While we are likely in the peak period for deaths in hard-hit New York and New Jersey from Covid-19, there are signs of hope emerging. The NYC confirmed case daily growth rate has declined. Governor Andrew Cuomo said that “the number of deaths has been dropping for the first time.” While too early to get super excited, this shouldn’t happen unless we are at/near the peak. The same trends are emerging in both Spain and Italy, which is fantastic news.
The widely used University of Washington model has been woefully inaccurate. On April 5th, the New York projected hospital beds used number was 69k, versus the 16,500 that were actually used. The same goes for nearly every state. This is likely a result of two things. Social distancing is working, and the model is likely wrong, as it did incorporate social distancing. Other hot-spots are emerging, particularly in Louisiana and Detroit. These are concerning but sadly we are going to have to deal with this no matter what, as many of these infections and deaths are based on actions taken, and not taken, weeks ago. Demographics have a major role in death and ICU rates of course.
Everyone is watching new cases confirmed and new deaths. New cases confirmed is largely a function of testing. When we test more, we get more new cases, as this thing is all over. Deaths are a lagging indicator, usually occurring several weeks after infection. With social distancing having been in place for several weeks now, it is very likely that the rate of new infections is declining rapidly. That is really good news.
Until we get a vaccine, we are going to have to live with this virus. That is simply the reality. If you look at other countries, there are common sense steps to opening up that can make this manageable. Common sense social distancing is continued, temperature checks are performed regularly, and extensive testing continues to accelerate. The administration can use the defense production act to make sure we have the PPE, supplies, and pharmaceuticals that we need. I’d also add masks, especially in crowded places, seem to help quite a bit. There is a reason they wore them during the Spanish Influenza. While they still wear them in many Asian countries, many European countries and now the U.S. are coming around on them.
The stock market and economy cannot deal with massive uncertainty in a good way. The indefinite nature of the lock-down is what has crippled things. Companies aren’t comfortable planning or even retaining employees, when they have no clue when things will reopen. Virtually nobody can afford a 90% revenue loss and stay afloat for long. I believe we are close to seeing an actual timeline and guidelines announced by the administration. That will be a complete game-changer, and while a recession is assured, the odds of a depression go down dramatically, if it arrives.
If we get that timeline, companies and people can begin planning once again. Life won’t be the same for quite some time, and it will be necessary to take risks that we don’t want to, but really that is always the case to some extent. Clearly, the most vulnerable must be protected, but 25% unemployment would cause horror and destruction in this country, including a lot of death. There are encouraging signs on treatment options globally. Certainly no magic pill, but if you can treat this, particularly early, that reduces the pressure on hospitals and ICUs. It also makes it more of a risk that we may be willing to live with to pursue a good way of living.
We have endured a crisis of epic proportions in a 40 day period. The panic has been greater than the peak of the Financial Crisis, but the system imbalances are way less, and the financial system is dramatically stronger. The Federal Reserve is all-in, and the Government is chipping in fiscally, but more will be needed.
When stocks are down so much, it is easy to think all is lost, but these are the periods where you can see unbelievable returns as panic subsides. When the worst case scenario doesn’t occur, it is very likely we will see many stocks double or triple. Bear markets usually end around the time the recession actually statistically begins. Below is a great article that goes into a lot of the stuff we discussed in this newsletter if you have 20-30 minutes to read it. We are going to beat this. I think the resilience and ingenuity of our country and others, is about to come to the forefront. First there was denial, then shock, then panic. Now we will see the determination to marshal all resources and talents to win the war versus Covid-19.