The Second Wave Hits the Hospitals

German ICUs Are Struggling to Keep Up with Corona

German hospitals have invested heavily in the equipment needed to treat serious cases of COVID-19. But they lack the staff necessary to cope with the second coronavirus wave, which is already filling up intensive care units.

By Matthias Bartsch, Jürgen Dahlkamp, Katja Thimm, Nina Weber, Alfred Weinzierl und Steffen Winter

A COVID-19 patient and a nurse in the intensive care unit at a hospital in Gross-Gerau, Germany: In many cases, a full-time nurse is needed for each patient. Foto: Peter Jülich / DER SPIEGEL


The morning meeting at the Gross-Gerau District Hospital begins with bad news. "One the other, the clinics around us are closing their doors,” says hospital director Erika Raab. "The hospital in Odenwald” isn’t taking any new patients and "Bergstrasse" is also about to close, she says. 

And now it's the turn of Darmstadt, a medium-sized city located just south of Frankfurt. "The hospital in Darmstadt is asking if we still have any beds free,” Raab says, peering out at the silent group of about a dozen doctors and nurses gathered in the meeting room. She already knows the answer. "OK, we’re already having to prioritize ourselves.”

Raab, 46, is the managing director of a hospital outside Frankfurt that has 220 beds. It's 8:30 a.m. and she is leading the morning meeting, known to staffers as the "pandemic round," in a white smock. She's still wearing it as she hurries through the hospital corridors to collect information on the current coronavirus patients and to find ways to free up more beds for COVID-19 victims. 

That those patients will come is "as certain as Christmas,” says Raab. All you have to do is look at the rapidly increasing number of infections in Germany to see that.

In the rural district of Gross-Gerau, located just southwest of the coronavirus hotspots Frankfurt and Offenbach, the incidence rate is more than 200 coronavirus cases per 100,000 inhabitants a week. Studies, and past experience, show that around 10 percent of those cases require hospitalization. 

And of those patients, anywhere between one in five and one in 12 will end up in an intensive care unit at some point. "For us that means it's going to get really bad really soon,” says Raab.

The hospital has cancelled outpatient operations, and surgeons have been requested to focus on emergencies and otherwise help out as back-up staff for the internists. The internists, in turn, are increasingly needed to provide care in the coronavirus wards. 

Pregnancy classes that prepare women and their partners for birth have been cancelled, and midwives have been asked to assist the nurses in the wards.

But Raab doesn’t think that will be enough. The hospital head sits in her office and leafs through official notifications of excess work that have been filed by her overworked staff. 

There are complaints about too much overtime, about being required to work through breaks and about paperwork that takes deep into the night to complete. And about the increasingly time-consuming cleansing and disinfection of isolation rooms.



In Ward 2, a doctor reports how a 92-year-old coronavirus patient suffering from dementia tore off his ventilator mask several times during the night and tried to get out of his bed. Fortunately, the nurses were able to calm him down.

A few days earlier, two of the six nursing staff assigned to the ward were absent at short notice on night duty. One had to go into quarantine because of COVID and the other had called in sick. 

The four remaining nurses had to care for 39 patients, including 13 who were in isolation rooms and five who needed a "high level of care,” Raab says. It was too much for the nurses and one wrote a formal complaint to management. "We can’t rule out the possible endangerment of the patients,” the complaint reads.



For Raab, this has been a crisis that had been foreseeable for months. She thinks Germany grew too complacent after the first wave of the coronavirus. Plus, there were no pictures of dying COVID-19 patients in crowded hospital corridors in the spring the way there were in northern Italy, she says, and people assumed that would also be the case in the fall.

Politicians also kept insisting that the German health-care system is one of the best in the world and that it had stood up to the test. Meanwhile, many additional ventilators, they noted, had been purchased and the capacity of intensive care units was greatly expanded. What could go wrong?

In the meantime, however, politicians are expressing growing alarm. "The situation is threatening to slide out of control,” Tobias Hans, the governor of the state of Saarland, said last Tuesday. 

"We are threatened with the kind of conditions seen in Bergamo in the spring, with overcrowded hospitals and gymnasiums converted into emergency hospitals” and medical staff "far beyond their limits.”

It’s a gloomy forecast that isn’t just limited to small hospitals in rural areas - it also applies to well-equipped, high performance clinics in the big cities. Ulrich Frei, an internist and a board member for patient care at Berlin’s Charité University Hospital, offers a simple calculation: "If around 1,500 people in the capital city were to get infected each day, and 2 percent of them, as we are seeing here, end up in an intensive care unit with a time delay of around two weeks, that would mean around 30 new intensive care patients every day in Berlin alone.” Some would probably have to be placed on ventilators for several weeks.

Frei says there are already well over 200 COVID-19 patients in intensive care units in Berlin – more than at the peak of the first wave in April. He says the city still has reserve capacity, including a temporary container hospital with 73 beds that can be used as intensive care units. 

Almost 20 of those beds, though, are already occupied. And with the large number of new patients, it is only a matter of days before contingency emergency wards like that are full.

No one knows yet how big the second wave will be. Much hinges on how well the new partial lockdown and contact restrictions in place since the beginning of November work. 

But given the fluctuation of new daily infection figures of between 10,000 and 20,000 people, the second wave will result in "more than double as many patients” in the intensive care units in November than during the first wave in the spring, predicts Gerald Gass, the president of the German Hospital Federation (DKG).

How are hospitals going to cope with that? In the Rhine-Main area, the intensive care units at the large "Level 1” hospitals in Frankfurt and the suburb Offenbach were already at well-over 80 percent of capacity at the beginning of last week, and by that Tuesday, they had reached 90 percent capacity, according to an internal status report. 

Frankfurt’s University Hospital, which doesn’t release any figures on the number of people being treated in its intensive care unit, has been trying for the past several days to send corona patients to other smaller hospitals in the vicinity, as far away as Bad Nauheim, a town located 30 kilometers away.

Managing Director Raab (second from left) and hospital staff: "It's going to get really bad soon." Foto: Peter Jülich / DER SPIEGEL


A system for the distribution of patients has begun emerging in Germany. Rolf Lamberts, senior physician in the intensive care unit at the Gross Gerau District Hospital, was sitting in a colleague's office a week ago Friday when someone from a large Frankfurt hospital called. 

The official said a 56-year-old COVID-19 patient had been in a normal hospital bed for the past four days, but urgently needed an intensive care bed and there were none left in Frankfurt. Lamberts didn't have to think for long. Though his ICU ward is small, and five of its six beds were already occupied, he agreed to take the patient anyway.

Lamberts, too, had to move patients to other hospitals when their condition worsened. 

The Gross-Gerau hospital doesn’t have an ECMO, a state-of-the-art machine that can take over the complete function of the lung if necessary. Lamberts managed to find a free ECMO slot for his patient not too far away in Wiesbaden. In return, the Gross-Gerau clinic took in a malaria patient from the Wiesbaden hospital.

Ten minutes after the call from Frankfurt, Lambert’s smartphone rang again. This time, it was a small clinic in the southern part of the state calling not about a corona case but an acute poisoning. 

"I’m sorry,” Lambert said, "but I just gave away my last bed.” His colleague Zeynep Babacan, head of the COVID unit, immediately called the gate of the district hospital. "No new admissions to the ICU - at least until 9 a.m. tomorrow.”

A few days prior, the hospital had been forced to close its emergency room once before due to overcrowding, a function of the many COVID-19 cases. During that time, ambulances were asked to deliver patients to other hospitals, an unpleasant situation for the medical staff. "I actually became a doctor to help people in need,” says Babacan.

If it were just a matter of technical equipment, the district hospital would still have reserves. Lamberts says he has two additional intensive care beds that he could put to use immediately, and there are at least two more that could be made available later. 

The rooms and the necessary equipment are there, he says. In the summer, the hospital spent 400,000 euros to acquire new ventilators. The problem is that you need people who can operate the devices, says Managing Director Raab.

The hospital, which is owned by the local government, recently went through bankruptcy proceedings and had to reduce its staff size as a result. Since then, the hospital has been forced to cut corners everywhere, even under normal operating conditions. 

Raab says that the additional burdens created by COVID-19 can only be overcome if other services at the hospital are significantly reduced. Or suspended entirely if things get really bad.

Frankfurt's University Hospital has been trying for days now to send corona patients to other smaller hospitals in the vicinity.

The situation is similar in small and large hospitals all across Germany: It’s not the equipment that is creating the decisive bottleneck in corona patient care - it’s the lack of qualified staff.

Two years ago, the services union Ver.di criticized the shortage of up to 80,000 nurses in Germany’s hospitals. That shortage is now making itself painfully apparent right where they are most needed in the pandemic: in the intensive care units.

The consequences of the shortfall were recognized earlier this month by the very experts in Germany who are tasked with providing the overview of the number of intensive care beds that are available in the country. 

"We have been receiving a lot of feedback that the beds we had reported as being free in fact weren’t available at all,” says Christian Karagiannidis of the German Interdisciplinary Association for Intensive and Emergency Medicine (DIVI).

The generation game

Wall Street will soon have to take millennial investors seriously

There is more to young investors than Robinhood and TikTok


Think of a millennial investor, and you might picture someone like Vincent Iantomasi, one of a legion of amateur traders dishing out investment advice on TikTok, a social-media app. 

With “Blueberry Faygo” by Lil Mosey, an 18-year-old rapper, playing softly in the background, Mr Iantomasi tells investors looking for racy returns to pile into spxl, a leveraged exchange-traded fund. 

Or you might think of users of “r/wallstreetbets”, a forum on Reddit, another social-media site, who post “loss porn”: screenshots of their accounts on Robinhood, an investing app, after betting their life savings on short-dated derivative shares in Tesla, an electric-car maker.


Young investors have become infamous during the pandemic. As markets have rocketed, budding punters have engaged in a frenzy of day-trading on their phones. 

Look past the notoriety, though, and a profound shift in the ownership of investment assets looms. Millennials, typically defined as those born between 1981 and 1996, still hold a tiny share of total wealth (see chart). 

In America they own $9.1trn in assets, just 7% of the total, well below the 26% held by baby-boomers when they were of a similar age. But savings and inheritance windfalls mean that millennials’ share will rise rapidly. And shifts in technology and pension policies will allow them to exert more control over their assets than their parents did. 

The implications for investment firms and markets are already becoming apparent.

The young acquire wealth by inheriting or earning it. Already more than a third of America’s labour force is millennial and they have been the largest cohort since 2016 (even though some are still in education). 

Bank of America Merrill Lynch reckons that, worldwide, their earning power will rise by nearly three-quarters in 2015-30 as more start work and others gain seniority.

Inheritance flows are set to speed up. The population structure in most rich countries bulges outwards for the baby-boomer generation and then again for their children, many of whom are millennials. 

Every five years $1.3trn in investible assets, or 5% of the stock, passes down the generations in America. The pace of the wealth transfer will probably double by 2036-40 as boomers die. According to Cerulli Associates, a research firm, millennials will inherit $22trn by 2042.

It is a mistake to assume that millennials will invest as their parents did. Two forces will lead them to seek more control over their assets: changes to pensions, and advances in technology. Consider pensions first. In the 1970s most schemes were “defined-benefit” (db). 

Beneficiaries were paid a fixed income based on their final salary and had no say in how their pots were invested. Then in 1978 the Revenue Act created the 401(k) plan in America—a “defined-contribution” scheme where savers have more control over where their cash goes. 

Assets held in such pensions have exceeded those in db schemes since 1995. Where investment firms used to compete to win the mandate for a company’s pension pot, today they are likely to be one of many managers that staff can choose from.

Even as they gain more control over workplace pensions, millennials are using technology to invest in shares and bonds directly. When most boomers began saving a handful of investment firms loomed large, offering high-fee mutual funds. 

But electronic trading makes it much easier and cheaper to buy and sell directly. The cost of investing $100 on a stock exchange has fallen from $6 in 1975 to less than a thousandth of a penny today. 

In 2019 the four big retail-trading platforms—Charles Schwab, E*Trade, Fidelity and td Ameritrade—cut commissions to zero as Robinhood, a pioneer of the zero-commission model, gained popularity. A generation reared on smartphones is as likely to trust an app as a well-heeled broker.

Fintech firms are working to capitalise on the coming windfall. Robinhood may have attracted the headlines, but millennials are just as keen to use other digital services. 

One example is “robo-advisers”, which automatically allocate invested assets across low-cost index funds based on age and risk-preferences for a low fee. According to BlackRock, an asset manager, four in five millennials who are aware of these advisers are keen to use them. 

As much cash—perhaps $40bn combined—is parked in Betterment and Wealthfront, two robo-advisory startups, as in Robinhood. Though Betterment has some older clients, the average customer is 35, says Jon Stein, its founder. 

Robinhood does not disclose the amount of cash held on its platform, but jmp Securities, a research firm, estimates that the average account holds $1,000-5,000. This would put total assets across its 13m accounts at $13bn-65bn.

Some incumbents are trying to catch up. In 2019 Morgan Stanley bought Solium, which manages vesting stock options for tech workers, in the hope that they will one day be rich clients. Others are gloomier. 

Most wealth managers surveyed by Accenture, a consultancy, expect to lose a third of their customers’ wealth at the point of succession. When the reaper comes for their clients, their business will go with them.

What goals will millennials pursue? Some 87% of them believe corporate success should be measured by more than financial performance, according to Deloitte, another consultancy. 

They also seem to act on that impulse. Morgan Stanley finds that the under-35s are twice as likely as others to sell a holding if they consider a company’s behaviour to be environmentally or socially unsustainable. 

Of course, millennials may become more hard-nosed as children and mortgages come along. Then again, having lived through two economic crises in a decade or so, they may want to shake up shareholder capitalism. 

The butt of jokes in 2020, millennial investors will eventually change how asset management works—and perhaps the economy, too.


By Rory Smith and Tariq Panja


LONDON — Everything started with a tweet. Mesut Özil knew the risks, in December last year, when he decided to offer a startling, public denunciation both of China’s treatment of the Uighurs, a largely Muslim minority in the region of Xinjiang, and the complicit silence of the international community.

Friends and advisers had warned Özil, the Arsenal midfielder, that there would be consequences. He would have to write off China as a market. His six million followers on Weibo, the country’s largest social network, would disappear. His fan club there — with as many as 50,000 signed-up members — would go, too. He would never play in China. He might become too toxic even for any club with Chinese owners, or sponsors eager to do business there.

Özil knew this was not fearmongering. He was aware of China’s furious response — both institutionally and organically — to a tweet by Daryl Morey, the general manager of the N.B.A.’s Houston Rockets, only a few weeks earlier. Yet Özil was adamant. He had been growing increasingly outraged by the situation in Xinjiang for months, watching documentaries, consuming news reports. 

He believed it was his duty, he told his advisers, not so much to highlight the issue but to pressure Muslim-majority nations — including Turkey, whose president, Recep Tayyip Erdogan, had served as best man at Özil’s wedding — to intercede.

And so he pressed send.

How much of what followed can be traced back to that tweet is contested. Özil is convinced that is the moment everything changed. Arsenal is just as adamant that it is not. There is no easy, neat way of bridging the divide between those perspectives. Perhaps both are true. Perhaps neither is. Neither Özil nor Arsenal was willing to discuss their differences on the record.

The outcome, regardless, is the same. A few days after Özil went public, the Premier League’s two broadcast partners in China, CCTV and PP Sports, refused to air an Arsenal match. When the latter did deign to show Arsenal again, its commentators refused to say Özil’s name.

His avatar was removed from video games. Searching the internet for his name in China brought up error messages. (It was reported his Weibo account was disabled, though that was not true.) Very deliberately, though, and seemingly at the behest of an authoritarian government, Mesut Özil was being erased.

If it felt, at the time, as if that was as bad as it would get, it was not. As it turned out, Özil’s disappearing was just beginning.

The Pay Cut

In Turkey, supporters of China’s Uighur minority were thrilled to have Özil’s support. The Chinese government was furious, and not just at the player.Credit...Ozan Kose/Agence France-Presse — Getty Images


In hindsight, Arsenal’s reaction to Özil’s decision to speak out was — at least — inconsistent. Publicly, the club moved quickly to distance itself from his comments. Privately, it considered punishing him.

His tweet, and a simultaneous Instagram post to his more than 20 million followers on that service, had caused considerable problems — not just at Arsenal, but also for the Premier League. China, after all, was its largest foreign broadcast partner, and its biggest foreign market, and the league could not afford — even in a pre-Covid-19 world — to have its games blacked out, to have its sponsors and its fans close their wallets.

“In China, a lot of the audience are not aware of the nature of the relationship between an association, a league and a player in foreign countries,” said Zhe Ji, the director of Red Lantern, a sports marketing company that works in China for both the Premier League and a number of its teams. “They see in China the football association is in full control of the league, which is in control of the player. It puts teams, leagues and individuals in an awkward position. There is a cultural confusion.”

Özil’s supporters once included his manager, Mikel Arteta, a former teammate. But last week Arteta dropped him from the team’s roster. “It’s nothing related to anything," he said. “It’s my decision.”Credit...John Sibley/Action Images, via Reuters


Conscious of that, Arsenal executives urged Özil to avoid political statements, or at least to ensure he avoided any association with the club if he continued to make them. When the club sent out its merchandising celebrating Chinese New Year, it made sure to remove Özil from any of the materials.

Eager to avoid the kind of public dispute that had imperiled the N.B.A.’s billion-dollar business relationship with China, the Premier League did its best to stay above the fray. But the league and its clubs seem to pick and choose their interventions. A few months after Özil’s tweet, players representing the Premier League’s 20 clubs — Arsenal’s Hector Bellerin was a leading advocate — informed the league that they would begin purposeful displays of support for the Black Lives Matter movement during games. The league quickly acquiesced to its players’ political awakening.

And last week, after Arsenal’s captain, Pierre-Emerick Aubameyang, tweeted in support of protests against police violence in Africa, the club issued its own statement. “To our Nigerian fans,” it began. “We see you. We hear you. We feel you.”

“It is becoming increasingly important that you have a point of view on this stuff,” said Tim Crow, a sponsorship consultant. “If you don’t, sooner or later the spotlight will turn on you, and people will ask questions about your values.”

Özil’s mistake, then, appears to be less that he had made a political statement and more that he had picked the wrong issue.

By the time the Premier League was discussing Black Lives Matter in the summer, of course, the world had changed. The coronavirus had forced soccer into a three-month hiatus, and Arsenal, like every other club, was coming to terms with the financial ramifications. Soon a new discussion began at Arsenal, about whether the team’s well-paid players should accept salary cuts. And almost immediately Özil’s stance on that issue, too, was widening the chasm between him and his club.

Arsenal hasn’t played Özil since the summer, when he refused to accept a pay cut.Credit...Andrew Matthews/Reuters


Even after his tweet about China, Özil played a reasonably prominent role for Arsenal in the first few months of 2020. Mikel Arteta, the club’s new coach, had insisted in his interview for the job that he wanted to work with Özil, a former teammate, to see if he could coax the club’s highest-paid player back to his best.

That relationship seems to have foundered as the club pressed its players to surrender some of their salaries to ease Arsenal’s cash crunch. The talks lasted for six weeks, and by late April the majority had fallen in line.

Özil, though, still had questions. He had asked Arsenal’s senior leadership for detailed answers on what the savings would be used for, whether the club’s owner would also be contributing, and whether the team could assure him it would use the money to protect its nonplaying staff.

He did not feel those issues were satisfactorily addressed (though the club does). After a final Zoom call, in which Arteta urged his players to “do the right thing,” Özil remained unmoved.

In June, the 12.5 percent wage cut was made official, and the players were presented with paperwork backdating the changes to April. Most signed immediately. Half a dozen or so lingered. Özil stood firm. Again, he knew the risk: that he might be ostracized by the club, that it might effectively end his career at Arsenal by refusing. It made no difference.

Özil has not played for Arsenal since. In August, two months after winning the wage concessions from its players, the club — citing the continuing financial impact of the pandemic — announced that it had parted company with 55 staff members. Özil took a particular interest in one of them.

The Dinosaur

Özil with Gunnersaurus, the mascot whose salary he tried to save after it was eliminated in a recent round of pandemic cost-cutting.Credit...Eddie Keogh/Reuters


There is, perhaps, no better indication of just how all-encompassing the distrust between Özil and Arsenal has become than the fact that, along with his political activism and his refusal to accept a pay cut, at least part of the tension between the parties relates to an argument over a dinosaur.

Earlier this month, it emerged that Arsenal had parted company with Jerry Quy, a lifelong fan who has spent the last 27 years dressing up as an oversize green dinosaur (possibly; his species is unclear) standing on the sideline during games. Quy is the human behind Gunnersaurus, Arsenal’s slightly ironically beloved mascot.

His dsmissal was, to put it mildly, a public-relations disaster. Özil, immediately, seized on it, volunteering to pay Quy’s salary until fans were permitted to return to English stadiums and Gunnersaurus could return. The club was furious.

It felt, from the outside, as if Özil was trolling Arsenal. It is certainly possible that he was. It was just as clear that for good or (mostly) ill, player and club were inextricably bound together.

The club had tried to sell Özil in the summer of 2018 and in the summer of 2019, and more recently it had been negotiating with him over buying out most of the remainder of his contract.

Özil, though, was unwilling to budge. Why that might be — again — is a matter of debate. Some at the club believe that, newly married and with an infant daughter, he feels settled in London and does not want to move. Many fans assume he is simply happy to collect his multimillion-dollar salary until his contract expires next year, content to be paid not to play soccer.

Together with the international incident his tweet provoked, and coupled with the news media whispers — fiercely denied by those close to him, and never publicly stated by the club — that his attitude is lax and his inspiration gone, Özil seems to have developed a reputation. Soccer as a whole seems to have decided that the trouble he brings outweighs his talent.

For months, a World Cup-winning playmaker has been available at a heavy discount. And yet nobody, certainly in Europe, has been willing to take him on.

The Beginning of the End


Özil still turns up for practices at Arsenal but now cannot play: The club did not register him as a player for the current Premier League season.Credit...John Sibley/Reuters


Özil, 32, insists it is his “love” for Arsenal that keeps him there. He had opportunities to leave over the course of this summer, according to a soccer executive with knowledge of the offers, but none that appealed. The size of his salary — and perhaps his reputation as troublesome — severely limits his options, even as Arsenal is so keen to move him on that it is prepared to pay two-thirds of his contract to make it happen.

It was only in the last week that the reality of his situation set in. He had already been left out of Arsenal’s squad for this season’s Europa League — he live-tweeted its game against Rapid Vienna on Thursday night from home — when he was told he would not be in the list for the Premier League campaign, either.

With the transfer window closed until January, it is, now, too late for him to leave. Until then, at the earliest, he finds himself in soccer exile: one of his own making, of his club’s making, one that there does not seem to have a way out.

He believes it started with the tweet. Arsenal disputes that. Wherever it began, this is where it has led: 10 months later, Mesut Özil has, effectively, been erased.


Claire Fu contributed reporting from Beijing.

2020 vs. 1968: This Too Shall Pass

BY WHITNEY GEORGE, CHIEF INVESTMENT OFFICER 


2020 has been a challenging year. With the COVID-19 pandemic, increased social unrest, fires engulfing the West coast, a record number of hurricanes exhausting the naming alphabet, and high tensions surrounding the upcoming U.S. presidential election, 2020 will go down as an exceedingly nerve-racking year.

However, looking back in history, 2020 isn't so unique.

With gratitude for a career on Wall Street that has spanned more than 40 years, I have experienced plenty of history. 

Looking back for an analog to this past year, in many ways, 1968 was a year on par with 2020. It's worth pointing out several of the major historical events that occurred in 1968.


Figure 1. 2020 vs. 1968

        Source: Shutterstock.com


1968: The Year the World Caught Fire

The Tet Offensive, which suddenly raised U.S. awareness of the Vietnam War, kicked off the year (the war would not end for another seven years). Unrest plagued Czechoslovakia, which tried to break away from the Soviet Union only to have it intervene and re-impose a Stalinist regime, ending the "Prague Spring." 

North Korea seized one of our naval surveillance ships, the Pueblo, and imprisoned 83 U.S. sailors in a concentration camp; this was 15 years after the Korean War had ended.

On April 4, Martin Luther King, Jr. was assassinated, leading to social unrest and protests exceeding those today in their fury. In the spring, student anti-war protests erupted around the world. On June 5, Robert Kennedy was assassinated as he campaigned for the U.S. presidency. 

In late August, thousands of students, antiwar activists and other demonstrators poured into Chicago and disrupted the Democratic National Convention, which resulted in the nomination of VP Hubert Humphrey. Athletes at the Mexico Olympics protested on the award stand, raising their fists in support of "Black Power" during the playing of The Star Spangled Banner. 

There was also a highly volatile election season, which eventually led to Richard Nixon's presidency. And to cinch the comparison with 2020, a virus spread across the globe in 1968 (the "Hong Kong" flu), ultimately causing the death of 100,000 people in the U.S.

"Sock it to me!"

There was also good news in 1968. Apollo 8 was the first human spaceflight to successfully orbit the moon. Launched on December 21, the astronauts returned to earth on December 27. 

The crew orbited the moon ten times, and at the time, their Christmas Eve TV broadcast was the most-watched TV program ever. Contrast that to today, when we now measure "eyeball" success through numbers of Tweets, Instagram likes and Facebook friends. 

Creativity abounded in 1968 with the likes of Rowan & Martin's Laugh-In, the films 2001: A Space Odyssey, and Planet of the Apes. Mrs. Robinson, by Simon & Garfunkel, was the number-one smash hit song on the radio.

I bring up 1968 to suggest two key lessons that should apply to 2020.

Lesson #1: The World Did Not End

First, the world did not end in 1968. As a society, we survived and were able to move forward and grow from the experience. 

It's essential to keep this in mind and not let the anxiety of this past year cloud our judgment. This too shall pass.1

The decade of the 1970s that followed 1968 ushered in a new wave of investment options for investors that were quite different from what had worked in the 1950s and 1960s. 

The 1970s were characterized by rising interest rates and stagflation, where hard assets investments, especially gold, silver, energy and real estate, provided some inflation protection and positive returns.

1968 was a setup for this shift, given the extreme budget deficits, the impact of Lyndon Johnson's Great Society — which sought to lessen poverty and racial injustice — and the escalation of the Vietnam War. These events put us in a position in the early 1970s that is not dissimilar to where we are today.

Key investment lessons from 1968 happened in the years that followed. In 1969, the first of multiple recessions hit the U.S., continuing through the 1970s. Political uncertainty persisted with three successive U.S. presidents that served just one term (Nixon, Ford and Carter). 

A battle against inflation, which grew precipitously over the next decade despite high unemployment and stagnant demand, fundamentally altered how the Federal Reserve (Fed) approached interest rates. 

Stagflation led to strict Fed policies that held interest rates historically high in the U.S., suppressing the returns that investors could expect via stocks and bonds. Interest rates climbed above 20% during the 1970s, and by the end of 1980, inflation surpassed 14%.

In addition, personal income taxes were very high in the 1970s. The marginal tax rate in this U.S. was 70%. On the other hand, nobody paid 70% because there were offsetting tax credits that benefitted society. 

Between 1930 and 1980, the top marginal tax rate averaged 78% and exceeded 90% from 1951 to 1963. 

Prominent economists agree that rather than penalize the wealthy, high marginal rates helped to drive entrepreneurial business income out of the individual tax system and into growing American businesses, which "reduced inequality and constrained the immoderate and unmerited accumulation of riches." 2

Figure 2. A History of U.S. Marginal Tax Rates

       Source: Wikimedia.org.


Tax credit incentives in the 1970s helped to fund low-income housing, to ignite research and development in computer technology and biotechnology and to expand professional sports teams. 

For informed investors, there were many excellent investment opportunities to offset the very high nominal tax rates. I think it's wrong to get too dire about what's coming, including a tax hike. 

Obviously, the deficits are out of control and modern monetary printing is here. 

The message is that this tough period will come to an end at some point, but it may be very beneficial to own hard assets, especially gold, in this environment.

Lesson #2: 2020 Will Impact the Next Decade, So Prepare

Second, from an investment standpoint, the repercussions of 1968’s difficulties were felt for a decade to come. 

They affected interest rates (which rose steadily), stock valuations and even how we bought and sold gold and other precious metals — something we humans have been doing for millennia.

Until 1971, gold and the U.S. dollar were convertible at a fixed ratio. With foreign countries holding U.S. dollars worth three times the amount of gold the U.S. held in Fort Knox. 

The U.S. was in a precarious situation since it had long provided the ability for foreign countries to exchange dollars for gold. Fearing a run on the nation's gold reserves, Nixon eliminated gold/dollar convertibility in 1971, eventually freeing the gold market to float and allowing individual investors to own the precious metal at higher levels. In doing so, investors also gained a refuge from the rising inflation.

It is no surprise that gold's price saw significant appreciation between 1968 and 1980, increasing from $35 to $850, a gain of more than 2,300%. 

Today, gold is on the rise again, gaining about 25% year-to-date, as investors seek a safe haven to wait out a turbulent 2020.

Figure 3. Gold Has Outperformed Major Asset Classes YTD in 2020

Source: Bloomberg. Period from 12/31/1999-9/30/2020. Gold is measured by GOLDS Comdty; US Agg Bond Index is measured by the Bloomberg Barclays US Agg Total Return Value Unhedged USD (LBUSTRUU Index); S&P 500 TR is measured by the SPX; and the U.S. Dollar is measured by DXY Curncy. Past performance is no guarantee of future results. You cannot invest directly in an index. 

What Next?

As a country, like in 1968, we have made more promises than we can keep. 

We have spent beyond our means. 

We have again crowded our investments into a small group of behemoth technology companies (remember the Nifty Fifty?3). 

Our fear is that the world post-COVID-19 will feature a period of stagflation. 

But, as bad as it sounds, there will be opportunities, just like there were in the 1970s, to protect and compound wealth through this paradigm shift (read more in A Paradigm Shift, posted earlier this year).

However, there is one significant difference between today's economy and 1968. 

Precious metals investing has grown by leaps and bounds since 1971 when Nixon suspended the gold convertibility of the dollar. Individuals and institutions can now choose to own gold and silver through ETFs, closed-end trusts, mutual funds or holding the metals directly. 

The biggest lesson to glean from 1968’s tumult is that the U.S. and the world recovered from the uncertainty. 

Although the future remains unclear, finding a secure place to wait for the results while still capturing returns is one significant appeal of precious metals, especially gold and silver.

Gold, A Bullish Bet

Accelerating change means that what took a decade to unfold in the aftermath of 1968 is likely to ensue in just three to five years post 2020. 

Rather than waiting for the geopolitical and economic landscape to improve, we believe investors should proactively review how they are positioned for a changing future. 

As was true following 1968, we believe investors can benefit from allocating a portion of their investment portfolios to gold and precious metals.

Remember, this too shall pass.

Figure 4. Price of Gold: 1960 to 2020Source: Macrotrends LLC. Grey horizontal bars represent periods of recession.


1 The phrase "This too shall pass" earliest origins belong to ancient Persian poets and Jewish folklore, but there is no definitive answer as to where it came from. Abraham Lincoln used it in a speech before he becoming the sixteenth U.S. president: “It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: 'And this, too, shall pass away.' "

2 Economists Emanuel Saez and Gabriel Zucman point to the 1950 to 1980 era as proof that raising the top income tax rate to 70 percent or higher can reduce inequality and constrain the immoderate and unmerited accumulation of riches.

3 The term Nifty Fifty was an informal designation for fifty popular large-cap stocks on the New York Stock Exchange in the 1960s and 1970s that were widely regarded as solid buy-and-hold growth stocks.

ETF Clones Multiply in Industry Fee War

Invesco and other ETF industry executives say they need copycat funds to attract cost-conscious individual investors

By Michael Wursthorn

An index of the 100 biggest Nasdaq stocks is tracked by two Invesco ETFs, but the newer one has much lower fees. / PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS


The race to zero on Wall Street is so competitive that some of the biggest asset managers are creating cheaper knockoffs of their most popular exchange-traded funds.

Invesco Ltd. IVZ -0.50% was the latest firm to create a copycat of one of its own ETFs. Earlier this month, it launched the Invesco Nasdaq 100 ETF, a near carbon copy of the biggest tech-focused ETF in the world, the Invesco QQQ Trust, better known as the Qs for its QQQ ticker symbol. 

Both funds track an index of the 100 biggest Nasdaq stocks, a corner of the stock market that has massively outperformed in recent years.

But there is one glaring difference between the ETFs: fees.

QQQ charges investors 0.2%, meaning for every $1,000 investors put into the ETF they pay $2 in annual fees. The copycat, which goes by the ticker symbol QQQM, charges 0.15%, and shares cost half as much.

The move would have been unthinkable a decade ago. Asset managers risk cannibalizing their most popular products by redirecting assets into other funds, analysts said. But Invesco and other executives in the ETF industry say the copycat ETFs are necessary to compete with rivals that are all seeking the attention—and cash—of cost-conscious individual investors.


There are more than 2,200 exchange-traded products listed on major U.S. exchanges, but the cheapest products tracking broad swaths of the stock market have attracted the lion’s share of investors’ cash. 

In a recent report, Morningstar found that investors last year put $581 billion in the cheapest 20% of ETFs and mutual funds, while the rest saw $224 billion in outflows.

And analysts say the trend is continuing to play out.

Asset managers have noted the preference, sparking a fee war that has dramatically reshaped how much investors pay for investment products.

Rivals BlackRock Inc., BLK 0.34% Vanguard Group, State Street Corp. STT -0.44% , Invesco and others have all slashed fees on some of their most popular products. The fee war has ultimately saved investors some $388 million this year compared with what they would have been paying back in December, according to FactSet.

“Investors have a high preference toward [low] fees,” said John Hoffman, Invesco’s head of Americas, ETFs and indexed strategies. “This is something we heard from individual investors, and this [QQQM] should help solve that.”

But some ETFs can’t get any cheaper, giving rise to clones such as QQQM.

QQQ, which was first launched by Nasdaq in 1999, is structured as a unit investment trust, which comes with a higher operating cost than a plain-vanilla ETF, along with other limitations. 

The fund doesn’t have the ability to reinvest dividends or engage in lending securities to short sellers. The latter helps generate some extra revenue for ETFs, helping to mitigate some of the cost for investors.

Despite those constraints, QQQ has accumulated $141 billion in assets and is one of the most traded securities in the world. That makes it a staple for big institutional investors who give priority to getting in and out of positions seamlessly over cost. 

But its fee relative to other, cheaper ETFs might be a turnoff for mom-and-pop savers, Invesco executives said.

“QQQM with its lower management fee may appeal to long-term buy-and-hold investors,” added John Feyerer, Invesco’s senior director of equity ETF strategy.

State Street did something similar with the SPDR S&P 500 ETF, the world’s biggest ETF and the first ever launched. Also structured as a unit investment trust, State Street executives had run into the same limitations as Invesco. 

Worse, investors in recent years have plowed more money into similar, cheaper versions of SPY, the ticker symbol for State Street’s fund, run by rivals BlackRock and Vanguard.

‘QQQM with its lower management fee may appeal to long-term buy-and-hold investors.’— John Feyerer, Invesco’s senior director of equity ETF strategy

To remain competitive with individual investors, State Street in January switched the index tracked by one of its smaller funds, the SPDR Portfolio Large-Cap ETF, to the S&P 500, essentially making an ETF copy of SPY under the ticker SPLG. SPLG’s fee is 0.03%, compared with SPY’s 0.09%.

“We’re acknowledging that we have diverse users among our clients who have different need-sets,” said Matthew Bartolini, head of SPDR Americas research at State Street. 

Mr. Bartolini added that shares of SPLG trade for less than SPY, giving investors an easier access point.

Not long after the index change, SPLG, the SPDR Portfolio S&P 500 ETF, began attracting assets more quickly, more than doubling in size to nearly $7 billion, according to FactSet. That is still a sliver of SPY, which has more than $300 billion in assets.

Still, analysts predict clone ETFs will continue to gather assets as investors and money managers catch on to the products.

Eric Reinhold, a financial adviser at Ameriprise Financial Services LLC in Orlando, Fla., who puts most of his clients in ETFs, says he plans to start tracking the lower-cost generic funds as replacements for the originals.

“I’m all about lowering overall fees for clients,” Mr. Reinhold said.