As much as I believe in an immediate national shutdown for 30-45 days with a complete economic backstop, that appears unlikely for now. America is not an autocracy, it is a federal republic. We have the most robust state and local government bureaucracy on the planet. A lot of power resides with states, counties, cities, and towns. They are making the tough calls. As of March 25th (per the New York Times), at least 196 million people (60% of our population) in 21 states, 37 counties and 16 cities are being urged to stay home. As the virus spreads further, expect that number to go up.
These efforts are working:
- Rhetoric on rashly opening the economy is just rhetoric
- Daily testing is exploding upward
- The mortality rate is low and likely lower than reported
- Social distancing is working
- New York headlines are horrible, but things may be improving there
- America’s private sector is awake and woke
- The Fed brought a flamethrower to a knife fight
- Congress is starting to get fiscal policy right
- The United States has ample firepower left
For those that are healthy and lucky enough to be primarily worried about their portfolios, it is very possible a stock market low has been put in. Make sure to open your checkbooks and calendars to help those in need, today and tomorrow.
Rhetoric on Rashly Opening the Economy is Just Rhetoric
I’m ignoring the President’s (and his surrogates) rhetoric about prematurely opening the economy. There is no reelection if the virus spreads unchecked throughout the country. Assume that millions of people have come and gone from the New York area in the last 60 days. They have taken COVID-19 to every part of the country. It’s only a matter of time before the virus spreads. The White House will have no choice but to support intelligent ideas that balance the economy and people’s health. This will include things like
- Extended state-level lockdowns
- Possible national shutdown with further economic backstops
- Smarter social distancing
- Green zones and red zones
In hindsight, we will ask why we didn’t do more of this in late March. In America, we give time for debate and argument. It’s the cost of freedom and it pays dividends in good time. We will have to do our best with what we have. And it will be good enough. Keep reading to find out why.
Daily Testing is Exploding Upward
The data is all over the place, but we are clearly testing more.
The Mortality Rate is Low and Likely Lower Than Reported
The world is arguing over data. My simple model is to trust U.S. and German data. A combination of transparency and precision permeates both cultures. This isn’t a knock of anywhere else. This data may not be perfect, but you can pretty much bet it is as accurate as it is going to get.
[table id=45 /]
If we had tested to date at Germany’s rate, we would have nearly 1.1 million tests done. Given our infections/test rate, we would have about 162,000 infections, up from the current 63,000. Assuming the current level of mortalities is accurate, our mortality rate is around 0.5%, not 1.4%, much more in line with Germany. And per the WHO, we are unhealthier population than Germany, possibly explaining the difference:
[table id=46 /]
Social Distancing is Working
Smart thermometer maker Kinsa has received attention press for its real-time tracking of elevated fevers. There is some connection here with levels of COVID-19 infection. From their data, you can see readings for more than expected levels of fever are dropping in early social distancing cities: San Francisco, Seattle, and even New York.
Also, Google Trends is showing a dip in related searches in these same areas:
New York Headlines Are Horrible, But Things May Be Improving There
Per Governor Andrew Cuomo, the rate of hospitalizations may be going down, at least as of Tuesday.
America’s Private Sector is Awake and Woke
America’s private sector war machine is flexing its muscles. For example:
- 3M “has in two months doubled global production of N95 masks to about 100 million a month, and it’s planning to invest in new equipment to push annual mask production to 2 billion within 12 months.” – Source
- Dozens of smaller companies have gotten in on the facemask production game – Source
- More than 25 Y-Combinator bio and healthcare companies are helping with the COVID-19 crisis, whether to produce better tests, treatments, and vaccines, or resources for hospitals and health systems – Source
- There are at least 103 clinical trials in process for COVID-19 treatments or vaccines that are either ongoing or recruiting patients – Source
- Big tech has donated millions of masks accumulated in response to the California wildfires – Source
- In a surprising turnabout, drugmaker Gilead Sciences asked the Food and Drug administration on Wednesday to rescind orphan status for remdesivir, the company’s experimental coronavirus treatment. – Source
Based on the latest data, 50% of the top employers have made special customer accommodations and set up work from home policies. 36% have established paid sick leave policies and instituted some kind of manufacturing or service shifts to help the nation respond to the crisis. So far, only 4% of have announced any layoffs, and 7% temporary furloughs.Source
I’ve written before that we are in a cycle of private sector confidence. The public won’t forget what America’s companies have done.
The Fed Brought a Flamethrower to a Knife Fight
Give the Federal Reserve credit. They have gone all-in with speed to support the economy.
When everything is done, the Fed could have a balance sheet, consisting mainly of the bonds it has purchased to support markets and the economy, approaching $10 trillion, according to Krishna Guha, head of global policy and central bank strategy for Evercore ISI.
“As things stand the Fed is racing very quickly towards a $7 trillion balance sheet and our best guesstimate is that it might peak in the very broad vicinity of $9 or $10 trillion,” Guha said in a note to clients. “This is monetized credit policy and fiscal-monetary support on a grand scale.”Source
Congress is Starting to Get Fiscal Policy Right
The stimulus bill helps a lot of people. And it helps corporations. That is getting a lot of blowback. But consider this per Fortune,
In total, Fortune 500 companies represent two-thirds of the U.S. GDP with $13.7 trillion in revenues, $1.1 trillion in profits, $22.6 trillion in market value, and employ 28.7 million people worldwide.Source
Remember that these companies are made up of real people. The spending of these real people underpins a large part of the small business economy. The barbers, restaurants, bars, housekeepers, Uber drivers, etc all benefit from the spending of the people who work at these companies and the service firms that support them. They don’t hate their customers as some in the media and political spheres suggest.
The United States Has Ample Firepower Left
The actions described above don’t begin to capture how much firepower we have between the Federal Reserve, the U.S. Government, and private companies. I have yet to hear a good explanation of what is not possible.
Per Fed Chairman Jerome Powell today:
“We will keep doing that aggressively and forthrightly, as we have been,” Powell said Thursday in a Fed chief’s first-ever interview on NBC’s “Today” show. “When it comes to this lending we’re not going to run out of ammunition. That doesn’t happen.”Source
You can take that to the bank. It doesn’t happen. No one ever got rich betting against the Federal Reserve and American enterprise. It isn’t going to happen now. Its possible U.S. stocks have put in a bottom.
This personal blog and its articles are written because of the author’s passion to advance his understanding of deep learning, complexity science, and major global events in markets, politics, and society. Any opinions or forecasts contained herein reflect the personal and subjective judgments and assumptions of the author only, not those of any organization or entity that the author is affiliated with. There can be no assurance that developments will transpire as forecasted and actual results will be different. The accuracy of data is not guaranteed but represents the author’s best judgment and can be derived from a variety of sources. The information is subject to change at any time without notice.