The Irreverent Economist

Love in the Time of Coronavirus – Part III

Over the past two months we've been keeping our ears to the ground, following the work of virologists, epidemiologists and public health experts.  At long last, I think we are seeing the first signs of real hope in our ability to combat—and ultimately defeat—this terrible disease.  It goes without saying that we are not scientists, so nothing below is definitive.  But I do have a scientific mind, and want to share developments that we think are meaningful.  Please read all the way through.

Yes, a vaccine is still months away—perhaps as many as 12-18 months.  And yes, social distancing will in the meantime take a toll on our economy; that is already happening.  But a strategy is emerging that should allow us to achieve a better tradeoff between protecting our physical lives and our economic life.  It will take some time to ramp up, but probably less time than is required to test and manufacture an effective vaccine.

A promising antibody test developed by Florian Krammer’s team at Mt. Sinai could identify not only those who currently have COVID-19 (an ever-changing population, requiring frequent re-testing), but all those who have ever been exposed to the virus.  Given the high proportion of mild and asymptomatic cases (some estimates put those at 86% of the total) we may find that a significant number of people have already been exposed to the coronavirus and developed immunity.  These individuals can be brought out of self-quarantine and back into the economy.  They can resume their roles as caregivers, health care workers, teachers and small business people, without worry of falling ill again or making others sick. Other researchers are doing similar work to develop an accurate antibody test.  In the meantime, one of the leading genetic researchers on the coronavirus, Trevor Bedford explains how a nuanced strategy that combines testing and social distancing can contain the disease—protecting lives and protecting our economy.  It worked in Korea; it can work here.

Additionally, there are promising new antiviral treatments that appear to meaningfully shorten and lighten the course of the disease; one that has been tested in Japan, favipiravir, narrowed the viral window from an average of 11 days to four.  Anti-malarial drug Plaquenil (a cousin of long-established chloroquine) has also shows signs of effectiveness in Korea, France and elsewhere.  Widespread testing is coming, which will allow us to identify cases earlier, when such treatments are most effective.  Finally, scientists are working swiftly to develop antibody therapies to treat the disease.  Their goal is to model the cell structure of antibodies in those who have recovered, so as to manufacture synthetic versions that can be used to treat others. These treatments have the potential to help even those who are severely ill.

None of these tests and therapies yet represents a “slam dunk,” but they illustrate the speed and determination and cohesiveness of the scientific community in addressing this challenge.  There has been an avalanche of new and innovative research that is rapidly expanding our understanding of viral genomics, epidemiology and public health strategies.  Knowledge is viral too—and it is breathtaking to watch.

Some other good news hasn’t made the headlines yet:

  • The Chinese economy is coming back online, albeit slowly, and supply chains are being reactivated. China is now able to resume production of PPE (personal protective equipment) for health care workers, including gloves, masks and gowns.  China is also distributing thousands of ventilators that it deployed in January to hospitals in Europe and the United States, which desperately need them.
  • Auto manufacturing giant GM and other US companies are swiftly retooling their factories in order to quickly scale up production of ventilators.
  • Although there’s no definitive evidence yet, it does seem that hotter, more humid weather may help to slow the disease—creating a respite over the summer months, as researchers race to develop and deploy effective antibody testing and treatments.
  • Congress and the Federal Reserve are putting in place extraordinary programs to support the economy and provide liquidity to markets.  Many details remain to be worked out, but there’s no question they’re serious about addressing the financial fallout of this virus.

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Will all this good news quickly reverse the market’s decline and take us back to where we were a month ago?  That’s doubtful.  We view the coronavirus as a catalyst for market weakness, not the cause.  It has revealed deficiencies in our financial infrastructure and extreme levels of leverage that have been present for a long time—but papered over with central bank liquidity.  It has revealed concentration and fragility in our global supply chains and health care systems that have serious repercussions for our economy and society.  It has revealed the serious consequences of ongoing failure in our political regime. These intersecting and compounding challenges are independent of the virus, and exacerbate our difficulty in confronting it.  They cannot be addressed easily or quickly.

That’s the bad news.  The good news (cause I’m a glass-half-full kind of person!) is that this virus will have done more than any other event I can imagine to help the public understand the urgent need to fix these problems.  It has laid bare the consequences of industry concentration and monopoly control of key elements in the production chain.  So we can fix them.  It has revealed the fatal side effects of our lean-and-mean healthcare system.  So we can fix it.  This virus has highlighted the terrible dysfunction of our political system, one that is riven by dishonesty and distrust.  That will be much harder to fix, of course, but we will fix it all the same.  We have to.

Addressing these issues will be difficult, and will take a long time. Although there is now greater awareness of the causes and consequences of our problems, consensus around solutions will not come easily.  Moreover, some of the immediate remedies (the Fed’s “helicopter money” for example) will bring negative repercussions of their own.  There’s a meaningful risk that the economic policies being enacted now will wreck the US bond market, the anchor of the global financial system.  Therefore, it’s wise to assume that markets will remain challenging over the coming year, at the very least.

There will be great opportunities ahead as well:  we are entering one of those “invest when others are terrified” moments that Warren Buffet always talked about.  Paladin clients, whose portfolios were defensive going into this crisis, are well positioned to take advantage of those opportunities.  Regardless, it’s a very good time to stop worrying about your investments.  Markets will be volatile no matter what we—or anyone—does.  That's normal; we just forgot how it is.

Here’s the most golden lining of all:  this virus has reminded us of how interdependent we are.  John Donne explained that no man is an island; we are an interconnected whole whose health is only as strong as our weakest link.  We must reinforce our connections with one another, urgently.  We must care for one another far better than we have done lately.  We are already on that path, having chosen life—most especially the lives of our cherished elders—over purely pecuniary considerations.  That is truly an affirming choice, of which we will be rightly proud, no matter what hardships lie ahead.

 

John Donne, No Man is an Island

No man is an island,
Entire of itself,
Every man is a piece of the continent,
A part of the main.
If a clod be washed away by the sea,
Europe is the less.
As well as if a promontory were.
As well as if a manor of thy friend's
Or of thine own were:
Any man's death diminishes me,
Because I am involved in mankind,
And therefore never send to know for whom the bell tolls;
It tolls for thee.

 

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