Cornonavirus Update

We interrupt our series on ESG to bring you perspectives on the virus overtaking our news, the markets and our lives. Following is a compendium of what we know:

  1. Scientists are working on vaccines and treatments feverishly, but there is much that is not yet known about this disease. For instance, we still don’t know how long the virus is viable on a surface and we still don’t know if people who have been infected become immune. While computer modeling can come up with likely treatment candidates relatively quickly, it’s the trials process that is slow, so we’re looking at a year anyway before a vaccine can be in use.
  2. Mortality numbers are varying dramatically by approach to containment, testing, medical facilities available, and demographics. While Italy’s numbers are scary, and so are Washington state’s, most deaths in both places by far have been in elderly populations and both populations are under-tested. The average age of mortality from the virus in Italy is around 81. Even in China, mortality in Wuhan was much higher than in the rest of the country. Widespread use of currently available tests will diminish the fatal case percentages; recently China has developed a blood test to see if citizens had the virus but were asymptomatic. Obviously if thousands of people contracted the virus but had no symptoms, that will also change the statistics.
  3. There are signs that China is getting back to work, which is good for the global economy, but there are also signs that it’s taking a long time for folks to normalize routines. While it’s dangerous to generalize too much, a “V” shaped recovery may not be in the cards, but there’s also no doubt that a near full stop of certain activities will probably result in pent up demand. People might be eager to go out to eat after quarantine, but not yet brave enough to buy a car or take a trip.
  4. The infection has come on so quickly that we have not seen enough data to gauge the impact of all the moves to quarantine, impose social distance, test, etc on the global economy. Too, government data is reported with a lag. Economic numbers due out in the next few days will not be meaningful in the context of what’s happened in late February and early March.
  5. The markets – both stocks and bonds – are struggling to adjust for the risk of a big downside to the economy. However, prices are also impacted significantly by selling that happens when fund managers have bets that don’t work out. For instance, if a hedge fund is short the long US Treasury which has skyrocketed in price, it has to cover that trade, which might mean selling some completely unrelated item in its portfolio, such as gold. This is why we have seen nonsensical moves lately, where despite tanking stock prices, bonds and gold also go down in value. Banks are using the Treasury market as collateral, and as risk rises, their trades cause prices to go haywire. These ancillary effects help explain why prices ‘waterfall’ downward during bad times. Apple moving from $325 to $250 is partly because fewer phones will be sold, but also because it is a liquid asset that can be sold by someone in trouble. Apple has not suddenly become a bad company.
  6. Signs of a market bottom include the following: The Dow doesn’t close at the lowest level of the day; we don’t close at the lowest level of the day on a Friday in particular (traders are afraid of weekend news in bad times, when they can’t trade); the news is still awful but stocks rally. These are signs of exhausted sellers, particularly the last one.

As always, give us a call with questions or concerns.