Who would have thought that a small virus from a wild animal market in China could lead us rapidly into a global health, economic and political crisis? Not so many.
This is a crisis of uncertainty and fear, the unknown that ordinary people in the streets fear the same as global financial markets. While first ones go for a toilet paper shopping frenzy, the second go for an equity sell-off. Promising not to bore you with another instruction how to wash hands effectively or what the required physical distance should be to avoid infection, here are some observations from the tumultuous beginning of 2020 (btw the year of the rat, remember which animals brought the plague …):
- CHINA did the right thing to lock down rigorously the region where the epidemic started and spread. It saved the country and the World from a much larger scale infection rate by sacrificing an entire region and risking its economy. It was also able to provide medical support with a unique ramp-up of medical infrastructure, including building new hospitals and reorganizing health workers with speed and efficiency unheard of so far. By doing this, China also granted the rest of the World a preparation time of ca. 6 weeks. Sadly, this time was not used efficiently by most of the countries. Current new infection and death rates seem to confirm the success of China’s strategy and emergency management. The Chinese victory lap would be justified, but will not be granted.
- The second wave hit Korea, Japan and a little bit later Iran. While Korea was hit by a master spreading event, it was able to contain the consequences for the country, again through hard lockdown, control, and mass-testing of the population in the affected area. The numbers are going down, finally. Japan was less hit and showed one of the lowest growth rates of new cases and one of the lowest mortality ratios. Might it be the notorious fear of microbes and viruses in Japan or the good health management (hopefully not fake numbers), they must have done something right. To be seen. Finally, Iran. A classical example of how denying facts and truth, a lack of resources, determination and transparency to avoid political backlashes are backfiring badly in a health crisis. Late, for too many people too late, also Iran and the surrounding countries have finally started to attack the epidemic. Success not guaranteed.
- Comes Italy. The Corona Virus (ironically corona means crown in Italian) does not love Italy. Yesterday there was a number of 10,149 confirmed Corona cases and a fatality number of 631. That is a mortality rate of 6,2 %. There was no other epidemic in Europe since the Spanish Flu in 1918 that had a similar mortality rate. That is frightening numbers. What is more frightening: nobody knows why the mortality rate is so high in Italy. Since yesterday Italy is in total lock-down. Probably much too late, and much too porous. Other countries should learn from this failure rapidly.
- Germany, France, Spain, and the UK: Numbers are rising fast. An analysis of infection numbers and clusters (most originated from Italy) from the University of London shows that Germany and France are probably 9 days behind Italy in the spread of the virus, Spain 10,5 days, USA 11,5 days and Switzerland and UK approximately 13 days. The lock-down of these countries is a matter of days.
- US: The big virus deniers will be hit hard. Much too late US authorities started to take the potential spread in the US seriously. Even today there are not enough testing kits and the process seems to be in chaos. Yesterday more than 1.000 cases have been reported, but the real number must be significantly higher. And we are still 11,5 days behind Italy.
So big-time for doomsters and gloomsters. And this time they might be right. We face the following situation and potential outlook:
- Nobody knows where the future spread of the virus will lead. We still do not know with certainty where the virus originated. We have no idea why the mortality rate in Italy is currently above 6% while below 1% in South Korea or Germany.
- Vaccines are a minimum of 12 months away from us. There is no certainty on how fast the virus is mutating and to what degree.
- Hopes that the virus will spread less with spring and summer season are based on comparison with flu waves, but not based on any scientific proof or evidence. In any case, it would come back to us in autumn.
- Comparisons with flu are completely out of logic. First, it is a different type of virus, second for flu we have both vaccines, medicines and decades of proven therapies. Third, we have a much higher mortality rate with Corona, only matched by the famous Spanish flu 1918. And last, but not least, numbers show that up to 10 % of the Corona cases need treatment in ICU units. That is why the medical system in the countries with high infection numbers are collapsing, and that is why it is so important to contain or stop the spread of the virus in its early stage. And, not every country is able to build new hospitals in 10 days.
- All countries who are not yet hit hard, should go as early as possible into lock-down, take the economic hit early, but contain the spread. Do not wait until the virus is spread too much and containment no longer an option. Italy and Iran show the result of that strategy. Follow Israel’s lead, be smarter.
- Recession will hit most countries, at least those who have high infection rates.
- Forget V Shape theories of economy and stock exchanges. This is an overdue correction of an overvalued, monetary policy-induced asset bubble, that was in urgent need of an event like Corona to get back in touch with reality. Unfortunately, brutal corrections like we are facing now, do always lead to distortions in both debt and equity markets (and we have high volumes of doubtful assets in circulation) and to collateral damage in many areas.
- IT Industry, Media and Video conferencing, Online and Automated Sales to profit.
- Fear and panic in the population will rise and questions on more strict measures will have to be discussed. The next 12-18 months will be turbulent and painful.
- Managed democracies seem capable of dealing much better with this emergency than open societies.
- Trump will soon be in quarantine and/or political history.
- The good news: Mankind will survive, we are much faster today to develop vaccines and therapies than at any time before, our innovation power will beat the virus soon.
Ironically, a little virus has proven more effective to start a re-think of global value chains, national sovereignty, need for an independent supply of the population with critical goods, transportation and travel overkill than any of the Trumpian tariffs, impeachment processes or anti-globalization and climate change movements. And it might prove more effective to bring down regimes than the CIA who tried for decades.
Get prepared for rough times and stay away from Corona.
Dr. Marc-Milo Lube
Investment Company VI2PARTNERS
Goldenes Quartier, Tuchlauben 7