We are now 5 1/2 months into the pandemic. A few thoughts on the macro trends.
1) The Pandemic itself.
The initial surge was in the North East. The response was late and inadequate to the crisis. The number of new known cases was averaging 30,000 day but the actual number was much higher. Much of the country went into various levels of stay at home orders, closing businesses and restrictions on gatherings. What was missing was a nation-wide order to wear masks and social distancing. The pandemic eased from April through the middle of June.
Then states began to re-open businesses and ease restrictions. States that did not experience an initial surge and loosened restrictions were soon hit with surges, specifically AZ, FL, TX and CA. The number of new known cases soon surged and eclipsed the numbers from the north east. But the number of deaths did not jump nearly as high. The general thesis was that younger folks were catching the virus but those folks with elevated risk where avoiding the virus.
I expected that as soon as cases surged folks would quickly and voluntarily change their behavior. Well is wasn't so quick. For the next month. mid-June to mid-July cases continued to surge. Deaths also increased dramatically but did not get back to the levels of April and May. Deaths which had declined to 500 day rose to 1000 day (rolling average). As I write this deaths are slowly declining.
The conclusions are that the virus is highly contagious is precautions are not taken. However the virus seems not to be as deadly as once feared especially in the general population. Treatments also seem to have progressed.
It now seems that closing the economy was not the optimum public approach. Restrictions on businesses were and are still needed but closing the economy was probably unwarranted. At the same time there should have been more restrictions in certain areas - especially senior citizen housing. And a national policy on wearing face masks and socially distancing should have been enacted in March.
Testing policy is still a mess. Most folks should not be tested. Only those who are vulnerable or who interact with the public need to be tested. There are far too many cases for contact tracing.
2) The North Carolina experience
NC is unusual. Stay at home orders and business closures were ordered in mid-March well before we had any significant outbreaks statewide. That meant that like other southern states we had a high number of Susceptibles and a low number of Recovered. But unlike the other southern states we re-opened slowly and carefully. We are still in "phase 2" which is now scheduled to end on Sept 11.
As a result NC is well below average in cases and deaths per capita. But at the same time we haven't seen much change in the numbers in the last 4 months. Basically unlike the rest of the country we aren't seeing any improvement.
2) The economy
Unemployment surged to 20% and then quickly rebounded. It is now at 10% and looking "sticky". Airlines, hotels, restaurants, etc. won't recover for a long time. The number of people out of work will also impact overall demand; consumer spending and business investment will also suffer. State and local governments will also have to retrench due to decreases in tax revenue.
Congress passed a massive CARES Act in May. Most of the provisions have now elapsed. A second fiscal recovery plan is needed but Congress is stale-mated now.
3) The stock market
Partially due to the massive government fiscal and monetary policies the market recovered from the March debacle.
What we (may have)
learned.
The stock market is
not the economy.
The stock market
index does not represent the stocks in the index. It stock market index
measures the success of Apple, Amazon, Microsoft, Google, Facebook and
Netflix. According to one source 292 members of the S&P 500 still are down year to date
(YTD).
And the economy is not the only measure of how well the country is doing.
Some additional observations about the economy.
The stock market is being propped up by near-zero interest
rates. Current acronym for buying stocks TINA – There Is No
Alternative”.
The bankruptcies will hit small business and very few large,
public corporations.
The market has not priced in any bad news regarding either a worsening of the pandemic or a failure of Congress to support the economy. The overall market looks risky to me.
On a special note Tesla looks like the biggest equity bubble since the dot com bubble. It split and the split shares are selling at $500/share. I expect this stock to drop by 50% or more. But like most bubbles it is hard to predict the timing.
