It may all look like bad news right now. New York City hospitals are overflowing with COVID-19 patients, and New Orleans and Detroit seem to be about to experience their own explosions of cases.
Today’s Reality Gap is the difference between how bad things look in the COVID-19 world, and the true investing realities that lie on the other side of the crisis. It is so hard emotionally and mentally to see a positive side while the numbers of new coronavirus cases and fatalities are growing daily.
Watch Now: How the covid-19 crisis is impacting stocks, bonds, the dollar, oil, and gold
But we can look to the information we have to see how we should be reacting in the coming days, weeks, and months instead of being trapped in the moment.
And the West Coast of the U.S. offers a glimmer of hope, and more importantly, a way forward.
California and Washington have been overshadowed in the news by the tragedy unfolding in New York, but the two states were the first to report cases of coronavirus infection outside of people who had returned from abroad.
And through some swift action, but also some luck, they seem to have “flattened the curve” and avoided the worst of the pandemic.
How they did it shows how we’re all going to get through this crisis…
And when we’ll be able to restart the economy.
And with all the stimulus money flowing in, there will be the Trade Opportunity of the Decade coming.
A Model of How Social Distancing Works to Slow the Spread
In what feels like years ago now, the first person to die from COVID-19 in America passed away on Saturday, February 19 in Kirkland, Washington.
In the days after, more and more cases of coronavirus infection started appearing throughout the Seattle metropolitan area, as well as in California’s tech hub, the San Francisco Bay area.
And yet as I’m writing this, Seattle has 99 reported coronavirus infections per 100,000 people. San Francisco and surrounding counties have only 33.
To put that in perspective, New York City has a whopping 497.
Part of this is luck. The cities of the West Coast are much less dense than on the East Coast. And especially in Los Angeles, almost everyone drives instead of using the public transportation system.
In New York City especially, but also in Boston or Philadelphia, people live more closely together, share public transportation more, and in general spend more time close to strangers.
This means the virus is likely spread slower on the West Coast than the East Coast. In a way, West Coast cities were practicing a bit of social distancing even before the pandemic.
But the other thing that sets Washington and California apart is that people there began staying at home earlier than in most other states.
And it’s now looking like that’s made all the difference.
The San Francisco Bay area, for example, was locked down on March 16, with a state-wide order issued on March 19. Schools and large events in Seattle were closed even earlier, on March 11.
Meanwhile, tech companies clustered in Silicon Valley and around Seattle began telling their employees to work from home even sooner, in early March.
According to projections from the University of Washington’s Institute for Health Metrics and Evaluation, that means California’s predicted total death rate has now dropped from 6,100 to 5,100.
Perhaps even more importantly, that means even at the peak of COVID-19 cases, neither California nor Washington are projected to run out of hospital beds.
Of course, flattening the curve is one thing. Re-opening the economy is another…
We’re Going to Need More and Different Tests
Evidence from countries that have kept their coronavirus outbreaks under control, such as South Korea, Taiwan, and Singapore, as well as epidemic experts, agree; simply lifting the lockdowns and sending everyone back to work once we’re past the peak of infections will simply cause another spike in infections and deaths.
What we need is more tests, and different ones.
First, we need to have near-universal testing of the population. Testing everyone, whether they’re showing symptoms or not, is key to finding silent hotspots of the virus that could trigger another wave if let loose.
On a per-capita basis, America is still lagging behind South Korea, and our test capacity has stopped growing once it reached 100,000 a day. Experts say we need more than twice that to get a grip on the virus.
Second, we need tests to detect whether someone is immune to the coronavirus because they’ve already had it. This could let people who can’t catch the virus start leaving their homes and going back to work, without spreading the virus further.
Trials of a test just like this are currently underway in Germany, but it will be several weeks before we know they work, and even longer before they are widely rolled out.
One key question we don’t know the answer to is how long after fighting it off someone remains immune to the coronavirus. In the case of the 2003 SARS virus, which is closely related to this new coronavirus sweeping the globe, people remained immune for about six months.
In the case of the regular coronaviruses that cause the common cold, immunity lasts only three months.
Still, a staggered approach to reopening the economy by allowing those immune to go back to work could at least blunt the economic impacts until a vaccine is available to provide life-long immunity.
On that front, there is a lot of hype. But realistically, vaccines for wide-spread use will be available in 2021 at the earliest. Experimental vaccines need to be studied very carefully before being used widely, in case they don’t work or cause side-effects.
As for medicines that could cure COVID-19, they are all in early trials so far, and most are expensive or can have serious side-effects. Even so, at the speed at which people can go from no symptoms at all to severe pneumonia with this virus, even a cure would leave the most at-risk in danger, and could still overwhelm our hospital system.
On a very large scale, if we’re lucky and seasonal effects help to slow down the virus (something we don’t know for sure) and everything goes well, we may start slowly reopening our economy in the next month and be mostly returned to normal in late summer or early fall.
The markets, however, will start anticipating (or “discounting” to use the trader’s term) when the data and information starts to show a slowdown in the spread of the virus and its devastating effects.
The combination of the unprecedented amount of stimulus that has been injected into economy and the fear of missing out (FOMO) on the eventual explosive move up in the stock market caused by that cash injection will send stocks rocketing up.
In future articles, I’ll be laying out of plan of how and when to pick up mega-tech stocks, industrial stocks and even travel stocks for that big push up. That time is coming – but it’s not here just yet.
Stay Safe, Great Trading, and God Bless You,