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This week: The media’s second wave; Case fatality ratio; The coming meltup.
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The media’s second wave
Both the New York Times and Bloomberg News wrote this past weekend that the US was now seeing a surge in coronavirus confirmed cases across the nation. While it is true that three or four states have seen increases in the past ten days, these increases are small in number and are offset by decreases in other states, resulting in a continuing overall downward trend for the nation.
Bloomberg News called it a second wave and embedded a video in the article, showcasing the 1918 pandemic that caused an estimated 675,000 deaths in the US (the equivalent of 1.8 million if we adjust for today’s greater population size) and 20 to 100 million worldwide (estimates vary greatly with most settling around 50m). Analogies to 1918 exaggerate the risk that we face. It was a time of war and the viral source of the pandemic was not identified until decades later.
A second wave is possible and probable but the media’s premature alarm is one more example of its poor handling of data in this crisis. As shown in the chart, the number of daily deaths continues to fall nationwide. If a surge is taking place, these figures would start rising in a week or two, considering the lag time between hospitalizations and deaths.
Case Fatality Ratio
It is possible to estimate the case fatality ratio (CFR) of this virus (the number of deaths divided by the number infected) by looking at results of antibody tests in New York City. Random testing shows that 21.6% of the population have antibodies, meaning that they were infected at some point. Out of a population of 8.4 million, this is 1.8 million people. New York City has so far suffered 16,000 deaths from the virus, which leads to a ratio of 0.9% (16,000 divided by 1.8 million) since the onset of the pandemic.
Another approach is to look at the daily ratio of deaths today to confirmed cases fourteen days ago and to adjust it for the undetected cases. This ratio (unadjusted) has averaged 3% in the past month. Meanwhile, the official number of confirmed cases in NYC is 211,000. Because 1.8 million were infected, we can deduce that 88% of cases were undetected. So the adjusted ratio would be 0.4%.
A fair estimate of the CFR in a nonstressed situation is therefore in the range of 0.4% to 0.9%, a range that aligns with estimates from some epidemiologists. Because most undetected infections occurred early, probably before the lockdown, the CFR is probably towards the lower end of this range, say 0.5%. This ratio is significantly higher among the elderly and lower among the young. For a person in their twenties or thirties, it may not be much worse than the seasonal flu.
Death is not the only problem however. Many infected people of any age have required long hospitalization periods. Recovery is slow and health consequences may linger for an unknown period.
The coming meltup
Notwithstanding last Thursday’s sell-off in US equity markets, the most likely scenario in our view is now a meltup of stocks in the coming months. Faced with depression in several sectors of the economy and the uncertainty of a second wave, the Fed has no choice but to maintain a very stimulative stance for at least a few more months. Between the risk of an asset price meltup and a depression spreading to all sectors, the Fed would undoubtedly choose the former because dealing with the consequences of a meltup, while challenging, would still be easier than reviving the economy from depression.
The biggest beneficiaries as in 1999 would be growth names, irrespective of their already elevated valuations. Of course, all bets are off if there is another large surge in virus cases and we are forced to go into lockdown again.
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