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Have the experts been wrong about their predictions of the impact of COVID-19 on health and wealth

April 14, 2020
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Have the experts been wrong about their predictions of the impact of COVID-19 on global health and wealth? From what I have read the answer is a clear yes.

Before I talk about what I think, I want to give you a few facts which I will update weekly: Retail sales are positive with a growth of 5.3% this month (down 8.7% currently from the time this article was written). Box Office receipts are down dramatically. Last year this time receipts were $184 million, This past week the receipts nationwide were $5,508. Steel production is down 18%. Hotel Occupancy is not at 0 but is down 68% versus last year. Restaurant business through Open Table is down 100% by edict. TSA checkpoint data is down 95%. The supply of gasoline is down 48% and yet prices are down dramatically. Let’s talk about now what the pundits are saying versus the reality.

I think a key question must be, how can the Dow rally 5,400 points over the past three weeks, when the coronavirus and its economic impact are supposedly even worse than expected? I think you must first understand the stock market is a leading economic indicator, in other words, the market predicts the future 3 to 6 months ahead.

Second-quarter GDP and unemployment are going to be a train wreck, perhaps the biggest contraction on record, but the outlook beyond that is looking better all the time. Yet most investors don’t see it.

After all, we’re in the middle of a global pandemic. Worldwide coronavirus cases have surpassed 1.8 million. The death toll tops 115,000. Except for those who have already gotten ill, no one is immune. There is no scientifically proven treatment. And a vaccine, according to those same experts is 12 to 18 months away.

But here is what many of you may not know…

Author and Singularity University Chairman Peter Diamandis estimates that between 100 million and 200 million scientists, technologists, engineers, and healthcare workers have taken aim at this pandemic. They are running tens of thousands of experiments and sharing information with transparency and speed we’ve never seen before. Never, have so many researchers in so many countries focused simultaneously on solving a problem…and with such urgency.

This is unprecedented. They have identified and shared hundreds of viral genome sequences. Online studies have been made available months before publication in academic journals. And hundreds of clinical trials have been launched. Companies are ratcheting up their efforts to fight the disease with accelerated testing schedules.

Some of you may say that Dr. Fauci said that it would take 18 months for a vaccine. Well, ordinarily, the development of new vaccines and treatments does take years. But more than two dozen biotech’s have announced promising vaccine programs that are rocketing through the early stages of testing. Government Agencies, regulators and nonprofit organizations are working with drugmakers to compress the usual timeline.

Now get this, the first coronavirus vaccine by Moderna has been in human trials for over four weeks.

Diamandis concludes, “As these experiments bear fruit and yield data, I have little doubt that we will experience a tsunami of solutions that will disrupt and decimate this pandemic.”

Did you hear what I just said, a tsunami of solutions?

Now I am no doctor or scientist, but this data is compelling.

Another development that you have been hearing more about is the estimate of the number of deaths that this virus would cause. It is way down from estimates. And those estimates considered the social distancing. Hospitalization rates predicted are also way below the numbers the experts predicted.

We all know by now that the models have been way off. In fact, the world health organization announced that the mortality rate for the coronavirus was 3.4% and the real number is closer to 1%.

So I can say that we have two huge pieces of good news:

  1. The earlier models massively overstated the fatality of COVID-19
  2. The scientific community is working overtime and at breakneck speeds to find effective solutions.

What I am trying to say is that the Dow move up 5,400 points is no mistake. The smart money is saying that instead of waiting 12 to 18 months for a vaccine, we may get one by Christmas or sooner. Understand that I still see plenty of volatility as pundits say this or that and experts give us dire warnings, but the truth is that innovation is going to win out and we will beat this virus. I would say that my outlook is to expect an outcome that will surprise us all on the upside.

UNEMPLOYMENT BENEFITS

The current severe economic contraction brought about by the coronavirus and the government-mandated shutdowns of businesses meant to stop the disease is a completely different animal from a normal recession. It’s not just that people are staying away from certain economic activities because of the virus: the government is requiring businesses to shut down, magnifying job losses across the country.

Initial jobless claims averaged 216,000 per week in the four weeks ending on March 7, before the shutdowns. That’s a total of 863,000, which was very low by historical standards, particularly relative to the size of the labor force. In the four weeks since then, 17.1 million workers have filed claims, blowing away previous records. Many of these layoffs were the direct result of the government forcing businesses to shut their doors.

In this unique situation, unemployment compensation resembles a “just compensation” for that taking. The problem is that the boost to unemployment benefits enacted by Congress is over-kill for many workers, leading to perverse incentives. For example, let’s take a worker in California earning $46,700 per year. Normally, a layoff would give them six months of unemployment benefits at a rate of $450 per week, which is an annual benefit rate of $23,500, about half of what they were earning when they worked.

But Congress is now throwing in an extra $600 per week for unemployed workers, for four months. That means for four months these workers will get $1,050 in benefits per week, which translates into an annual benefit rate of $54,600, which is even more than they were earning when they were working! Because the extra $600 is a flat extra benefit, the gap between what unemployed workers can get now versus what they were earning when they worked is even larger for lower-earning workers. This could be a huge problem in the future for companies.

But it’s hard to believe there won’t be enormous political pressure to extend the length of those extra benefits come the summer when they’d otherwise expire. After all, the unemployment rate is still likely to be 10% or more. Now think of what this means when we re-open the economy. Some workers will go back to work because they might fear their job disappearing if they hold-out. But many won’t want to give up the higher payments and businesses will now be competing with the government for workers at the same time they’ll be digging out of a huge financial hole.

Early in the Great Depression, the Hoover Administration urged companies to maintain wages in spite of deflation. The idea was that if wages were kept high workers would have more purchasing power, boosting output. But workers who kept their wages were already getting a boost from falling prices. Meanwhile, firms that kept wages high wouldn’t hire new workers. It made the Depression worse, not better. By boosting unemployment benefits, the government has put businesses in a position where they must boost wages, indirectly making the same mistake as President Hoover. Hopefully, the government wises up soon after vaccines are developed to come back to normal and not make the same mistakes.

Etsy, the e-commerce site for handmade items and craft supplies, is selling a number of different face masks for about 6$ each and they can be washed. 

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