them between every single touch, you will still transfer any virus to other people or objects or to your mouth/nose/eyes, just via glove rather than via hand. People using or not using nitrile gloves has little bearing on the spread. It’s better to use common masks to lower the risks of infection. Though criticized as not having the required pore size to exclude viral particles, they are effective as a simple barrier to keep you from touching your mouth and nose. That said, we should all pay attention to how often we inadvertently do this and stop it without needing masks, as they should be conserved for medical staff and patients who truly need them.

Thanks for your informative summaries and optimism

10) Former FDA Commissioner Scott Gottlieb recently tweeted:

In order to contain epidemic we need broad screening. People are much more likely to self isolate with a positive result. Asking people to presume they’re positive is not sufficient. Limiting testing to inpatient settings only is indication we still don’t have sufficient capacity.

The 10% positivity rate of current testing is a very high number and puts us significantly higher than the U.K. (7%), South Korea (2.7%), Australia (1%), and China. Until we see the positivity rate decline significantly we are still not screening enough.

The only way to turn to case-based interventions and not rely solely on population based mitigation (school and business closures, shelter in place) we must dramatically expand screening so we can identify positive cases in the community and contain spread.

11) A reader who’s lived for nearly two decades in Changzhou, China (population: 4.6 million)

You seriously understate what was done outside of Hubei. Where I live, people were confined to their homes except for one person to come out for two hours every two days for food. This was seriously enforced by the security guards at each housing complex. Only essential businesses were allowed to open. The list of essential businesses was very short. A limited number of food markets were allowed to open, mask manufactures, power generation and perhaps a couple other categories. Public transit (buses, subways) were closed. If what was done in Wuhan was a 10, then most of the rest of the country was a 9. Intercity travel was restricted to essential goods like food, medical supplies and fuel.

We returned home via Shanghai on the afternoon of 2/20. In Shanghai we stopped to see my brother-in-law and family who had returned about a week earlier. To us, Shanghai looked like a ghost town – there were perhaps 10 people out on the street in three city blocks. My brother-in-law commented it was more people than they had seen out at any time in the previous week. The market next to their home had just re-opened and they were able to buy food for the first time since they had returned. For reference Shanghai has a population of 24M and had around 300 cases.

The expressways were all open and the government made sure that essential supplies (food) kept moving. Other than some local delivery issues in Wuhan, I have not heard of any food shortages. Schools were closed nationwide — and quickly transitioned to online classes.

For comparison, check out the list of what passes for “essential” services in the US: What Are Essential Services And Jobs During The Coronavirus Crisis?

Are pool cleaners really an essential service?!? Or vets?!? Does Fido really need to get snipped during a pandemic?!?

I still think that the “lock downs” the US will be too leaky to stop this thing, but they will slow it. 

Another comment about measures in the U.S.: the CDC advised people without symptoms to not wear surgical masks because the masks are of limited usefulness in preventing a person from getting it. This is true. However, the masks are effective at reducing the spread of it by an infected person. So if everyone is wearing them, then they are effective at slowing the spread of the disease. Until two days ago, masks were required if you were outside here in China. I ignored the rule on my 6:00am runs when few people are out and about, but even so several drivers shouted and honked at me for it. So there is also pressure from the community to do the right thing.

Just want to say that I enjoy your e-mails. They frequently make me think!

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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