Notes from Lockdown

By John Mauldin |

 
In times of change learners inherit the earth; while the learned find themselves beautifully equipped to deal with a world that no longer exists.

—Eric Hoffer
 

Greetings from Puerto Rico, where this frequent traveler is evidently home for an unusually long time.

I want to start today by thanking everyone for your kind wishes for my daughter, Amanda. She is now in rehab. Therapy is going well and she will go home soon. Her stroke was serious and would have been worse had her husband not discovered her quickly. They know what caused it, which can be controlled, and are optimistic about a full recovery.

Several readers, some who had experienced stroke themselves, sent encouragement and therapy suggestions. Many, many thanks. I have relayed all your messages to her caregivers. Reading through those messages and others, I was struck by your kindness, even in this stressful situation. The lockdowns and distancing seem to have created a hunger for connection. We are learning how much we need each other. The little things matter. We can’t shake hands or hug so we’re all trying, perhaps unconsciously, to “touch” in other ways.

The new coronavirus is touching us all, one way or another. The virus is infectious but so are the preventative measures. Today I’ll continue last week’s “postcard” format and at the end give you a lightening round of things I have come across, some good and some not. I hope some of what I tell you makes you as angry as it does me.

We are all trying to get our arms around this global event. None of us know the outcome yet, but we can still share notes and help each other through it. Your letters and emails help me and I hope this does the same for you.

Speaking of help, let me quickly remind you Mauldin Economics is offering a complimentary three-month subscription to our Healthy Returns premium service. There’s no obligation and all we need is your email address. Get started here.

Now, on with the show.


All in the Battle

The world is beginning to realize the seriousness of this issue. We rightly fear what is coming. We don’t know how bad it will be, but the denial is almost gone.

Even President Trump now says to expect 100,000–240,000 deaths or more. It’s going to get worse before it gets better.

Yet we aren’t just bystanders. To various degrees, we are all in the battle. Leading the charge are doctors, nurses, and other healthcare workers who voluntarily go where they know they are in danger, often without protective gear, because lives are at stake. They truly are heroes.

At the other end are the people working remotely from comfortable homes. Life is different and inconvenient now. They’re nervous but relatively safe if they follow the standard precautions. Their income is secure for the moment. They still help the “war effort” just by staying home and not becoming disease carriers.

But most Americans are somewhere between those two extremes. Millions are still working, at risk to themselves, to keep society going. We see some of them: delivery people, grocery store and pharmacy workers, TV reporters. Others are invisible. Does your home still have electricity? If so, it’s because people are working to keep the grid intact. We don’t see them but they are critically important.

A recent Axios/Ipsos survey shows how we’ve rearranged.
 


Source: Axios


Notice how “Working from home” is mostly an upper and upper-middle class phenomenon. It’s almost nonexistent at the lower end. People in the other income groups are more likely to be either working normally, laid off, or furloughed.

(By the way, the bars don’t add up to 100 because the rest were already not working—retired, in school, etc.)

But more alarming are the yellow bars at the right. If they are anywhere close to correct, it’s further evidence the unemployment rate is headed to Great Depression-like levels. And may stay there awhile, since we could be months (if not years) away from economic recovery.

Economists at Nordea are forecasting a 13% unemployment rate this year. There are other projections that are much higher. While still a guessing game, it seems clear that we are going to see a post-World War II high. It is quite possible we could approach Depression-era unemployment if the lockdown and social distancing policies last longer than currently anticipated.

Unlike then, however, the weak economy isn’t causing unemployment; the unemployment came first. Most of these people lost their jobs because the coronavirus fight required it. They are restaurant workers, hair stylists, hotel staff, flight attendants, and myriad others whose work requires close personal contact. Such contact is now a threat, so their jobs are casualties of war, sacrificed for the greater good.

We owe them a debt. The first payments are coming soon but if you are sitting at home with bills piling up, it can’t come soon enough. And given the transient nature of much of our population, simply delivering the payments is going to get messy.

Small Business Help

The recently-passed CARES Act (Coronavirus Aid, Relief, and Economic Security Act) has, among other things, provisions to help the many small businesses that the coronavirus shutdowns have demolished. I know many readers are business owners so I want to share some possibly useful information.

The Paycheck Protection Program allocates $350 billion for small businesses (under 500 employees) to receive forgivable government loans in exchange for retaining employees. Note the “forgivable” part. These loans will, if you meet the conditions, convert into grants you don’t have to repay. The US Chamber of Commerce has a detailed fact sheet.

As with most such programs, making the best of it requires some planning. My friend Darrell Cain runs a financial advisory firm specializing in dentists. As you might imagine, 80% of dentists have now mostly closed. Darrell is helping them figure out how to take care of their workers and get their practices going again when all this is over. It turns out there is an optimal path that isn’t immediately obvious.

This is complicated so I won’t go into the details here. If you are a small business owner, check out the Cain Watters loan calculator to find out how much you qualify to borrow from the Paycheck Protection Program. Note, this information applies to all kinds of small businesses, not just dentists.

The PPP loans come from the Small Business Administration but you will have to apply through a bank. Theoretically, all banks can do it but not all banks will. I’m told many banks are so overwhelmed they are helping only existing customers. So maybe start by finding out if your current bank is capable. If not, you may need a new one.

Business owners may be best served by having their employees access unemployment insurance, to which the federal government has added $600 a week to whatever your state pays. When you take the PPP loan an 8-week clock starts ticking on the forgivability. You may be better off taking the loan closer to when you can open your business rather than while you are shut down.

I will also point out that the Treasury Department has greatly confused this program’s rollout and twisted what Congress intended. The original plan was that unforgiven loans would convert into 4% 10-year notes. Treasury decided to “amend” that part. If they want banks to process all these loans then it needs to be at least a break-even endeavor for them. It’s not clear that the 1% interest will cover their costs and risks. It was originally going to be less, and the resulting adjustments have further delayed much-needed help many small businesses are waiting on. This is maddening. They have to do better. This needs to be viable for the smaller banks that serve small businesses.

I get it that  Treasury wants to show it is being tough on banks. Steven Mnuchin (Goldman Sachs) and many top Treasury officials are from the Big Bank world. They don’t understand smaller banks with their overheads and regulatory costs. Smaller banks don’t have Wall Street’s scale. If they want this to succeed for small businesses, they have to make it work for small banks. And 1% just doesn’t do it. This is a MAJOR screwup. Total FUBAR. Fix it.

Bye-Bye, Buybacks

The stock market had a rough first quarter. The second one may not be much better and could be worse. But more than a few traders expect a quick recovery once the virus is under control. Many expect the various Fed injections and stimulus programs to drive asset prices higher in late 2020. I have my doubts.

A report I just saw from Canaccord Genuity analysts Tony Dwyer and Michael Welch says the market may have another problem. For prices to rise, the market needs a) willing buyers who b) have cash to spend. Who is going to fill that role?

Well, since the Great Financial Crisis, the primary stock buyer has been the listed companies themselves via their stock repurchase programs. Their net purchases dwarf all others.



This is a problem for bulls because the main buyer is suddenly leaving the scene. One reason is political pressure. It’s a bad look to be rewarding shareholders when the country is in such dire straits. But that aside, many companies are already highly leveraged and, with recession looming, need to conserve their cash and borrowing power. Buybacks are not a priority. On top of that, the CARES Act restricts buybacks from companies receiving federal loans, loan guarantees, or other assistance.

All that means buybacks will likely be scarce for a while, and stock prices may have a hard time rising unless some other large buyer appears. Bull markets require people willing to buy. Bear markets develop simply in the absence of buyers.

China Puzzle

We know the coronavirus first emerged in Wuhan, China. According to the Chinese government, they had about 82,000 cases and 3,300 deaths before aggressive containment measures brought it under control.

That’s the official story. Stories and rumors back in January, while the outbreak was still growing, suggested it was not the whole story. Many people on the ground saw various things suggesting the death count was actually higher. Last week Bloomberg said a classified US intelligence report found the Chinese numbers really are too low. Numerous other reports have suggested the same for weeks.

That’s aggravating because, had China been more forthcoming, other nations could have been better prepared. Whether they would have been better prepared is another question. The publicly available data available in January was bad enough. It made experts like Scott Gottlieb predict the US would have a problem. Many epidemiologists knew it would be bad, and said so. Ben Hunt started pounding the table for action almost immediately.

I am not sure what, if anything, would have made US and European leaders do more to get ready. They may not have had the full truth from China, but they had enough to know this was coming. Yet thousands have still died and thousands more will.

When this is all over we need a bipartisan expert panel to investigate what went wrong at CDC, FDA, and everywhere else in the government. We had a 9/11 commission and this outbreak has already killed more Americans than died on that awful day. The country deserves the truth about why they had to die.

But we also need truth from China. There are persistent reports that COVID-19 came from a research facility near the Wuhan wet market. It apparently originated in the “horseshoe bat” which lives over 900 miles away from Wuhan. It would not naturally be there, except that researchers at the labs were looking at those bats trying to understand the coronavirus.

We know this because of all the research published both before the crisis and after by Chinese researchers, scientists and epidemiologists. There are many of them. Pictures of awards being given for research back in 2018 on this very topic. Even David Ignatius at the Washington Post says there must be more to the story.

Occam’s Razor says to choose the simplest explanation. You don’t have to get into conspiracy or weaponization. This may well have been a screwup in containment that the Chinese government doesn’t want to admit, and could ultimately kill millions. It will devastate the poor nations of the world. It has already made its way into the Amazon where they have no healthcare and no ability to “social distance,” or even understand the meaning of it.

Global Recession

Morgan Stanley is now predicting between a 38% and 45% drop in GDP for the second quarter, after a small drop in the first quarter. Even with the rebound in their moderate case, they still project a 4%-plus year-over-year recession in 2020. They acknowledge it could be much worse.

In our bear case outlook, the contraction in 2Q GDP is sharper, and disruptions from the virus persist into 3Q. In that scenario, we see 2Q GDP contracting as much as 45%, followed by a soft 3Q, and a rebound in activity in 4Q20 and into 2021. Even with the rebound, the level of output at the end of 2021 in our bear case remains 11.5% below its pre-recession peak. Real GDP contracts at an annual average rate of 10.7%Y in 2020 and expands at a modest 1.2%Y rate in 2021.

You can easily find much more optimistic or much more pessimistic projections. Morgan Stanley seems close to the middle. I post it simply to make the point this won’t be a quick return to business as usual.

How soon will people want to get back in the restaurants? How quickly will you want a dental hygienist putting her fingers into your mouth for a tooth cleaning? So much of life is going to change “Post-Virus.”

Lightning Round

  • A large local hospital paid for an order of almost 1,000 ventilators which were shipped from China. When the boat was met at the US port the ventilators were seized by the federal government.

  • On the good news front, scores of currently available drugs are being tested to reduce the symptoms of COVID-19. Some are showing remarkable results. The last I saw, at least six vaccines were in the works with a few already in human trials.

  • The Cleveland Clinic has developed a simple device that can be 3D printed to double the use of each ventilator. They are already being delivered and put to use.

  • The Chinese went into severe lockdown, in some cases welding apartment doors shut. It clearly helped. The US and much of the developed world have gone to nowhere near such extremes. That means we are unlikely to emerge as soon as they did.

  • The CDC and other authority figures are going to have to explain why they did not mandate simple masks right from the beginning. They can help even if not medical-grade. Countries that have used masks have a much smaller incidence of the virus. We should all wear simple masks in public. When you come home, wash them in hot water and detergent, which will kill any of the virus. Watch this video from the Czech Republic and share it with your friends. The Czechs evidently made 10 million masks in a few days. They don’t have to be pretty, just cover your face.

  • Dr. Mike Roizen, head of Wellness at Cleveland Clinic (he is Oprah’s doctor) confirmed to me that masks would make a huge difference. Since getting a mask is difficult now, Mike pointed out a simple bandanna helps. We laughed and said perhaps I could cut up one of my wife’s bikini tops. I can even color coordinate with my T-shirts on my walks outside.

  • Ten million people have already filed for unemployment. My own family members did not realize they qualify under the new rules. Almost everyone who had a job or has been constricted by the coronavirus qualifies. Tell them to file online as soon as possible.

  • March payrolls shrank 701,000, way more than expected. The next nonfarm payroll number could be closer to 10 million. And so on.

  • My friend Ian Bremmer has a free service called G-Zero you should check out. I find it fun and useful to keep in touch with what is going on around the world.

  • Follow me on twitter, @JohnFMauldin. And if you want to know what day-to-day life is actually like in Beijing right now, follow my friend Michael Pettis, @michaelxpettis.

  • It turns out that one of the early symptoms of the coronavirus seems to be a lost sense of smell. Michael Lewis writes about an effort using social media to track the spread of the coronavirus simply by using social media. If everyone participated, we could see where the virus is spreading much sooner than the testing shows.

Final Thoughts

While this pandemic is different, it is not the first pandemic or global war or global recession, etc., that humanity has seen. And after each such episode, the world isn’t the same as it was. There is always a “New Normal.” This time will be no different.

Many companies now have most employees working from home, and many will continue doing so after the virus is over. Some will no longer want as much expensive office space. We are clearly going to change our supply chains and bring manufacturing closer to home. That is going to happen everywhere in the world. This won’t end globalization but will certainly change it.

Right now, it appears to me that the lockdown will not be lifted until sometime in the middle of May, when current estimates say peak deaths will begin to level off. You can see projections for the US and for each state here. (To find your state, click on the icon for United States of America at the top. A drop-down box will appear.) Note this model assumes high compliance with social distancing everywhere, which we know is not happening. So it may be optimistic.

Time to close, but understand that we will have a new normal. The Age of Transformation will continue just as it has since the Industrial Revolution. There will be remarkable investment opportunities. Families and friends will become even more important. Life will go on.

A Personal Memory

I saw last week that one of the world’s greatest tenors, Placido Domingo, had contracted COVID-19 in Acapulco, Mexico. It reminded me of one of my greatest memories.

I was 17 and had been invited to join the Fort Worth Opera chorus. They wanted young faces for the crowd scenes and I could actually hit a high C with some confidence and projection. The first opera I sang in was with possibly the greatest coloratura soprano of the last century, Beverly Sills. I stood 10 feet from her when she sang her greatest role, the mad scene from Lucia di Lammermoor. I had no idea how incredible that was.

The next opera was La Traviata with the new young (27) lead tenor from the Metropolitan Opera, Placido Domingo. In rehearsal, he sang most of it in a falsetto to conserve his voice. When it came to the end and the death scene, he continued using his falsetto. Shortly after starting, the conductor quieted the orchestra and then silenced them. The only sound was Domingo’s voice. It was the most beautiful, haunting sound I have ever heard from a human being, literally raising the hair on the back of my neck and bringing tears to my eyes. And not just mine. I will never forget that moment as long as I live.

I hope Placido recovers. He recently apologized for some past conduct that sounds reprehensible. But his voice remains powerful and I hope the world doesn’t lose it. With that, I will hit the send button and wish you a good week. Stay home, stay safe, and wear a mask.

Your wishing I could still hit the high C analyst,



John Mauldin
Co-Founder, Mauldin Economics

The coronavirus pandemic

Developing and deploying tests for SARS-CoV-2 is crucial

Without them, no one knows what is going on




“WE HAVE A simple message to all countries.” So said Tedros Adhanom Ghebreyesus, the head of the World Health Organisation (WHO) at a news conference held in Geneva on March 16th. “Test, test, test. All countries should be able to test all suspected cases, they cannot fight this pandemic blindfolded.”

Without adequate testing for SARS-CoV-2, the novel coronavirus that is now sweeping rapidly around the world, he said, there can be no isolation of cases and the chain of infection will not be broken. As if to prove the point, a vigorous policy of testing seems to have slowed the virus’s spread in South Korea quite dramatically. And in Vo, a town in Italy, thorough and repeated testing of all 3,300 inhabitants has stopped new infections entirely.

Two main types of test are used to identify viral infections: genetic and serological. The first genetic test for SARS-CoV-2 was created just a few days after the virus’s genomic sequence was published, on January 12th, by a group of Chinese researchers. Others, developed subsequently by public health bodies around the world (and also a few companies) have their own tweaks, but their broad principle is the same.

Amplification is his only employ

Each starts with a swab taken from the back of the nose or the throat of an individual suspected of being infected, in a search for RNA—for SARS-CoV-2 stores its genes as RNA, rather than the similar molecule, DNA, which animals such as human beings employ for the purpose. Because of this quirk, the first step of genetic testing is to copy any RNA collected into DNA, using an enzyme called reverse transcriptase.

That done, the DNA is then amplified in quantity by a process called the polymerase chain reaction (PCR). The now-amplified DNA is sequenced and matched (or not) against the sequence that would be expected if the starting point was RNA from the virus.

Executed properly, genetic tests of this sort are extremely accurate. But they have limitations.

One is that if the virus is present only at low levels—at the start or end of an infection, for example—their sensitivity drops. Also, taking a throat swab is neither simple nor foolproof. If the sampling probe goes insufficiently deeply into the orifice concerned, or fails to gather enough cells, the test might not work.

Virologists say that the best sort of throat swabbing almost inevitably makes a patient gag or cough. This means that whoever is doing the swabbing needs to be protected from infection.

All this assumes that the tests themselves are designed properly. The WHO published protocols for a SARS-CoV-2 test in January, and most places which have created their own tests have based them on these instructions. In America, however, the Centres for Disease Control and Prevention (CDC) designed its own protocols.

Tests created using these American CDC protocols, which were distributed across the country to state-level public-health laboratories, turned out to be flawed. This no doubt contributed to America’s slower response to the unfolding crisis.

The actual apparatus used to carry out PCR tests of this sort—regardless of the exact bug being tested for—is commonplace in hospitals in rich countries, for it is used routinely to identify viruses from influenza to hepatitis to HIV. But the process is thereby centralised, and can be slow. It may take as long as 48 hours after a sample is collected for the result to be returned to a patient.

What is needed is a test which can be conducted immediately after sampling, a process known as “near-patient testing”. This involves packing everything required for a test—both the instruments and the chemicals—into a reasonably portable machine, designed specifically to look for SARS-CoV-2, that can be deployed away from a big hospital laboratory.

Several firms are working on such things. BioMérieux, a French biotechnology company, says it will have a test on offer by the end of March, and that it has an emergency-use authorisation for it from the Food and Drug Administration, which approves such devices for America.

Cepheid, a Californian firm, will try to use a similar approval process to get its own coronavirus-specific test to market. This is a box, the size of a small laser printer, that ingests a sample, carries out an analysis and returns a result within a couple of hours.

Think global. Act local

Machines like these could be particularly valuable in places where public-health laboratories are few and far between. John Nkengasong, head of Africa CDC (an arm of the African Union unrelated to the American organisation of the same name), wrote in the Lancet in February of his concern about the spread of coronavirus across his continent, given the strong links between many African countries and China, the place where the pandemic began.

One of his worries was the continent’s lack of testing capacity. At the start of 2020, only the Pasteur Institute in Senegal and the National Institute for Communicable Diseases in South Africa were able to carry out full-scale genetic detection of SARS-CoV-2.

Subsequent training, led by the WHO, has now enabled scientists in around 40 African countries to diagnose infection with the virus—but this can still be done only in each country’s central public-health laboratory. Near-patient testing would help a lot. And many health-care workers in Africa are already familiar with similar self-contained diagnostic machines, because they have been used extensively to track the efficacy of antiretroviral therapy for HIV.
Genetic tests identify active infections. But to understand properly how SARS-CoV-2 is spreading through a population it is also important to know who has been infected in the past and recovered. That is where serological tests come in.

They look not for RNA in swab samples, but for antibodies in blood samples. Antibodies usually hang around in a person’s bloodstream well after an infection has cleared. They thus form a historical record of the pathogens people have been exposed to over the course of their lives.

Each antibody is tailored to latch onto a specific protein on the surface of a pathogen, thus disabling it. A serological test for SARS-CoV-2 therefore works by using such a protein—referred to as an antigen—to capture antibodies from a blood sample. Most tests under development focus on spike, a protein which protrudes prominently, and in many places, from the surface of the otherwise-spherical SARS-CoV-2 virus particle.

In a typical test, a blood sample would be placed into a test tube coated inside with the antigen.

If relevant antibodies are present, they will stick to the antigen. Depending on the design of the test, a positive result could produce a colour change or emit light to indicate success. The whole thing is reasonably cheap and could give results in minutes.

BioMedomics, a firm in North Carolina, for example, has designed a serological test for SARS-CoV-2 that needs only a few drops of blood from a finger prick, and which gives results in 15 minutes. It includes a hand-held plastic stick which looks similar to that from a pregnancy-testing kit. And, similarly to those tests, it uses coloured lines to indicate the presence of particular antibodies. The company says the test has already been widely used by China’s public-health authorities, but has not yet been reviewed for use by America’s FDA.

Designing a serological test, then, is straightforward. Checking that it gives accurate results takes time, though. A common problem with such tests is that antibodies may cross-react, meaning that a test for SARS-CoV-2 might also show a positive result when it comes across a different coronavirus—the original SARS, perhaps, or one of the coronaviruses that cause colds. Testing the accuracy of these tests requires trials involving hundreds of people who are known to have had SARS-CoV-2 infections, and hundreds of others who are known not to have been infected.

Once validated, serological tests are fast and cheap to run at scale. They have already been deployed in China, Singapore and South Korea. Data on their efficacy, however, have not yet been publicly released or independently verified. America’s CDC is evaluating two serological tests and Public Health England, the relevant government body in that country, is also working on a test.

Chris Whitty, England’s chief medical officer, said that the introduction of such a test would be a “game changer” in the quest to track and control the spread of SARS-CoV-2 across the population. It cannot come fast enough.


Fed Preparing to Purchase New Small Business Payroll Loans

Fed, Treasury working on program to facilitate more lending to small businesses

By Kate Davidson and Nick Timiraos


The Fed said it would establish a facility that offers term financing backed by Payroll Protection Program loans. / Photo: leah millis/Reuters .






WASHINGTON—The Federal Reserve said Monday it would create a new program to finance loans that banks and other lenders make through the government’s emergency small-business lending program, according to people familiar with the matter.

The move will free up financial firms to make more loans guaranteed by the Small Business Administration’s Payroll Protection Program, part of a $2.2 trillion economic relief package President Trump signed last month to help individuals and businesses affected by the coronavirus pandemic.

In a statement Monday afternoon, the Fed said that to facilitate more lending to small businesses, it would establish a facility that offers term financing backed by PPP loans. It said additional details would be announced later this week.

The Fed has been working on the program with the Treasury Department. The loans are designed to cover about two months of payroll expenses and other essential costs, and can be forgiven if businesses maintain the size of their workforce.

The banking industry has been pressing the Trump administration to set up a program to purchase the loans from lenders who originate them, which would help free up banks’ balance sheets so they can make more of the loans.

The loans don’t require the Fed or the Treasury to take on the risk of bearing losses because they are already insured by the Small Business Administration, a government agency. As a result, the Fed’s purchases of the loans would be akin to its purchases of government-backed mortgages that are pooled together and issued as securities by Fannie Maeand Freddie Mac.

“This concept works well in the American mortgage market and should be replicated to meet program loan demand in this crisis,” Rebecca Romero Rainey, the president of the Independent Community Bankers of America, said in a letter Sunday to Treasury Secretary Steven Mnuchin.

The Fed faces restrictions on the types of assets it can purchase directly, but it can create lending facilities with broad latitude to acquire loans or other assets.

The Fed has already launched six facilities since the coronavirus pandemic led to widespread shutdowns of commercial activity that has roiled financial markets, including a facility under which it will lend money to investors to buy securities backed by small business and student and credit-card loans.

Ms. Romero Rainey said the Fed should also provide advances to banks against the loans to further enhance the capacity of the small-business lending program.

Under the law, banks are required to keep the loans on their books for seven weeks before selling them. That could make it difficult for smaller banks with limited capital and liquidity constraints to keep up with customer demand, a banking industry official said.

Banks have struggled to keep up with a surge in demand for the new loans after the program launched last Friday, and Mr. Trump said on Twitter he would go back to Congress for more money if the funds run out.

The creation of a secondary market for the loans shows how Washington is ready to expand the program as necessary in the coming weeks.

Meanwhile, officials have been working out some of the early kinks of the program, which the Treasury and SBA set up in just seven days.

The government doubled the interest rate on the loans, to 1%, just hours before the program started after small banks complained the low rate would make the loans unprofitable for many banks.

Some in Silicon Valley also warned that startups could be shut out of the program because federal rules make it difficult for firms with private-equity or venture-capital bankers to qualify as small businesses.

The Hedge-Fund Trades Going Haywire

When traders sell what they can rather than what they should, once-reliable investment strategies unravel

By Jacky Wong


Shares in Japanese wireless carrier NTT DoCoMo hit their highest price since 2002 on Thursday.
Photo: Kiyoshi Ota/Bloomberg News .


When everyone runs for the exit at the same time, the stampede can be brutal. The recent market rout has turned some seemingly low-risk trades into hazardous traps.

One example is so-called relative-value trades, where investors buy one security while shorting another, trying to exploit pricing anomalies. Some trades are based on statistical analysis, while others rely on fundamental linkages between two instruments, such as futures and their underlying asset.

These strategies are usually seen as market neutral—they can make money whether the market is up or down—because the net exposure is small. Data tracker Hedge Fund Research said $877.3 billion of assets were managed under the relative-value umbrella as of December.

But when investors are scrambling for cash, the supposed pricing anomalies can be amplified, especially since no one is willing to step in to correct the valuation divergence. For example, in fixed income, the spreads between bond futures and the underlying bonds have widened, perhaps because futures are the more liquid instrument of the two.

That has driven some funds to liquidate their positions, which has further pushed the spreads out of whack and caused more funds to cut their trades in a vicious spiral.



Similarly in equities, funds, especially in Asia, would buy a stock and simultaneously short its parent or subsidiary to bet on the convergence of their values. These values, however, can diverge further when everyone is closing the same trades. In one extreme example, shares of Japanese wireless carrier NTT DoCoMohit their highest price since 2002 on Thursday.

The likely reason for the pop is that investors who had shorted the stock and bought its parent Nippon Telegraph and Telephonewere unwinding the trade, pushing others to make the same move. Until last Thursday, DoCoMo had been up 12% this month, while its parent was down 4%.

Betting on the closing of a merger—curiously named risk arbitrage—has also had some bad days. Such a strategy may be largely market-neutral in normal times, but the sudden economic downturn poses some real risks to the completion of deals, especially if they are funded by debt.

Shares in casino operator Caesars Entertainment are now trading 35% below the acquisition price offered by Eldorado Resorts.The discount was as high as 61% last week, having been virtually zero in February.

The fact that many such trades are financed by leverage to juice returns has made the fallout worse. The use of debt to enhance yields is probably the reason why some theoretically more stable sectors like utilities have actually performed worse than the broader market in the current bear market, for example.

Some trades that make sense normally are turned upside down in a crisis, when traders don’t sell what they should but what they can.

‘Covid-19 Kills Only Old People.’ Only?

Why are we OK with old people dying?

By Louise Aronson


Credit...Damon Winter/The New York Times


“Not just old people: Younger adults are also getting the coronavirus,” a news network declared on its website last week. The words seemed to suggest that Covid-19 didn’t matter much if it was a scourge only among the old.

Even if the headline writer had no such nefarious intent, many people seemed surprised that two-thirds of the Americans known to be infected were under 65, according to the federal Centers for Disease Control, and that younger adults around the country also have become critically ill. After all, we kept hearing that 80 percent of the infected Chinese who died were age 60 and older and that the average age of death from the disease in Italy is 81.

No one wants young people to die. So why are we OK with old people dying?

Of course, we all will die, and since the ventures of the rich and famous to indefinitely extend life have so far come up short, death in old age is the best outcome available to us.

But most old people are not dying. Not only are the “old” getting older, but the risk of death in the next year for a 70-year-old man is just 2 percent, and an 80-year-old woman has only a 4 percent likelihood of dying in the coming year, according to the Stanford economist John Shoven. Comments such as “They’re on their way out anyway” are therefore more than colossally insensitive; they’re also colossally inaccurate.

And they harm all of us. Some countries responded slowly to the coronavirus threat because they deemed it a condition primarily lethal to old people “less worthy of the best efforts to contain it,” the World Health Organization’s director general, Dr. Tedros Adhanom Ghebreyesus, noted recently.

That some of the national leaders abiding by this assessment are themselves in the highest risk group is testament to one of the fundamental truths of ageism: that it is pervasive among old people themselves in ways that threaten both personal and national health.

The news and social media have been full of similarly counterproductive messages, even cruel memes such as “Boomer Remover,” a descendant of last year’s dismissive and condescending “OK, Boomer.”

This matters in the era of Covid-19 because in a culture that persists in ignoring the last century’s huge gains in longevity and the obvious differences between young and much older adults, we are unable to address the needs of older Americans.

It matters because the isolation necessary for slowing the rate of contagion will also cause irreparable harm to their health and have both short- and long-term economic effects. And it matters because when we accept the second-class citizenship of an entire category of human being, we set a precedent for treating others with the same disregard.

The effects of this isolation are being seen throughout the country. On Twitter, a young woman in Oregon described being called over to a car at her supermarket where a couple in their 80s sat scared to go inside lest they become infected; they handed her $100 to do their shopping so that they wouldn’t starve.

One of my geriatrics colleagues who cares for people in assisted living facilities in the San Francisco Bay Area told me one patient had commented that his current living situation was “like being in solitary confinement and we have no idea for how long.”

A photo picked up by many news outlets shows a Connecticut man holding a sign outside his wife’s nursing home window that said: “I’ve loved you 67 years and still do. Happy anniversary.”

Isolation and neglect add to a history of systematic injury. The Trump administration didn’t just eliminate the federal office of pandemic preparedness and dismiss or drive away scientists and experts at all levels of government; it also moved to decrease nursing home oversight and infection-control regulations.

Meanwhile, although I could cite abundant data on the poor quality of many nursing homes and on the ubiquity of loneliness, neglect and mistreatment, and I could note that the facility in Kirkland, Wash., that responded so slowly to a lethal contagion had a top government rating, it is more compelling to simply ask: If you don’t already live in a nursing home, are you looking forward to the time when you can move into one?

If your answer is no — mine certainly is — then here are some facts to consider as we shape our national response to this pandemic: One-third of American infections have occurred in people aged 65 and older, demonstrating a significantly disproportional impact, since that group makes up just 16 percent of the population. (And this assumes we are recognizing all cases; one can easily imagine the people who succumbed quickly in places where no one would think twice about the death of a frail, sickly old person.)

Older people represent 45 percent of Covid-19 hospitalizations, 53 percent of intensive care unit admissions and 80 percent of deaths. Meanwhile, this country’s two most prominent medical journals have published articles exclusively about Covid-19 in children but no articles specifically devoted to the disease in old people.

Fortunately, the needs of the elderly are beginning to get more political and media attention. The Trump administration, recognizing that going into hospitals and clinics for nonurgent but needed appointments put the elderly at unnecessary risk for coronavirus infection, lifted restrictions on telephone and video conferences for Medicare beneficiaries.

Social media abounds with stories and images of people paying for an old person’s groceries, delivering food, writing letters, playing music outside nursing homes. There are so many ways to help while still maintaining social distance.

If this pandemic gets as bad as the worst predictions, we may eventually have to offer palliative care to people who might have survived with intensive care. As medical experts have noted, the primary criterion for rationing should be a negligible chance of survival whatever a patient’s age. At the same time, while weeks on a ventilator are damaging to patients young and old, an elderly person’s chance of meaningful recovery from that kind of physical trauma is small.

But there is also this: When we look at people as nothing more than amalgams of age and diagnosis, we miss their humanity. Last week in my clinic, I met an 87-year-old with heart, kidney, spine, blood and joint disease — the sort of patient some doctors refer to as a “train wreck.”

What is too often missed when such words are used are the other facts of that patient’s life: that she only recently retired from her leadership position at a local service agency, that she had me laughing out loud several times during our visit, that her friends and family describe her as the strongest person they have ever met.

We can choose to either diminish our elders or support them.

When we care for them, we not only are affecting the lives of people now but also are shaping our own futures.


Louise Aronson is a professor of medicine at the University of California, San Francisco, and the author of “Elderhood: Redefining Aging, Transforming Medicine, Reimagining Life.”