Vaccine efficacy

When covid-19 vaccines meet the new variants of the virus

A lot depends on blocking transmission, not just disease


On february 1st researchers around the world saw the tweet for which they had been waiting: “We say with caution, the magic has started”. 

Eran Segal, a scientist at the Weizmann Institute, had been posting regular updates on the course of Israel’s covid-19 epidemic since its mass vaccination campaign had begun six weeks earlier. 

By February 1st he was seeing the number of hospitalisations dropping significantly among the over-60s—a cohort in which the number vaccinated had reached 70%, seen as a crucial level, three weeks before. 

After an expected but still somewhat nail-biting lag, the vaccine was doing its thing.

By February 6th about 85% of the over-60s in Israel—and 40% of the general population—had received at least one dose of the Pfizer/BioNTech mrna vaccine (or in a few cases the Moderna mrna vaccine) and 75% of the over-60s had received their second dose, too. 

In that age group hospital admissions for covid-19 were about two-thirds what they had been at their peak in January and still falling (see chart 1). 

At the same time, the country as a whole was seeing its caseload rise.

The vaccine was not the only thing which arrived in Israel late last year. 

So did b.1.1.7, a highly contagious variant of sars-cov-2, the virus responsible for covid-19, which was first identified in Britain in September. 

It set about filling up hospital wards in Israel just as it has done in Britain, Ireland and Portugal. 

Despite an extended lockdown it is still doing so.


It is no surprise that sars-cov-2 has evolved new biological tricks over a year spent infecting more than 100m people. 

But the near simultaneous arrival of not just b.1.1.7 but also b.1.351, which is now the dominant strain in South Africa, and p.1, a variant first seen in Brazil, is making the roll-out of mass vaccination more complicated and more confusing than might have been hoped when the first evidence of safe, effective vaccines became available last November. 

How fast the various new variants can spread, how well today’s vaccines work against them and how soon new vaccines better attuned to them—and to the other variants which will turn up over time—become available will determine the course of the pandemic.

Testing the bounds

As of February 10th at least nine vaccines had been authorised for use in one or more countries. 

The Pfizer/BioNTech vaccine, first out of the gate, has now been authorised for use in 61, as well as for emergency use by the who. 

The number of doses administered, 148m, now exceeds the number of confirmed covid-19 cases recorded over the entire course of the pandemic. 

All of the vaccines appear very good at preventing severe cases of covid-19 of the sort that lead to hospitalisation and/or death; in trials which compared the vaccinated with control groups the efficacy with which the various vaccines prevented these outcomes was 85-100%.

Their efficacy against all symptomatic cases of the disease found in trials has been lower, ranging between 66% and 95%. 

Some of that range is down to intrinsic differences between the vaccines. 

Some is down to trials being done according to different protocols and in different populations, sometimes against different variants of the virus. 

It is hard to disentangle such effects. 

The general message, though, is fairly clear. 

The vaccines make serious cases of all sorts very rare, and mild-to-moderate cases caused by the original strain of the virus a lot rarer than they would be otherwise.

That is undoubtedly good news; it lessens the death toll, the suffering and the strain on hospitals. 

But the situation is not perfect. 

For one thing mild and moderate cases can be worse than they sound. 

Many cases of “long covid”, a debilitating form of the disease in which some effects last for months, follow original infections that were not severe enough to require hospital admission. 

It is not yet clear whether long covid is less likely in people who have been vaccinated.


What is more, this pattern of effects does not reveal what the vaccines are doing about transmission. 

As Natalie Dean, a biostatistician at the University of Florida, points out, there are two ways one can imagine a vaccine bringing about the pattern of protection the covid-19 vaccines have been seen to provide (see chart 2). 

In one of them the same number of infections occurs as would occur otherwise, but the consequences of these infections are systematically downgraded. 

Thus almost all of the infections which would lead to severe cases lead to moderate or mild cases, and many of the infections that would have led to moderate or mild cases produce no symptoms at all.

The alternative is that the total number of infections is being reduced, but the ratio of severe to mild to asymptomatic cases stays roughly the same. 

The already low number of deaths and hospitalisations shrinks to something hardly there. 

The number of mild cases is similarly deflated (although, since bigger, remains palpable). 

And so is the number of asymptomatic cases. 

Indeed, the main difference between the two scenarios is that in one the asymptomatic cases rise, and in the other they fall.

The passing game

In the real world there is almost certainly a bit of both going on: lower infections overall and a lessening of the symptoms that follow, with different vaccines offering different profiles. 

But considering the two extremes is still instructive. 

Vaccines which do little more than downgrade the symptoms will be doing relatively little to stop the spread of the virus. 

Honey-I-shrank-the-infections vaccines, on the other hand, will be making a big dent in the epidemic’s now infamous R number—the number of new infections to which each infection gives rise. 

If you imagine reducing what are known as “non pharmaceutical interventions”—masks, social distancing, shelter at home orders and the like—that difference would begin to matter a lot.

Some people will not be vaccinated, either because of pre-existing conditions which make it dangerous for them, because there isn’t enough vaccine for everyone, or because they choose not to. 

If the vaccines are basically downgrading symptoms, then these unvaccinated people will be at risk. 

If they are making the virus less transmissible that risk will be lessened.

A covid-19 vaccine that is highly effective in preventing transmission will, therefore, be particularly useful. 

According to a model by Imperial College London, all other things being equal, a vaccine that blocks 40% of infections and thus prevents 40% of disease would have a similar impact on the number of covid-19 deaths as a vaccine that got rid of 80% of disease but left infection untouched.

Epidemiologists are waiting with bated breath for results that will tell them how good existing vaccines are at reducing asymptomatic infections and infectiousness. 

Data from Israel suggest that the viral load in swabs from infected individuals is lower if they have been vaccinated. 

Clinical trials of the Oxford/AstraZeneca vaccine suggest that the jab may halve infections as detected by pcr tests. 

Such results suggest that covid-19 vaccines are likely to reduce overall transmission of the virus. 

But understanding quite how much transmission is blocked—and the degree to which some vaccines are better at blocking transmission than others—will take months.

And then there is the further complication of the new variants. 

Vaccines seem to have no particular problem with b.1.1.7. 

It just complicates things by running through the unimmunised parts of the population that bit faster. b.1.351, which has now been found in more than 30 countries, is of greater concern. 

At least three vaccines—those from Oxford/AstraZeneca, J&J and Novavax—have been found to be less effective at stopping it from causing disease than they are against variants elsewhere. 

There is increasing evidence that P.1, now also reported in a number of countries beyond Brazil, also appears to be better at avoiding immunity created by prior infection and by some vaccines.

Countries that have already vaccinated a lot of people could be brought back to square one by the spread of such variants. 

Britain, where 13m people had been vaccinated as of February 10th, and millions more have been infected and thus have some immunity (British studies have found reinfection very rare for at least five months), is trying hard to keep b.1.351 from making inroads in the population. 

Health authorities are mass-testing neighbourhoods where cases of b.1.351 have been spotted and are doing particularly meticulous contact tracing when a case is found. Border controls have been tightened.

Eking out an advantage

Not all such new variants can be spotted and stopped at borders. 

Mutations can arise anywhere—sometimes the phone call is coming from inside the house. 

But there may be a limited range of mutations about which people need to worry. 

The new variants all differ from the original virus and from each other in various ways. 

But p.1 and b.1.351 both share a particular mutational quirk—technically called e484k but mercifully nicknamed Eric or Eek—which makes a specific change to the spike protein on the outside of the virus. 

Eek has now been found in some isolates of b.1.1.7. too. 

Researchers are beginning to think that the change Eek represents is what allows those variants to infect people even if they have been vaccinated or previously infected.

It would be great if there were no vaccine-resistant strains. 

But given that there are, the possibility that they are all using the same trick offers a bit of comfort. 

It suggests that Eek may be the best way for new variants to avoid immune responses capable of dealing with the original strain, or at least the way evolution can most easily find. 

If the variants have all converged on the same trick, tweaking vaccines to protect against one may protect against all—and against any later variants to which natural selection teaches the same ruse. 

If the virus had found a whole panoply of ways by which to avoid existing immune responses things would look a lot worse.

Whether or not Eek turns out to be crucial, new ways of broadening immunity are on their way. 

Some vaccine-makers are developing booster shots designed to help people vaccinated with earlier versions of their jabs deal with new variants. 

Others are developing vaccines intended to work for multiple sars-cov-2 variants straight away. 

On February 3rd GlaxoSmithKline and CureVac, a German biotech company with an mrna vaccine in late-stage clinical trials, added their names to those developing such “multivalent” vaccines.

Tweaked covid-19 vaccines will not be required to go through large scale clinical trials to prove their efficacy, any more than updated seasonal flu shots do; small trials that look for markers of immunity in the blood may suffice. 

Britain’s National Health Service, which should be able to vaccinate all adults who choose to be jabbed by the end of the summer, is already starting to make plans for a round of covid-19 booster shots aimed at new variants in the autumn. Increased surveillance may yet provide advance warning of which variants need to be dealt with by subsequent tweaks. 

It will take luck, diligence and hard work, but the magic that started at the beginning of this year may be made to last for many years to come. 

Gaming inspires new worlds of virtual work

Curated workspaces evoking tropical islands, the Alps or a local cafe may improve our online lives

Janina Conboye



It is an average work day at home in London. It is raining, but I am busy in a world of tropical islands suspended mid-air over a blue ocean, jotting notes on a whiteboard during a brainstorming session. 

Later I teleport to the “rooftop” bar to shoot hoops and drink a virtual beer with my fellow collaborators.

This is Gemba’s VR world, where, through an Oculus headset, immersive executive masterclasses and other collaborative meetings are enhanced by 3D presentations, virtual Post-it notes and whiteboards (and a relaxing clear sky).

As we emerge from lockdowns and into hybrid working, employees are unlikely to be in the office all together every day — with some companies going fully remote permanently. VR tools such as Gemba’s, and more accessible 2D desktop applications, are designed to help avoid Zoom fatigue and encourage more natural exchanges — or “water cooler” moments.

Gemba was developed by the Leadership Network, an executive training provider and, given the pandemic, its decision to develop the VR experience was “fortuitous”, says Dominic Deane, Gemba’s managing director, as he gives me a virtual guided tour. During the crisis, bookings have increased by 150 per cent.

As I drift among other avatars (with neutral floating robot torsos), it feels surprisingly natural and easy to use with the two-hand controls provided. “It needs to be as intuitive as possible,” Deane adds. The headset, while still a little heavy, is portable and cordless.



While the technology is at the high end of bringing together employees, managers and executives dotted all over the world — cutting the cost of business travel and the time employees need to be away from the office — cheaper 2D apps, such as Reslash, Topia and Around, are providing imaginative collaborative environments designed to make exchanges more fluid.

“We call ourselves the antithesis of Zoom,” says Ashwin Gupta, founder and CEO of Reslash, which provides different rooms — such as a coffee bar and lobby — where “spatial audio” means groups can gather in the same virtual space but can’t hear each other unless they sidle up to one another.

Gupta and his co-founders thought about what it would be like if teams could have multiple conversations without going into breakout rooms, doing daily group work together but in the same space.

For example, people from one team might be hanging out in the corner of one room — your screen — and someone may want to put a question to another team on the other side. A user simply moves themselves across (individuals appear via their camera in little bubbles) and give a virtual tap on the shoulder.

Different teams can hang out together, have chats and ask questions, rather than having to set up a video call. Employees can be together all day if they want or they can just drop in to see who’s there.

PhishCloud, a cyber security company, stumbled across Reslash and decided to try it out “as Zoom definitely wasn’t cutting it”, says Terry McCorkle, chief executive. Reslash has replicated some office interactions, “but that’s not to say that in person time is not important,” he adds.

Topia is another intriguing platform that provides illustrated greyscale environments. I found it rather like being in a book that had come to life, especially in a forest with a crackling campfire. Fun, but not too distracting.


Topia can be used for all sorts of gatherings, but in a work context, its founder, Daniel Liebeskind, says it’s about community and bringing people together. “It’s getting rid of isolation and facilitating those water cooler moments,” he says.

He is keen to stress that it is not a productivity tool and is an add on to apps such as Slack. “This is not a replacement for real life . . . what it does is give more people access.”

Over in the Swiss Alps, I meet Paul Hamilton and Andy Philippou of vTogether, one of two tech companies accredited by Topia to build bespoke worlds on their platform.

In a similar way to VR, when using Topia, “you enter into behaviour that you would display in real life”, says Philippou.

Take the avatars for example: when exploring the spaces and stopping to have a chat, a certain degree of personal space is observed and, without thinking, you position yourself in a circle to chat, just as you would if you were talking in the kitchen at work or in a meeting room.

Topia has proved particularly useful for networking events. WeAreTheCity.com, a networking website for working women, has used bespoke Topia worlds for events such as conferences that have had to go online.

With Topia “there is no hierarchy”, says Vanessa Vallely, WeAreTheCity’s chief executive and founder. It can make people feel less awkward, so “it makes networking easier and it’s easier to navigate for those who are more introverted”.

But how will all this software evolve in a world of hybrid work?

You can still build strong connections with others and do things together without using VR for every meeting, says Jeremy Dalton, head of VR at PwC, the professional services firm.

Demand for headsets has increased both within the firm and from clients.

Dalton adds that he doesn’t see VR and 2D apps “cannibalising” each other’s markets. “It’s not easy getting hundreds of headsets to users across the world.” And with the apps, “you don’t even need to download anything, you just log in like [Microsoft] Teams or Google Meet,” he says.

Meanwhile, with 2D apps, there is lots of scope for workers to experiment as they figure out what works best for them.

Kyle Hurst, PhishCloud’s chief technology officer, believes the platform reduces the need to travel around the globe for on-site meetings.

Post-pandemic, could a merging of worlds be upon us? Gupta of Reslash is very enthusiastic about how the lines between real and virtual interactions could be blurred. “It completely boggles the mind,” he says. Potentially a virtual office ecosystem could exist within a real one. “The possibilities are endless,” he adds. 

The U.S.-China Confrontation

"We Need To Avoid Stumbling into a Major War"

Admiral James Stavridis has commanded U.S. warships in the South China Sea. In his new novel, he writes about a war between China and America – a scenario he considers to be extremely realistic.

Interview Conducted By Bernhard Zand in Hong Kong

The aircraft carrier USS Ronald Reagan and U.S. Air Force jets: "It would be foolish to put our hands over our eyes and say China is not going to be a problem." Foto: MC3 Erwin Miciano / U.S. Navy


On the afternoon of March 12, 2034, the commanding officers of the American guided-missile destroyer John Paul Jones discover a fishing trawler on fire on the horizon of the Western Pacific. 

They delay but then, on the orders of their superiors, they shift course. 

It’s the beginning of a chain of events that leads to war between China and the United States and the use of tactical nuclear weapons. 

These events drive the plot of the geopolitical thriller "2034,” from Washington to Beijing, from the Persian Gulf to San Diego, from India to Shanghai.

The authors are novelist and Afghanistan veteran Elliot Ackerman, 41, and Admiral James Stavridis, 66, who himself commanded a destroyer squadron in the western Pacific years ago. 

He later rose to the rank of four-star admiral and, in 2009, he became the first naval officer to take over the supreme command of NATO troops in Europe. 

Stavridis was discussed as a possible vice presidential nominee during Hillary Clinton’s campaign and later as a possible secretary of state under Donald Trump. 

He has made a name for himself as a political commentator.

DER SPIEGEL: Admiral Stavridis, how close are China and the U.S. to a military confrontation today?

Admiral James Stavridis: A lot of the critical reaction to the book has been: Excellent book. 

The date is wrong. 

It’s not 2034, maybe 2024 or 2026. 

Any number of my very senior military friends have said, "You’ve written a cautionary tale about a war that you think is 10 to 15 years away, but many of us believe it will come sooner." 

And there is public testimony to this fact. 

Just three weeks ago, Admiral Philip S. Davidson, who is the commander of all U.S. forces in the Indo-Pacific region, talked about the possibility of a war over Taiwan within six years. 

The U.S. and China are both operating heavy military warships and aircraft in very close proximity over the South China Sea.

DER SPIEGEL: And China and the U.S. have many political disputes.

Stavridis: That’s right – about the status of Taiwan, about the question of who owns the South China Sea, about human rights violations in China, the Uighur situation. 

I could go on and on. 

If crime is where motive meets opportunity, these are two nations who have the opportunity, because of these heavily armed fleets, and the motive – because of the package of disagreements between them.

DER SPIEGEL: The political debates on both sides give the impression that military conflict is almost inevitable. 

Graham Allison warns of the "Thucydides Trap.” 

In history, he says, one great power catching up to another has almost always led to war.

Stavridis: I am concerned about this debate, and history is not encouraging. 

Graham Allison went back 2,500 years to ancient Athens and Sparta and looked at what happens when an established power is challenged by a rising power. 

The last time that happened is certainly familiar to Germans: It was when the British Empire was challenged by the Kaiser’s Germany. 

The reason we wrote "2034" was not to predict a conflict but to warn people, to write a cautionary tale which could allow us to figure out what we need to do to avoid stumbling into a major war.

"China is spending its money very intelligently. They are extremely focused."

DER SPIEGEL: You said that "2034" should "scare the hell out" of its readers – which it certainly does. Were you sometimes scared writing it? 

Has the thought of a fictional self-fulfilling prophecy crossed your mind?

Stavridis: Absolutely. Particularly (with) some of these incidents, notably the naval ones at sea. 

I’ve been there. 

I’ve commanded destroyers. 

I’ve been a commodore of a flotilla of destroyers in the South China Sea. I know all of this very well.

DER SPIEGEL: In "2034,” China has gained cyber supremacy and cripples the U.S. technologically. 

How realistic is such a scenario, given that the U.S. defense budget is currently about three times the size of China’s?

Stavridis: Two points: Who could have predicted 9/11? 

Who could have predicted a 20-year war in Afghanistan? 

Who could have predicted a pandemic that locks down both of our societies? 

Human beings tend to think that tomorrow will look like today. 

But there are always discontinuities and surprises.

DER SPIEGEL: And point two?

Stavridis: China is spending its money very intelligently. 

They are extremely focused – not only on offensive cyberweapons but also on its operations in space, its hypersonic cruise missiles, its stealth technologies. 

China has watched the United States spend trillions of dollars, get into two expensive wars in Iraq and Afghanistan and said: "We don’t need all of that. 

We are not going to get in such wars. 

We are going to target our spending very intelligently."

"Offensive cyber weapons are increasingly capable of knocking out the electric grid, taking out transportation systems, affecting water delivery, destroying financial systems."

DER SPIEGEL: In your novel, cyberweapons play a role similar to the one nuclear weapons played in the Cold War. 

Is it conceivable that one day there will be disarmament talks in the cyber realm, similar to the ones the U.S. and the Soviet Union began some 50 years ago?

Stavridis: We need to get to that point as quickly as possible. 

Offensive cyber weapons are increasingly capable of knocking out the electric grid, taking out transportation systems, affecting water delivery, destroying financial systems. 

For all those reasons, we need very rapidly to get to at least conversations between the U.S., Russia and China about this subject. 

I think nuclear weapons are a reasonable example. 

The problem is, of course, that it is much more difficult to know exactly who is attacking you in the cyber realm as opposed to a ballistic missile which you can track as it flies toward your country. 

And unfortunately it is much easier to proliferate an offensive cyber technique than it is to construct a massive nuclear weapon. 

Nations like Iran, North Korea and Israel are rapidly improving their capabilities in this area. 

So the sooner the Big Three – the U.S., Russia and China – get together and set an example, the better.

DER SPIEGEL: The U.S. military projects global power. 

China says it only wants to control its neighborhood, the South China Sea – just as the U.S. has done since the early 19th century in the Caribbean. 

What’s wrong with this argument?

Stavridis: The United States did not claim territorial sovereignty over the Caribbean Sea, the Gulf of Mexico and the waters of South America. 

The United States did say: This is our neighborhood, and we will be a capable military power here. 

But we did not claim territorial ownership of those waters. China is doing so. 

That ought to concern the international community beyond anything else China is doing. 

The South China Sea is half the size of the continental United States of America, probably much of the size of Western Europe. 

If we simply say to the Chinese: Okay, we know you don’t have any real ambitions globally, go ahead and take ownership of the South China Sea – that’s a disaster, it’s the end of the Law of the Sea Treaty. 

Then every nation is going to start claiming its chunks of water. 

That would be exhibit one.

DER SPIEGEL: And exhibit two?

Stavridis: China is building a massive fleet. 

It has more warships today than the U.S. 

If all they want to do is patrol the South China Sea – why are they building nuclear aircraft carriers, why are they building massive warships? 

Why are they deploying them to the Baltic Sea and to the Eastern Mediterranean? 

Why are they building a base on the Horn of Africa?

"It would be foolish to put our hands over our eyes and say China is not going to be a problem."

DER SPIEGEL: China has three overseas military outposts, the U.S. has 800.

Stavridis: Much of the U.S. overseas infrastructure is there because our allies desperately want us to be there. 

When we talk about removing 8,000 troops from Germany then Germany does not like that. What happens in Japan, what happens in South Korea? 

This is a network of allies, partners and friends, built up and coming out of the Second World War, and we are there at significant cost to ourselves because our allies want us there. 

And as to the number 800: There are, perhaps, 50 significant bases where there are thousands of troops.

DER SPIEGEL: Still many more than any other force.

Stavridis: Is that an argument for reducing the U.S. global footprint? 

Well, Donald Trump certainly thought so and he was starting to bring the troops home. 

Our allies did not like that very much. 

And China has many bases. 

Except they are not military, they control ports, in places like Sri Lanka. 

China just signed a massive deal with Iran – which figures in the book as a very strong ally of China. I think that’s very realistic by the middle of the century.

DER SPIEGEL: Is China copying the U.S.?

Stavridis: It is taking notes on what the United States has done. 

If China says it has no tradition of global control, that is reasonably accurate in the historical context of China. 

But what they are doing right now is at odds with that statement. 

And that has set off some warning bells for us. 

And if you listen to President Xi Jinping when he talks about where China will be at the middle of this century it sounds to me a lot like a significant global presence. 

One Belt, One Road: China is on the move. 

That doesn’t mean we have to go to war. 

We shouldn’t go to war, we should avoid this. 

But it would be foolish to put our hands over our eyes and say China is not going to be a problem.

DER SPIEGEL: As the former Supreme Allied Commander in Europe, the top NATO commander, do you think that the West needs a Pacific Treaty Organization to keep China in check?

Stavridis: I don’t think Asia lends itself to the very formal structure of NATO. 

But I think there can be standing arrangements, shall we say, and a pretty good example of that is what is called the Quad: the United States, Japan, India and Australia. 

You can’t find four nations that are more different than those four but they have come together and are providing some balance to this rising capability of China. 

And all four of them look at China and have some concern: India because of what’s happening in the Himalayas, Japan because of its territorial dispute with China over the Senkaku Islands, Australia because of China’s pretty sharp trade practices.

DER SPIEGEL: Beijing had penalized Australia early this year because it had called for an investigation into the origins of the pandemic.

Stavridis: This Quad I think is probably the closest we will get to a NATO-like organization, and then you add into that Quad other nations like South Korea or Singapore. 

But I don’t think we want to set up an Asian NATO. That would be a very provocative signal to China.

DER SPIEGEL: Germany is planning to send a frigate to the Western Pacific later this year. 

Do you think this is a good idea?

Stavridis: These are decisions for the people of Germany and for Chancellor Angela Merkel for whom I have extreme admiration. 

From a U.S. perspective, we are happy, indeed enthusiastic, when our allies choose to operate with us in the South China Sea. 

It sends a signal to China that you do not own these waters. 

These are international waters. 

It is very important when other nations demonstrate by sailing their warships – and really that’s all you have to do: Just sail through those waters, fly that German flag, operate your helicopter and turn on your fire-control radar.

"There Is No Hotline"

DER SPIEGEL: How can a spiral of escalation be interrupted?

Stavridis: We’d need another interview to unpack this in depth. 

But at the tactical level we need more mechanisms of communication. 

There is no hotline as there was during the Cold War between the Soviet Union and the United States. 

There is no formal agreement as we had during the Cold War for controlling incidents at sea – the so-called INCSEA agreements. 

That would create buffer zones between military platforms. 

It would say: Here’s how close you can fly an aircraft to a military ship, here is when you cannot turn on a fire-control radar.

DER SPIEGEL: ... which would decrease the pressure on commanders and pilots.

Stavridis: The people who are flying these jets and driving these destroyers are very young, some in their twenties and thirties. 

I commanded an Aegis destroyer when I was 36 years old – and I was the oldest officer on the ship. 

These young people need boundaries and controls, and the senior people need to be able to pick up a phone and immediately call and have a hotline to indicate the seriousness of the situation.

DER SPIEGEL: What is needed beyond the tactical level, on a strategic and political level?

Stavridis: Both sides need a strategy for dealing with the other that is clear and sets out where the red lines are. 

We also need to take a look at the alliance structures. 

A big part of why Europe managed to mobilize itself into a world war in 1914 was a network of treaty structures that put nations under mutual pressure. 

And finally, there is a technological set of solutions which have to do with surveillance, space, observing, seeing and showing the other side what you see – protocols which create a possibility of deterrence. 

The Open Skies Treaty, for example, from which the Trump administration foolishly walked away. Where is the Open Skies Agreement in Asia?

"I hope the Chinese read '2034.' And I hope they read it fairly – as this is not a good-guys-bad-guys kind of a book. The villain here is war."

DER SPIEGEL: The pandemic and the isolation of the two superpowers has seemingly blocked many of these channels of communication.

Stavridis: This affects many areas: our economic, trade and tariff relationships, cultural, academic and social exchanges. 

This is very personal to me, by the way: My oldest daughter is married to a Chinese American, a physician. 

The tensions have been deeply exacerbated by this pandemic, and that’s certainly the case in the United States. 

I see that with my son-in-law, who has people yell things at him from a passing car. 

He works in an emergency room where some patients come in and say: I don’t want to be treated by an Asian because of the "Chinese flu." 

It makes everything we have to do much harder.

DER SPIEGEL: Have you had any reactions from Chinese readers yet – and will there be a Chinese translation of the book?

Stavridis: Someone asked me the other day: If you could force one person to read the book, who would it be? 

My answer, you guessed it, was President Xi. I would love for President Xi to read it, if for no other reason that if he could be photographed holding the book I would sell millions of copies over night. 

But in all seriousness: I hope the Chinese read "2034." 

And I hope they read it fairly – as this is not a good-guys-bad-guys kind of a book. 

The villain here is war. 

And I think the most compelling and most sympathetic character in the book is a Chinese Admiral. His name is Lin Bao.

DER SPIEGEL: Admiral Stavridis, we thank you for this interview. 


James Stavridis is one of the best-known commanders in the U.S. Army. After a stellar career, the now 65-year-old was appointed Saceur, the supreme commander of all NATO troops, in 2009 and was stationed in Europe for this purpose until 2013. After his career in the Navy, Stavridis' name was discussed as a possible vice presidential candidate for Hillary Clinton. Today, Stavridis is active in the management of the Carlyle Group, one of America's major private equity firms. With his tweets and opinion pieces, he often weighs in on the security policy debate in the U.S., but also in Europe.

Are We Overstimulated? April’s Weak Jobs Report Says Yes.

By Lisa Beilfuss

   In Miami, a sign of the times in the labor market./ Joe Raedle/Getty Images


There is a conundrum facing the U.S. economy: The very stimulus that has prompted a faster-than-expected recovery seems to be undermining it.

That is one interpretation of the April jobs report released Friday, which showed employers added only a fraction of the jobs Wall Street expected and hired at the slowest pace since January.

Economists called the report puzzling; some said it should be ignored. 

After all, demand has been booming as vaccination rates increase and reopenings continue, and survey data show consumers themselves say jobs are increasingly plentiful.

It’s possible seasonal factors or statistical distortions explain the massive miss and there’s an upward revision next month. 

Or the explanation may be more straightforward: There is a labor shortage.

Employers across the country have been facing supply shortages in everything from lumber to steel for months. 

In his press conference late last month, Federal Reserve Chairman Jerome Powell acknowledged bottlenecks, what he called “a temporary blockage or restriction in the supply chain for a particular good or goods…that will be resolved as workers and businesses adapt.”

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Maybe the Fed is looking at the wrong bottleneck. 

Companies say workers are increasingly hard to find, and the big, unexpected jump in April wages alongside cooler hiring suggests companies are starting to pay up for labor. 

With the wage increase came a slightly longer workweek and a shift in part-time workers to full-time status, suggesting demand isn’t the issue.

“The risk,” says Apollo Global Management Chief Economist Torsten Sløk, “is that we transition from ‘bottlenecks’ and are back to a late-1960s scenario,” referring to the start of the Great Inflation.

Worth noting is the fact that the 0.7% increase in average hourly earnings from March doesn’t include the sign-on bonuses employers are using to attract labor, meaning the reality is wage inflation is already much hotter. 

Consider, for example, one Maryland school district that is offering a $1,500 signing bonus and up to $29.82 an hour for a school bus driver.

On the surface, two details of the April jobs report might appear to undercut the labor-shortage explanation. 

Retailers, manufacturers, and transportation companies didn’t slow hiring—they cut jobs. 

And more people entered the workforce, meaning they are actively looking for work, than those who were hired. 

It isn’t a stretch, however, to similarly attribute those developments to a labor shortage.

Ultra-accommodative monetary policy and aggressive fiscal stimulus have pulled the economy out of a big hole. 

Investors saw late last month that gross domestic product rose 6.4% in the first quarter, thanks in large part to government stimulus that drove personal income up 59% higher and personal consumption 11% higher. 

At the same time, unemployed workers are receiving an extra $300 a week in relief through September, raising the bar for some workers to return to work at a time when many are still struggling with child care and health concerns and plenty of companies are paying less than unemployment.

By virtue of generous policy, workers are gaining pricing power. Some companies can’t or won’t pay up, and it’s possible the areas that cut jobs did so because they are finding it difficult to market, make, and move their goods.

The Institute for Supply Management said as much in its April manufacturing report released Monday. 

The survey’s employment index expanded for the fifth straight month, “but panelists continue to note significant difficulties in attracting and retaining labor at their companies’ and suppliers’ facilities.” 

Supplier labor, material, and transportation constraints probably won’t diminish in the second quarter, said Tim Fiore, chairman of the ISM’s manufacturing survey.

Sometimes solving one problem leads to another. 

It’s worth considering whether the U.S. economy is at a point where stimulus measures are becoming self-defeating.

Behind the Mysterious Demise of a $1.7 Billion Mutual Fund

An analysis of Infinity Q Diversified Alpha Fund’s disclosures reveals misvaluations and anomalies in a large derivatives portfolio

By Gunjan Banerji

EMIL LENDOF/THE WALL STREET JOURNAL


A U.S. mutual fund that suffered nearly $500 million of losses appears to have misvalued its large derivatives portfolio, according to an analysis of the fund’s disclosures by The Wall Street Journal, academics and traders.

The Infinity Q Diversified Alpha Fund disclosed in filings with the Securities and Exchange Commission valuations of investments that in at least three instances were incorrect or inconsistent with market conditions, said traders and academics. 

One valuation was mathematically impossible, said a former Morgan Stanley managing director who reviewed the disclosures.

In one instance, the disclosures show, Infinity entered two nearly identical swaps contracts referencing the same index over the same period, yet booked a gain on one that was more than three times as large as the other—an outcome analysts said defied logic. 

Swaps are bilateral contracts, brokered by banks, that traders use to bet on asset prices, interest rates or other financial trends.



In February, the firm made the unusual move of halting redemptions to investors and saying it could no longer value its holdings. 

At least two people raised concerns about the fund to the SEC, and it is under investigation by the regulator, people familiar with the matter said.

The SEC informed Infinity of evidence that the firm’s chief investment officer, James Velissaris, was adjusting parameters of third-party pricing models used to value its derivatives, leaving Infinity unable to accurately value its holdings, the firm has said.

Infinity also has said it barred Mr. Velissaris from trading, placed him on administrative leave and is reassessing previous valuations before it returns money to investors.

The Federal Bureau of Investigation and prosecutors at the Manhattan U.S. attorney’s office are also investigating, the people familiar with the matter said.

A spokesman for Infinity and Wildcat Capital Management, a family office affiliated with the firm, said they were “both working cooperatively with the SEC and all other government agencies and are supportive of the steps now being taken to maximize returns to investors.”

Mr. Velissaris declined to be interviewed through his spokesman. 

Sean Hecker, Mr. Velissaris’s lawyer, said two of the misvaluations described by the Journal were “clerical errors” that had been remedied and that Mr. Velissaris made efforts “to act in the best interests of investors.”

The Journal interviewed half a dozen equity derivatives traders and academics who reviewed Infinity’s positions as published in regular disclosures with the SEC. 

Those interviews and the Journal’s analysis of the fund’s portfolio revealed departures from standard practices in how some investments are typically valued.

The mutual fund, which launched in 2014 and is a part of Infinity Q Capital Management LLC, sought to generate returns that weren’t as tied to the returns of other assets like stocks and bonds, its disclosures showed. 

One investor at a family office said the firm considered the mutual fund a hedge to its holdings.

It appeared to pay off, particularly during the brunt of last year’s selloff. 

In March 2020, the mutual fund posted a return of about 7%, while the S&P 500 fell 12.4%, its worst month since 2008. 

That month, the fund drew its highest inflows ever, according to Morningstar Direct data.

Infinity attracted more than $1 billion of inflows last year and has boasted of its affiliation with Wildcat, which is the family office of David Bonderman, the founding partner of private-equity giant TPG. 

A now-archived version of Infinity’s website states that Infinity Q Capital Management was “managed by David Bonderman’s family office.”

A spokesman for Wildcat—who also represents Infinity Q—said the firm “was shocked and disappointed to learn of the SEC’s allegations” tied to Mr. Velissaris, and that Infinity Q “has been majority owned and controlled by Mr. Velissaris. 

Bonderman family investment vehicles have only been passive investors in Infinity Q Capital Management.”

Mr. Bonderman declined to comment through a spokesman.

Infinity has cited its affiliation with Wildcat, which is the family office of David Bonderman, the founding partner of private-equity giant TPG. / PHOTO: JAVIER ROJAS/PI/ZUMA PRESS


Infinity took positions in stocks, currencies and other assets across markets, but analysts trying to figure out what went wrong have focused on its use of complex Wall Street products, including those known as variance swaps. 

They enable investors to bet that price moves in indexes like the S&P 500 will exceed or fall short of a fixed amount over a stated period. 

Swaps can be tailored by the users, such as investors and the banks they trade with, to make a pure bet on a specific outcome.

The nature of swaps and Infinity’s disclosures with the SEC make it possible to determine how some of the investments were being valued, traders and academics said, and whether those valuations were appropriate. 

In some cases, they said, it appears they weren’t.

Take the case of a swap that Infinity Q sold tied to the MSCI World Index, according to its disclosures in February 2020. Investors often sell swaps as a way of betting that volatility will decline.

Traders and analysts evaluated the size of the position—which stood to gain about $600,000 for a small drop in volatility—and what’s known as the strike, or the level of volatility the bet is tied to. 

In this case, that number was 17.3%, Infinity’s disclosures show.

On Feb. 29, 2020, Infinity’s filing showed a gain on the position of $5.6 million.

But given the stated terms, the most Infinity could expect to make on the trade would be $5.2 million, according to Peter Carr, a former Morgan Stanley managing director and chair of the Finance and Risk Engineering Department at the New York University Tandon School of Engineering. 

That would be the gain if volatility fell to zero.

Such a drop would be rare—volatility hasn’t fallen to zero in the S&P 500 since its inception in 1957.

“There is no justification for that gain,” said Mr. Carr, who has helped write formulas to value variance swaps and followed them for more than two decades. 

He reviewed the position and said the gain was mathematically impossible.

A few months later, in May 2020, Infinity Q disclosed holding two nearly identical swaps tied to the Russell 2000 index. 

As the buyer, Infinity Q was betting that volatility in the Russell index would exceed 22.4% in one case and 22.8% in another, over the identical term of 12 months.

The swap that had the lower hurdle of 22.4% was somewhat more aggressive, putting about $250,000 at risk for a small change in volatility, compared with roughly $150,000 at risk for the swap with the higher hurdle. 

Infinity’s gains stood to rise exponentially as volatility jumped above those thresholds.

Yet the gains the fund booked on the first trade were more than three times as large as on the second, a divergence that academics said was too big to be accounted for by position size or other stated variables. 

One showed a roughly $13 million gain and the other a $4.1 million gain.

“Both of those gains can’t be right,” said Mr. Carr. 

He said at least one of the inputs used was wrong—Infinity should have used the same input for expected volatility in the Russell for both swaps. 

That means the valuation on at least one of the swaps was incorrect, he said.

Mr. Hecker said “both of the examples that were provided to us involve clerical errors that have been previously identified, remedied and reported.”

There are other oddities in the firm’s disclosures. 

Paul Staneski, founder of consulting firm Derivatives Solutions, says the firm’s variance swap portfolio appeared overvalued by tens of millions of dollars as of May 2020.

The prices the fund used “were unusually favorable and not consistent with where the market was,” Mr. Staneski said. 

“They’re so far off, they’re not in the ballpark with [volatility] that anybody is reporting.”

To be sure, expectations of volatility can differ among various banks providing quotes to clients and data vendors, Mr. Staneski said. 

But for some swaps, expected volatility at the time would have had to be outside the range of normal expectations, he said.

In another instance last May, Infinity disclosed that it had sold a variance swap tied to the S&P 500, a bet that would profit if volatility declined through the end of the year. 

Instead, volatility skyrocketed as the Covid-19 pandemic spread through the U.S. and hammered markets.

Infinity disclosed around a $5 million loss as of the end of May. 

But volatility had jumped so much—the Cboe Volatility Index rose to as high as 37 that month from around 16 in early February, when the swap became effective—that Infinity was likely sitting on a loss of roughly three times that, Mr. Staneski and other traders said. 

Shortly after the swap went into effect on Feb. 4, the S&P 500’s 11-year-old bull market abruptly ended.

Mr. Hecker said that “Bloomberg’s interactive pricing tool is designed to be used interactively by users to make reasonable estimates of asset valuations, and any inquiry will determine James used these tools and others when determining appropriate valuations as part of his efforts to act in the best interests of investors.”

Investors say they are expecting big losses. 

Infinity recently valued its holdings at around $1.2 billion, or roughly 28% below the $1.7 billion disclosed on Feb. 18, the last day it calculated a net asset value.

The firm said in an update to investors that the plunging value of its holdings stemmed primarily from over-the-counter trades—including variance swaps and other swaps and options trades—that it had with a range of banks. 

Complex positions like swaps made up almost a fifth of the firm’s value in February, before it started liquidating, the firm said.

Mr. Hecker said the latest valuation “reflects distressed liquidation values that were adversely affected by the fund being in default during the liquidation process.”

It isn’t known how much investors might ultimately recoup after legal fees. 

An investor in the fund has filed a lawsuit seeking class-action status against the firm, alleging that it made misleading statements about its business and financial results, and that executives intended to deceive investors. Infinity’s spokesman declined to comment on pending litigation.

Infinity is expected to present a plan to distribute funds to investors by May 24.


—Rebecca Davis O’Brien contributed to this article. 

Will China Be the Middle East’s Next Hegemon?

Despite its troop drawdown in Afghanistan, America's military superiority in the Middle East will probably remain undisputed for some time. But military power will not be enough to stem China’s strategic rise in the region.

Shlomo Ben-Ami



TEL AVIV – US President Joe Biden has announced that he will withdraw American troops from Afghanistan by September 11, finally ending his country’s longest war ever. 

The move was indicative of a broader shift by the United States away from the Middle East – one that has been a long time coming. 

Will anyone take its place in the region?

China seems to hope so. Just a couple of weeks before Biden’s announcement, Chinese Foreign Minister Wang Yi was in Tehran to sign a 25-year “comprehensive strategic partnership” (CSP) deal with Iran, which will include economic, political, and security cooperation. 

The move has the US concerned – and for good reason.

Yes, CSPs are a standard foreign-policy tool for China, which has already established them with other countries in the region, including Iraq and Saudi Arabia. 

And some have most likely exaggerated the scope of the CSP with Iran, such as by reporting that it includes $400 billion of Chinese investment in Iran. (Neither party has confirmed any specific figure.)

But even if the CSP does not elevate the China-Iran relationship to new heights, it is the first such partnership China has concluded with a long-established adversary of the US. 

At the same time, China is deepening ties with America’s closest allies in the Middle East, including the United Arab Emirates, Egypt, and even Israel.

For now, China’s motivation seems primarily economic. 

Aside from gaining access to the region’s energy resources, China can boost its profile in cutting-edge sectors by cooperating with Israel’s high-tech industries. 

That is why – much to the annoyance of the US – it has sharply increased its investment in Israel in recent years.

China has also looked to Israel to advance its connectivity ambitions, encompassed by the Belt and Road Initiative. 

Just as China has already taken control of seaports elsewhere across Asia and Europe, it has established itself at the Israeli port of Haifa. 

Similarly, anticipating reliance on Iranian oil, China has developed a direct shipping route to the port of Bandar Abbas on the Strait of Hormuz.

One thing the US does not have to worry about – at least for now – is China stoking conflict in the Middle East. 

Yes, the CSP with Iran mentions security cooperation, but it is no military alliance – and China is not taking sides in any military conflict. 

After all, China also conducts military drills with Iran’s archrival, Saudi Arabia.

The last thing China wants is for a regional conflagration to disrupt oil exports or destroy its investments in the region. 

This makes China a responsible stakeholder in regional peace. 

But it doesn’t signal China’s willingness to underwrite security in the Middle East. 

Military alliances are not China’s preferred tool in its global competition with the US.

China has also been careful not to be drawn into the region’s long-running conflicts. 

While China recently suggested that it would host direct talks between Israeli and Palestinian leaders, this should not be given too much credence. 

China is well aware that it was only because of America’s massive expenditure of blood and treasure that China has been able to expand its economic influence in Afghanistan and Iraq. 

That is not the kind of investment it is interested in making.

Ultimately, China’s economic interests are best served by keeping the Middle East’s established US-led security system intact. 

This partly explains why China’s main partners in the Middle East are mostly US allies. 

China made an exception when it signed the CSP with Iran, but that, too, was an economic calculation: it wants to revive bilateral trade, which has suffered mightily since the US withdrew from the 2015 Iran nuclear deal and reinstated sanctions in 2018.

In fact, it was only after sanctions were reintroduced that the idea of the CSP was born. 

The timing of its signing – just as the Biden administration tries to renegotiate and rejoin the nuclear deal – was a calculated decision by China to strengthen Iran’s bargaining position, thereby, it is hoped, hastening the lifting of sanctions.

Iran will, however, pay a high price for its partnership with China, which has taken advantage of its economic travails to lay claim to a heavily discounted supply of oil. 

During earlier phases of the CSP negotiations, some Iranians warned that China was seeking an exploitative deal, much like the agreements that ended with it wresting control of Sri Lanka’s Hambantota Port.

Iran’s powerful Lebanese proxy, Hezbollah, should also be wary of China. 

In particular, Hezbollah will need to reconsider its threat to launch a ballistic-missile attack on Israel’s Haifa port, given that China now all but owns it.

As for the US, its military superiority in the Middle East will probably remain undisputed for some time. 

But military power will not be enough to stem China’s strategic rise in the region (and beyond). 

For that, the US will also need to boost its political clout, economic engagement, and cultural influence. 

Otherwise, as Biden put it in February, China will “eat our lunch.”


Shlomo Ben-Ami, a former Israeli foreign minister, is Vice President of the Toledo International Center for Peace. He is the author of Scars of War, Wounds of Peace: The Israeli-Arab Tragedy.