My latest thoughts on the pandemic in the U.S.

By Whitney Tilson

Friday, October 16, 2020
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I continue to closely follow the pandemic, sending lengthy e-mails to my coronavirus e-mail list every week or so (if you’d like to receive them, simply send a blank e-mail to: [email protected]).

Here’s the e-mail I sent to my readers yesterday morning…


Summary

  • We are now in the midst of the third wave of cases here in the U.S. 
  • The news regarding hospitalizations and deaths is much better, however.
  • What’s happening is evidence for, not against, the herd immunity threshold/breakpoint theory because of where the surges are occurring: namely, in the parts of the country (Midwest and the Mountain West) as well as rural areas that were not hit in the first and second waves. 
  • We believe this wave will be a) the least serious one… and b) the last one. We are now in the “burnout” phase of the pandemic.
  • Nearly all major regions and population centers in the U.S. are at or will soon reach the herd immunity threshold (roughly 20% to 30% prevalence), so the spread of the virus should slow substantially (even without considering the potential positive impact of the many new vaccines and therapies being developed in record time). 
  • That said, near-term news flow will likely be negative as the third wave burns through previously less-affected areas: based on our analysis of state hospitalization data, we expect that reported daily deaths will peak in six to 12 weeks at around 1,000 to 1,200 (less than half the peak levels reached in April), and will remain elevated for at least three weeks.

We are now in the midst of the third wave of the pandemic here in the U.S., as you can see in this chart:

And we’re not alone – Europe and, to a lesser extent, Canada are having huge second waves, as this chart shows (I’ll discuss Europe in a future e-mail – this one is focused only on the U.S.):

Many experts are saying that this is the beginning of a big upsurge – and evidence that we’re nowhere near the herd immunity threshold/breakpoint.

I think they’re wrong. First of all, the number of tests has gone up by more than 20%, so this explains roughly half the rise in reported cases:

Second, far more important than cases are hospitalizations and deaths – and here, the news is better. As you can see in this chart, the former have only ticked up a little:

Ah, but what about the surge in hospitalizations in New York state? Look at this scary chart, showing a near-doubling in recent weeks:

This is a classic example of the saying that “there are lies, damned lies, and statistics.” If we simply extend the time frame to include this spring, you can see that this “surge” isn’t really much of one:

This chart of current hospitalizations in New York City is similar:

More important, the number of deaths continues to decline nationally:

The news is not all rosy, however. Some parts of the country have seen a surge not only in cases, but also hospitalizations (a certain percentage of which will become deaths).

However, this isn’t evidence against the herd immunity threshold theory, but rather for it – because of where the surges are occurring: namely, in the parts of the country (Midwest and the Mountain West) – as well as rural versus urban areas that were not hit in the first and second waves (mostly the greater NYC area and a few other cities like New Orleans, followed by the Sun Belt states, especially Florida, Arizona, California, and Texas).

This chart shows where the outbreaks are today:

Another aspect of the current surge is that rural areas are being affected for the first time, as this New York Times article notes:

The spread of the coronavirus in the United States in recent weeks has been worse than it seems, not because of how it has been spreading but where.

The virus has been pummeling some of the least populous states in the country, but the relatively low numbers can be deceptive. The surges in rural areas have been just as severe as the spikes in densely populated cities in the Sun Belt over the summer.

North Dakota, South Dakota and Montana, for example, have announced the country’s highest number of cases on a per-capita basis. Already, the North Dakota and South Dakota numbers exceed the per capita figures seen at the peak of summer surges in the Sun Belt.

Other states with large rural areas – including Wyoming, Idaho, West Virginia, Nebraska, Iowa, Utah, Alaska, and Oklahoma – have recently recorded more cases in a seven-day stretch than in any other week of the pandemic.

To repeat: most of the areas being hit by the current wave are where the herd immunity threshold would predict (i.e., where less than 20% of the population has been infected). Compare the map above with this one that estimates the current COVID-19 prevalence level by state (invert the red and green):

The good news is that after this third wave passes, nearly every region of the country will have been hit hard. Only upper New England, Alaska, Hawaii, and the Pacific Northwest will have been largely unaffected, but these regions account for roughly 8.5% of the U.S. population.

The big takeaway is that this third wave that we’re currently experiencing will, we believe, be a) the least serious one… and b) the last one.

That’s not to say the disease is beat – the most vulnerable people will still need to be very careful – but nearly all major regions and population centers in the U.S. are at or will soon reach the herd immunity threshold (roughly 20% to 30% prevalence), so the spread of the virus should slow substantially (even without considering the potential positive impact of the many new vaccines and therapies being developed in record time).

Misleading Daily Death Reports

As the significant surge in cases turns into a smaller surge in hospitalizations, there will almost certainly be a surge – hopefully even smaller – in deaths. But as you read the headlines about this, keep in mind that the daily death reports are deeply flawed because of an often-substantial lag in reporting COVID-19 deaths.

For example, take a look at this chart from Florida, which shows how legacy deaths (those that occurred 21 or more days prior – shown in red) account for 40% to 60% of reported daily deaths over the past two months:

In reality, deaths from Florida (and other Sun Belt states) declined sharply more than a month ago, but the reported deaths remain high because of the lag in reporting them – they are still averaging more than 250 deaths over the last seven days. These “legacy deaths” are now tapering off – but are being more than replaced by a rise in deaths from the Midwest and the Mountain West.

As a result, reported daily deaths (which is what is reported by the media) will start to rise very soon. This is, of course, bad news, but keep in mind that as these previously-less-affected regions reach the herd immunity threshold, they will – just like the other regions in the first two waves – see a sharp decline in the spread of the virus – BUT THERE WILL BE A LAG IN SEEING THIS IN DAILY REPORTED DEATHS.

Specifically, portions of the upper Midwest (the Dakotas and Wisconsin), Appalachia (Kentucky), mid-South (Oklahoma), and upper Mountain West (Montana) are already likely at or near their peaks in hospitalizations, which means that they will experience peak deaths reported by the media in the next three to six weeks… while a few other states in the Midwest and Mountain West (Colorado, Utah, Minnesota, Ohio) are likely about two weeks behind.

Based on our analysis of state hospitalization data, we expect that reported daily deaths will peak in six to 12 weeks at around 1,000 to 1,200 (less than half the peak levels reached in April), and will remain elevated for at least three weeks.

The good news is that the virus has now been spreading for more than six months, so the Midwest and Mountain West states are likely getting close to the herd immunity threshold. Also, roughly 70 million people live in these states versus 100 million people in the Sun Belt regions. So, for these two reasons, we expect that this wave (we believe the final one) will be smaller than the summer Sun Belt wave.

There is still quite a bit of uncertainty, however. We have better treatments and more experience in handling COVID-19, so that may push the death rate down (we hope!). But seasonality could lead to a greater surge, as coronaviruses are generally seasonal. Lastly, it’s hard to predict the number and scale of small outbreaks like what we’re seeing today in a handful of neighborhoods in NYC.

Strategies to Deal With the Pandemic

Based on media reports, you’d think that there were only two strategies to deal with the pandemic: prevent all COVID-19 irrespective of the cost or try to get as many people infected as possible, as quickly as possible, to reach herd immunity.

But this is incorrect. Adam Patinkin, my colleagues Enrique Abeyta and Alex Griese, myself, and some others have argued for a more targeted approach that weighs all the trade-offs that we must make. One of my readers, epidemiologist Dr. Kevin Maki, sums it up nicely:

In general, I think that a distinction should be made between the Swedish strategy versus “trying for herd immunity.” The Swedish strategy, which is what David Katz has been advocating for the U.S. from early in the pandemic, is to protect the elderly and otherwise vulnerable, while advocating relatively normal life for younger people (perhaps <50 years of age). The Swedes encourage social distancing and hand washing and do not have large gatherings. The result will be that herd immunity is reached sooner, but that is not the stated objective, which is instead to have a sustainable strategy that minimizes the social and economic impacts.

He continues:

I am confident that NYC and Miami have reached effective herd immunity (i.e., are beyond the disease breakpoint). Chicago is probably close as well. That won’t stop small outbreaks from occurring but will limit their size and geographic scope. Cases and hospitalizations are going up in the Midwest now and will probably continue to rise for some time since the prevalence of infection has been relatively low to date.

He is also optimistic that there will continue to be more (and better) treatments:

On the treatment front, we have been running trials of various therapies. Lilly recently posted the attached summary of results for their single and dual antibody therapy. The numbers are small but hospitalizations were reduced markedly (>70%). Lilly plans to have 1 million doses available by the end of the year and I expect that their EUA application will be approved, as will Regeneron’s. Gilead is working on an inhaled version of remdesivir, which will simplify administration.

Similarly, Adam Patinkin of hedge fund David Capital Partners (whose views I shared on July 15 and August 20) adds:

I’m not dissimilar. My best guess for a while has been ~175,000 deaths “from” COVID (330M Americans x 35% infected x 0.15 [infection fatality rate, or “IFR”]). If deaths “from” COVID represent ~65% of deaths “with” COVID, then the headline reported number would end up around 270,000.

The assumptions I use are (1) a disease break point of 15-20%, and then using Farr’s Law (that the size of epidemics are roughly equal pre- and post-peak) I get to 35% infected and (2) the CDC’s current best estimate for IFR is 0.3 but the CDC assumes 40% asymptomatic versus my estimate of 70%… using 70%, the IFR is 0.15. Please note the wide error bar on the IFR – if the IFR is 0.18 instead of 0.15, then the final numbers will be ~20% higher. On the flip side, as medical care continues to progress, the IFR could continue to fall and lead to lower figures.

I think we are well past the disease break point in most of the United States (80%+). We are now in the “burnout” phase of the pandemic. It’s hard to know what the media/CTP will report as so many are legacy deaths (the average lag between incident date and report date has gone from high teens days to mid-twenties days, as a higher and higher % of reported deaths are from further and further in the past). But I would expect we have a very modest “third wave” in (1) geographies that have yet to reach their disease break points, like many of the places you noted, and (2) due to seasonality, as we know coronaviruses are seasonal.

That said, I remain pretty optimistic that when the CDC data comes out by incident date, this “wave” will be far smaller not only than March/April, but also smaller than the FACT wave in late-summer. As Dr. Maki notes, treatments are getting better all the time. In addition, the classic super-spreaders of disease (young people) are finally back in universities and developing immunity. This will act as a tremendous “brake” on infection spread for the rest of the population.

One of my greatest concerns with a lockdown policy is that as policies shift (close, open, close again), social graphs shift too… leading to more deaths, not fewer, as we hit disease break point but then replace some super-spreaders with different super-spreaders, and are forced to do it all over again (there’s a 2018 study showing this pernicious effect). A key benefit for Sweden is that its social graphs have been consistent (kids going to school, adults going to work, etc.) such that the durability of immunity amongst potential super-spreaders has remained persistent.

Bottom line… we’re in burnout phase. I really hope the antibody cocktails are effective, as there remains an opportunity to save more lives. But solely looking at population resistance, we’re in the 8th/9th-inning of this pandemic. And given where we are, I think the best path for public health is to think about public health in its totality (disease screenings, mental health, vaccinations for other diseases, hunger, etc.) instead of tunnel-vision focusing on COVID. [Whitney’s comment: For example, see this article in the Wall Street Journal: COVID-19 Outbreaks Led to Dangerous Delay in Cancer Diagnoses]

A holistic approach, like the one proposed by Professors Gupta, Kulldorff, and Bhattacharya in their Great Barrington Declaration, is likely to do the most good in reducing not just overall death but also overall suffering and inequality, while increasing societal happiness and health.

Best regards,

Whitney

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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