A Good Offense The Best Defense: A Primer on Coronavirus COVID19
I’ve debated for the last few weeks about going public with this memo because, typically, it’s not worth the time to engage in public shouting matches on social media (i.e., see every political thread…ever). I prefer to take care of what’s closest to me and then slowly expand outward. However, the incredible amount of wrong information, disinformation, dangerous propaganda and just plain chest-thumping stupidity (#itsjusttheflu) that I’ve seen from the masses AND official channels around COVID19 (coronavirus) changed my mind, and the situation merits an attempt at a simple synopsis. Take it or leave it.
First, my bona fides. If you know me then you know my track record forecasting and positioning ahead of big global shifts and trends — the financial crisis of 2008, Bitcoin, and other macro disruptions — skip to the ‘Where Are We Now’ section below.
If you don’t know me, I’m not an epidemiologist, virologist, doctor, or healthcare worker (although I have family members who are). I’m a strategic advisor to companies in the blockchain and healthcare space, two of the most dynamic and innovative industries. I also train hedge funds and other corporations on leadership, resiliency and #GRC issues through my consultancy Apex Tradecraft.
In a former life, I was an analyst and portfolio manager who would aggregate and analyze widely disparate information into a cohesive thesis on which I would place large bets — a job requiring zealous adherence to proper risk management and filtering.
Primarily, I had to separate the ‘signal from the noise’ on the most competitive, complex stage imaginable with significant stakes in play every day. In other words, a skill set that might be useful in navigating scenarios with fast-changing data and imperfect information, much like the COVID19 outbreak.
That’s my historical background. For the ‘what have you done lately‘ crowd, here you go:
In mid-late January, we warned members in our newsletter and private Telegram group that this virus was possibly a bioweapon that escaped from China’s only Level 4 lab in Wuhan. We said it would likely wreak medical, economic and psychological global havoc in the coming months if China and WHO failed to prevent its spread.
Several of my clients and portfolio companies are Asia-centric, and the stories and pictures we were seeing from them as well as our own government’s lack of seriousness around the issue convinced us the virus’ spread was likely unstoppable. The inept response by NGOs and U.S. government agencies is a story for another day, but in late January/early February, we were still having meetings with clients/investors coming in from China who reported virtually zero friction at JFK customs before joining us in Manhattan.
For subscribers and close friends, we noted that the market would be smashed when people realized the full extent of this disruption and danger, and I noted that personally I was moving to net short for the first time in over a decade and continuing to dollar-cost average into Bitcoin as a further hedge. Those who listened avoided the carnage we saw last week.
Downside risk still outweighs upside potential although we may get a bit of a relief rally on the mistaken belief that the numbers of infected are lower than expected. But these mortality numbers are artificially low because we lack the ability to perform widespread testing. If we did, the numbers would be substantially higher.
A few quick caveats before we move on since I know linear thinkers want a definitive answer to only two questions:
1) How bad will it be; and
2) What should I do?
First, there is no perfect answer because we don’t have perfect information. This is a Black-ish Swan event, and the fact that we’re dealing with imperfect information on multiple fronts means nobody can tell you with precision what will happen. But that’s what most of life looks like.
What we can do is employ probabilistic thinking to model the likelihood of different scenarios happening and then draft the ideal response for each.
On February 2nd, I posted pics on social media of me wearing an n95 mask to ride the train into the city for a radio interview. The public and private comments were 95% critical, which was a great signal around the public’s general lack of awareness. My basic thesis was, in a hyper-mobile, hyper-levered society with social media amplifying the fear, this could get ugly quickly.
In mid-late February, our early thesis was validated as multiple conferences began to cancel speaking engagements I had booked as those in the travel/event space began to wake up to the fact that we were officially experiencing a global pandemic, even if the WHO refused to call it that.
Where are We Now?
Enough preamble, here’s the playing field and why this is not #justtheflu. Influenza is a linear, annual event. And based on past events, we can model with confidence that somewhere between 250–500K will die globally from the flu, with approximately 12,000–50,000 succumbing here in the States.
COVID19 is a new threat, and significant evidence points to it as an escaped bioweapon from the level 4 lab in Wuhan. Viruses that occur naturally in the wild typically aren’t asymptomatic for up to 14 days (or longer), which is the scariest part of this epidemic. That type of ‘cloaking’ makes it extraordinarily difficult to fight or contain.
The two most important inputs when it comes to modeling this and other pathogens are the (1) Mortality Rate and (2) R0. Mortality rate is the percentage of people who will die from the virus after contracting. For comparison purposes, the flu is about 0.1%, meaning 1 out of 1000 people who get the flu will end up dying.
R0 reflects how contagious the virus is. So an R0 of 2 means that every person who has it, on average, spreads it to 2 other people. Flu has an R0 of a little more than 1. COVID19’s estimated R0 is somewhere between 2 and 6.
The ability of a carrier to be asymptomatic for 14 days or longer makes this virus extremely difficult to contain. My personal estimate is an R0 between 2 and 3 based on reviewing studies and speaking to experts, but it could be higher. Los Alamos and other studies think it may approach 6. Regardless, anything 2 and over is scary. It means the virus is highly contagious and expected to spread EXPONENTIALLY. And that is the real crux. This is an exponential threat, and if you understand the importance of compounding and/or network effects, you know something can start small and seem irrelevant, and then a month from now, you’re Bill Paxton in “Aliens.”
So even though there are ‘only’ 11 dead from COVID19, we all know the parable of the father who offers his sons the choice between a million dollars, or a penny that doubles every day for a month. The #itsjustheflu crowd obviously will take the million because they don’t understand the power of geometric, exponential growth. One penny becomes 2, 4, 8, 16, 32, 64, 128, 256, 512….and on day 30, you’ve got $5 million. Replace pennies with Corona deaths, and you can see why people are concerned.
With something this new and lethal, it makes sense to take as many precautions as we possibly can. As Nassim Taleb has said, “When paranoid, you can be wrong 1000 times & you will survive. If non-paranoid; wrong once, and you, your genes, & the rest of your group are done.”
An analogy is seatbelt use. I haven’t had an accident in 32 years, so wearing a seatbelt from a sheer probability perspective doesn’t make much sense. However, the minor inconvenience of wearing the belt in light of the large catastrophic outcome if needed and not worn means it’s the correct thing to do. Much of what you’ll read below is based on the same principle. The costs are relatively minor, the upside potentially significant.
The other approach is to completely ignore all safety basics and go about regular business. There’s even a part of me that considered trying to become infected now while there are still plenty of ICU beds and capacity in the healthcare system. However, the stats regarding 20% hospitalization rate are troubling enough that even if there is ‘only’ a 30% chance of contracting, you’re much better off doing everything you can reasonably do to avoid infection than voluntary exposure.
The Basic Math
So here’s the basic math, and again, we all want precise numbers but they simply don’t exist. You have to speculate to a degree and extrapolate. China is a repressive authoritarian state, and its numbers are likely minimized (i.e., only hospital deaths of tested patients count as deaths, etc). The best case studies we have are isolated, finite ‘experiments’ like the Diamond Princess cruise ship. Based on the Diamond Princess and other reports from more reliable countries such as Italy and South Korea, here’s the quick and dirty:
* 20–50% of the global population will potentially get the virus. I think we’ll see the low end of that estimate, but it’s still a humongous number. High-density cities without great sanitation should expect the high end; warmer and less dense the low end.
* 80% of those who contract the virus will suffer symptoms similar to cold or flu and can self-treat at home. Some may not even know they have been exposed. 20% will require hospitalization or urgent care (again, these are averages).
The mortality rate from the Princess Diamond was approximately 0.85%. That’s a decent average estimate from our best ‘experiment’ to date, but that also takes into account numerous other factors. Cruise ship demographics skew to an older population, and being confined in a ship for a period of time with others suffering isn’t great from a psychological perspective. The sample size was also too small to extrapolate worldwide.
Based on other compelling models and data, I estimate that, for anyone under the age of 50 who is in good health, the COVID19 mortality rate will probably come out in the .2 to .5 range. That’s still 2–3 times more deadly than flu but nowhere near as bad as the original blanket figures of 2% or more.
As a caveat though, WHO officials came out today and said they believe the mortality rate will be 3.4%. That is a monster number and terrifying — equivalent to 34 times more deadly than the flu. However, as I mentioned, that is global, so it would take into account older populations and crowded, unsanitary cities without adequate healthcare. Looking at figures from Italy and Japan — both countries with good healthcare and reliable reporting — the mortality rate is trending around 2–3%. Even those numbers are likely significantly overstated as there are almost certainly younger people who have been exposed but who do not require hospitalization and therefore are not ‘confirmed’ carriers, which would bring the mortality rate down by increasing the size of the denominator. If I were a betting man, I’d wager the actual mortality figure is sub 1% all in.
WHAT DO I DO NOW?
Two obvious approaches. At one end of the spectrum, do everything you possibly can to avoid catching the virus or take a more fatalistic approach and say if it’s gonna happen, I might as well continue about my regular business. There is some merit to the second approach (including adequate current ICU bed availability, which almost certainly won’t exist 2 months from now).
However, all things considered, I’m sticking with the ‘avoid at all costs’ approach. There’s a chance you won’t be infected under this approach, and you’re essentially playing against the clock hoping to extend your virus-free time until the scientific establishment can respond with a vaccine or other treatment. Call it the 4 Corners Run the Clock Out on the Virus Strategy. Stay virus-free and alive long enough for medical science to mobilize and find a working treatment or vaccine.
So based on the 4 Corners Strategy and the current health and protection of your family, here’s what you can do from an avoidance and mitigation if exposed perspective:
AVOIDANCE & MITIGATION BEST PRACTICES:
As an individual, the wisest course of action is to adopt the Navy SEAL maxim, “The more you sweat in training, the less you bleed in battle.” Preparation and situational awareness will go a long way towards protecting you. There are plenty of other good sources out there for this information, but here are the essentials:
1. Wash hands frequently. Avoid touching your face. Sneeze into elbow or tissue. Position sanitizer at all entrances to home, work etc and use religiously.
2. Wipe down surfaces with disinfectant and bleach wipes. Avoid using hands to touch common areas like doors, etc. Use sleeves to open doors. Virus can exist for over 7 days on most surfaces.
3. Self-isolate. If you can do your job somewhat effectively from home, do it. Use Zoom and other remote working tech to minimize disruption. Avoid mass gatherings and personal contact. Handshakes and Tinder hookups are so 2019.
4. Explore telemedicine options for non-urgent care. Avoid hospitals, urgent care and other places infected people will be. Sign up for prescription drug delivery services.
5. Stockpile necessary goods; food and medicine most critical. I don’t believe critical services like water or power will be disrupted, but you should have some stores depending on your level of faith in our system. Candles, first aid kit, propane stove, ammunition, etc. For necessary goods, home delivery services like Amazon or Fresh Direct are preferable to drug and grocery store trips.
6. Masks — late for most, but yes a good idea to have. If nothing else for keeping you from touching your face. This is also where we’ve seen some of the most serious government disinformation such as “Masks don’t protect you! So please stop buying so we have enough masks for our healthcare workers to protect them!” Hopefully, you see the logical fallacy there.
7. Nitrile, disposable gloves. If you’re ordering toilet paper or other groceries or products, you don’t have any idea where it’s coming from or about the person handling the delivery. That means it’s best to play it safe and open with gloves before discarding.
What If I Am Exposed?
That depends on your age, pre-existing conditions and a host of other factors. The best thing you can do is to mitigate your risk of infection by strengthening your immune system pre-exposure. Below is a list of non-prescription remedies and actions you can take in addition to the above to maximize your chances of surviving. None are remotely foolproof, and your age and genetic predisposition will shave the odds, but some or all of the below will help strengthen your immune system.
The Obvious: Get plenty of sleep, eat better, exercise. Focus on your respiratory. Cardio and rucking is good for the lungs. Avoid smoking.
Non-Prescription OTC Remedies:
Wild Chaga mushroom tea
Raw garlic (American, not the Chinese garbage)
Vitamin b6, b12
Elderberry syrup or lozenges
Vitamin C — 1000–2000mg a day as a precaution, and then 2000mg every few hours if sick up to bowel tolerance.
3000mg Vitamin D,
20mg Zinc, Selenium
What Should Our Government Do?
We should be on a wartime footing, both individually and as a society. That means taking the following steps as a nation. All of these should have been done six weeks ago, but it’s not too late to make a difference:
1. Testing kits — this is key. Our numbers are low because the CDC doesn’t have enough testing kits. That is a huge bureaucratic fail that needs to be remedied ASAP.
2. Shut the borders. Give Americans abroad 72 hours to return. The complacency is mind-boggling. Borders should have been shut weeks ago.
3. ICU and health conversion and adaptation — military bases, universities, and other structures should be prepared for the coming rush.
4. Close all schools for March. In mid-February, I noted that this would likely happen in the US shortly and would last until September. My ex-wife looked at me like I had 3 heads, and sure enough, Japan closed all its schools the following week. It’s going to happen here. Plan for it.
The Secondary Effects
The secondary and tertiary effects from the contagion will be massive from both a geo-political and socio-economic perspective. China will get blamed. President Trump deserves credit for being way ahead of the game on border security and China tariffs; however, his ‘Mayor Vaughn’ approach puts his second term in considerable doubt.
PredictIt and most betting markets had President Trump the overwhelming favorite for a second term just a few weeks ago. As the top of the totem pole, he will bear much of the responsibility for this whether it is his fault or not (just as Bush did in Katrina). The critical breakdown has been much more in our immigration/border systems, CDC, Homeland Security, WHO. Political opportunists have, like much of the clickbait #fakenewsmedia, cited massive cuts to CDC budget. While much of this is patently untrue (the CDC budget is higher than ever), the buck stops at the top, and if this is as bad as we’ve been warning, President Trump will shoulder the lion’s share of the blame domestically.
Due to the novel nature of the virus and the extreme uncertainty about its ultimate effects, it is likely that the body count, though devastating at the individual level in terms of loss and heartache, will pale in comparison to the virus’s economic effects. Of course, there would have been some degree of economic fallout from this virus, but in an age of media hyperbole and Twitter frenzy, that fallout will be amplified to devastating effect.
Financially, use whatever little rally we see to lighten stock positions. CNBC and plenty of investment ‘advisers’ will continue to talk their book and lie to you about this being a minor disruption. It’s a minor disruption now. It will be major soon, and it’s unclear when that will end. Companies relating to travel will see the type of week they had after 9/11 only it will last much longer. A recession this coming quarter is a given, and that may turn much worse. Hopefully, it’s limited if we do find a vaccine, or the warm weather halts the spread, but I wouldn’t count on it. We’re already over-levered and into year 10 of a very long expansion that’s been aided by the Fed’s artificial efforts to pump alongside consistent unsustainable budget deficits.
When this is said and done, the Fed will have exhausted every trick in the book and some that they would have never contemplated. As I noted last week on Twitter before the Fed’s emergency 50bs rate cut, I think we’ll see Andrew Yang/Hong Kong style UBI and debt forbearance before this is over. If people can’t go to work and can’t pay their mortgage, it would be a mistake to treat this as business as usual instead of having a temporary debt ‘holiday.’
But this raises another important point. With a society so divided and social strife already rampant, it hinders our ability to fight an asymmetric, faceless ‘enemy’ like COVID19 as a nation. Other tertiary global effects will likely be the fall of Iran and regime change there, as well as increasing populism (and potentially socialism) as people continue to realize their governments are failing them. On the economic front, look for newer models of interaction to take root such as increases in remote work, teleconferences, VR, telemedicine, home-schooling, and other changes as large scale commuting and interaction become significantly riskier in the coming months. Centralized failures across the board will also hasten the ongoing broader trend towards #decentralization.
The ill-preparedness on the testing front combined with people’s hesitancy to miss work and risk quarantine out of fear they’ll be saddled with a monster medical bill highlight some of the critical faults in our own healthcare system. In a time like this, we need accurate diagnostic information, and we need people unafraid to get tested for fear of not being able to pay. State and Federal leaders should waive or assume all costs for testing. This is not a long-term strategy but a critical wartime response designed to slow the spread.
As the data changes, the estimates may change as well. A prepared, yet stoic approach might be best. You’re almost certainly going to be exposed. Work on strengthening your immune system as outlined above, and if you’re under the age of 60, you should be fine. The elderly and immuno-compromised should take all possible precautions. And as a father of three, the one piece of good news I’ve seen is that it doesn’t seem to be affecting children in the same way as the flu or normal viruses (which also suggests bioweapon). And frankly, if it is a bioweapon, then one would hope that the same scientists weaponizing and developing these pathogens had the foresight to develop a treatment or vaccine. I just don’t want to put too much faith or confidence in the competency of the government. That’s been a bad bet for over 2000 years.
Finally, in late January, I offered the old market maxim, ‘He who panics first, panics best’ as a guiding strategy. The panic hasn’t set in, so there’s still time to take care of the basics. Stores will get emptied when local breakouts occur, so the time to shop and stockpile is now. This isn’t ‘panic.’ It’s contingency planning, and it’s like insurance: you may not need it, but if you do, you’re gonna be hella glad you have it.
Accept that many factors are outside your control, but take action where you can. Be a boy scout by preparing for the worst and hoping for the best. Take care of the downside to the extent possible; be situationally aware then stay firm, realistic, and positive. That’s the minimum you can do as a man or woman.
Your attitude has to be that no one is coming to save you, but it must also be tempered with the fact that this too shall pass.