National Guard Called Up To Provide Mortuary Assistance

 In case you were wondering how bad the COVID-19 pandemic is, consider this:  the Texas National Guard has sent troops to El Paso to help the morgues in the city deal with all the people who have died recently.  (See https://www.cnn.com/2020/11/21/us/el-paso-national-guard-morgue-coronavirus-trnd/index.html.)  The National Guard is replacing nine inmates from the county jail who had volunteered to help move bodies.  (See https://www.cnn.com/2020/11/16/us/el-paso-inmate-covid-bodies-trnd/index.html.)  Back in Washington, President Trump skipped the G20 Summit meeting on the pandemic and played golf instead. (See https://www.cnn.com/2020/11/21/politics/trump-g20-saturday-sessions/index.html.)  It's no wonder America had close to 200,000 new cases of COVID-19 yesterday. (See https://www.huffpost.com/entry/covid-19-updates-possible-thanksgiving-case-spike_n_5fb56468c5b66cd4ad413505.) There is hope.  Joe Biden will be sworn in as the new President on January 20, 2021.  Until then, a chill wind will blow.  Hold onto your hats, wear masks, maintain social distances, and stay home as much as possible, because right now, you're pretty much on your own.

Where Will Herd Immunity From Coronavirus Allow Re-Opening?

Recent studies have shown that the novel coronavirus (SARS-CoV-2) may be far more infectious than previously thought, perhaps some 50 to 85 times more so (e.g., see https://www.cnn.com/2020/04/17/health/santa-clara-coronavirus-infections-study/index.html).  This evidently is due to the virus' ability to spread while infected persons are asymptomatic, with much of the spread apparently through aerial transmission.  The astonishing celerity of the infection rate means that areas of high infections may well be in the process of acquiring herd immunity.

Herd immunity is immunity of a large segment of a population to a disease agent, such as a virus.  When people become infected, they often produce antibodies that may then insulate them from further infection.  Antibodies don't always provide immunity, and if they do, it may last only a limited time.  But herd immunity, which is said to begin around the time when 50% or more of a population are immune, can stop or largely limit the spread of a disease before many of the non-immune people can be infected.  (In the same sense, high vaccination levels provide substantial protection to the non-vaccinated.)  Herd immunity tends to be most effective when immunity rates are 90% or higher, but lower levels can still be beneficial.

A region locked down by COVID-19 may be able to lift restrictions and stay open if it has herd immunity.  By contrast, a region without herd immunity that lifts restrictions sooner rather than later runs a potentially serious risk of the disease flaring up after people begin to mingle again.  A second and perhaps more rigid lockdown may have to be imposed to avoid tragic death rates.

Where is there herd immunity?  In the areas of greatest infection.  In America, that would be New York City.  Right now, NYC has about 140,000 confirmed cases.  Using 50 as a multiplier, that would imply that some 7 million New York City residents have been infected.  NYC has a population around 8.3 million.  If the large majority of the infected residents produced antibodies, and those antibodies provide immunity, then New York City is pretty likely to have herd immunity.  If that is the case, NYC might be able to re-open when other conditions for re-opening are met (such as clearing the case overload in its hospitals and acquiring enough antibody tests to verify its true infection rate).  It may be able to stay open because herd immunity would protect against re-infection and its economy may start humming again.

States where the levels of confirmed cases are much lower would also have numerous undiagnosed cases, but nowhere enough to acquire herd immunity.  Re-opening soon could involve a serious risk of a second lockdown and even more severe economic pain than they now feel.  Perhaps it's ironic, but the places that are feeling the greatest pain now from the novel coronavirus may be the places that  can re-open and prosper again the soonest.

In These Times of Coronavirus, Wash Your Face

With COVID-19 raging worldwide, we are told to wash our hands often, which in this case means very often.  We are also told not to touch our faces.  But who doesn't touch their face?  Do you wear glasses?  Does your cheek have a little itch?  Do you have to brush back the hair that fell over your eyes? 

Oddly, we aren't told to wash our faces.  But do it anyway, especially if you touched your face with a potentially tainted hand.  It won't provide absolute protection.  If you rub your eyes, the virus could get inside the eye and take root.  Same if you touch your lip and then run your tongue over it to keep it moist.  But if the virus is sitting on the surface of your skin after you adjusted your glasses, then face washing might get rid of it the same way hand washing gets the virus off the skin of your hand.  Give it a try.  Not washing your face is no solution.

The Coronavirus Crisis: How the Trump Administration is Pushing Stock Prices Down

The financial markets hate uncertainty.  When the picture isn't clear, stock prices get wobbly.  Before today, the coronavirus epidemic had already pushed stocks into a correction (i.e., a drop of 10% or more).  To make things worse, the Trump Administration has been trying to downplay the scope, risks and impact of the epidemic while federal health officials have endeavored to be realistic.  (See https://www.cnn.com/2020/03/09/politics/cdc-policy-test-kits-coronavirus/index.html.)  This informational squabble cast doubt where doubt could do the most harm.

The coronavirus epidemic is the largest driving force in the stock market today.  The disease has slowed the world economy and sharply reduced demand for petroleum, which has hit oil prices hard.  Major oil producing nations, including the members of OPEC and Russia, tried to work out a way to prop up oil prices this past weekend but failed.  This morning, oil prices plummeted into the $30 to $35 range for West Texas Intermediate.  That implies gas prices around $1.50 to $1.60 per gallon, compared to current retail prices around $2.20 to $2.50 in many parts of the country. 

The cratering oil prices exerted fresh downward pressure on stock prices today, so much so that a stock market circuit breaker was triggered for the first time after the S&P 500 fell 7%.  Trading was halted for 15 minutes and then resumed, with stock prices remaining moribund. 

When the markets don't have adequate information, investors are cautious about the prices they'll pay.  When a flood of selling takes place because of inadequate information, buyers will be reluctant to step forward and invest, even when prices drop significantly.  Holders of stocks, faced with uncertainty over the future, will be inclined to sell even more rather than run the risk of additional losses.  Fear spreads and selling increases.  Had the Trump Administration been forthright about the coronavirus epidemic, stock prices would have been impacted, but investors would have been more confident about stepping in and buying.  By creating an informational fog, the Trump Administration exacerbated selling pressure and dampened buying interest.  This is no way to restore confidence in the market.

The Trump Administration is certainly not the only government that has been economical with candor concerning the coronavirus epidemic.  The combined governmental obfuscation has been precisely what stock prices don't need.  But there are few signs of unvarnished governmental veracity on the horizon.  Expect more nausea in the markets.

Coronavirus and the Federal Reserve's Political Policy

It's when times are tough that you see what's really going on.  Last week, the stock market fell 11% because of fears over the economic impact of the coronavirus epidemic, dropping into a correction in a matter of days.  President Trump called loudly for a Fed interest rate cut.  Always ready for another government handout, Wall Streeters also chimed in for a rate cut.  Yesterday, rumors that the Fed and other central banks would act together pushed the Dow Jones Industrial Average up over 1200 points.

Early this morning, the Fed indicated it was considering accommodative action, but signaled that nothing was imminent.  https://www.cnn.com/2020/03/03/economy/federal-reserve-rate-cut/index.html.  However, a few hours later, the Fed announced a surprise 0.5% cut in short term interest rates.  The Dow, instead of responding positively, promptly fell almost 800 points.

What gives?  It's hard not to think the Fed gave in to political pressure.  A rate cut won't cure coronavirus.  Nor will it vaccinate humans against the disease.  It won't quarantine the virus or establish barriers to its spread.  People who are avoiding traveling, large gatherings, restaurants, concerts, sporting events, and other potential infection venues won't start spending and exposing themselves to the illness just because of a rate cut.  Even if stocks had risen, people wouldn't have started to engage in risky behavior.  Of course, things were only made worse because the market fell after the rate cut.  The market wanted a bigger welfare check.  The President, perhaps too lazy to do the work needed for a fiscal stimulus, promptly called for another immediate Fed rate cut.

But another immediate cut would only tell us that the epidemic is far worse than we thought, and that we'd best hunker down and isolate ourselves for a long time.  No travel, no restaurant meals, no public gatherings, no socializing, no contact with anyone we don't know and trust.  Romance would halt abruptly, as who'd want to meet new people in a time of epidemic?  Dating websites would collapse and singles bars would shutter. The President would be much better off committing billions of federal dollars to emergency medical research.  But he seems to have a problem with science, like he doesn't believe in it because it sometimes contradicts his political views.  So maybe the Fed will be bullied into another rate cut that will only instill even more alarm and panic.

There are powerful reasons for the historic independence of the Federal Reserve.  Most important among them is that an independent Fed can serve the public interest, not the short term scheming of politicians.  This means, among other things, that the long term vigor of the stock market is served by a rigorously independent Fed (see the story of Paul Volcker's career for further information).  Today's surprise rate cut gave the market and us discouraging news:  that the coronavirus crisis is much worse than we thought, that the Fed is becoming the sous chef of monetary policy, and that instead of focusing on medicine, the White House is focused on the political aspects of the coronavirus epidemic.  Now that the Fed is politicized, expect more poor policy and national distress.

Coronavirus and the Perils of Pricing Stocks for Perfection

The past week's tailspin of stocks into a correction is a reminder that the law of gravity has not been repealed in the financial world.  Until just recently, the high flying stock market, having steadily risen since 2009, was priced for perfection:  everything had to go well or gravity would assert itself.  In such circumstances, bad news can have an outsized effect.

Not surprisingly, the trigger for the downturn was a black swan--a stock market term for an unexpected event that is very bad for the market.  Typically, black swans are the triggering events for sudden market nosedives.  The 2008 bear market that coincided with the beginning of the Great Recession was triggered by losses hitting a poorly understood cobweb of linkages between and among the real estate, mortgage, bond and derivatives markets that concentrated real estate lending risks into the heart of the financial system.  Large mortgage losses were magnified into a tsunami of financial pain by daisy chains of supposedly offsetting derivatives contracts that wound up consolidating risk instead of dispersing it.

Coronavirus (or COVID-19) is today's black bird.  It calamitously began in the world's factory, China.  This meant that it would spread quickly because so much global commerce--and therefore global travel--would circulate through China.  Its high rate of transmission was not fully appreciated at first, and those giving early warning were treated as Cassandras instead of being taken seriously.  So the disease spread quickly and a massive shutdown of major parts of China was imposed.  Commerce slowed precipitously and corporate losses are piling up fast.  The World Health Organization has warned that the disease has become a very high risk.  In short, coronavirus is on the verge of becoming a pandemic, and the prognosis is guarded.

The stock market finally got the message, and had a hissy fit, dropping into a correction in five trading days.  More losses are likely in the near term future.  Opinion is divided on whether the current market is a buying opportunity or a septic facility to be avoided.  If you're set on putting money into this market, make sure it's money you won't need for at least ten years.  Medical science is getting a better understanding of COVID-19 by the day, and chances seem good that eventually we will learn to cope with the disease and contain its impact.  But when that day will be remains speculative, and you should speculate only with long term money that you can afford to lose.