Note: As I believe this is extremely time sensitive, I didn’t give this post the attention to detail it deserves with respect to editing. Please excuse any grammatical mistakes and thank you in advance for your understanding.
Three quick points before we begin.
First, those close to me would describe me as one of the most optimistic people they know. It is difficult for me to be pessimistic about the future, but one of the many lesson’s poker has taught me is that one suffers greatly when they see the situation for how they want it to be instead of how it actually is. I aim to bring that unbiased lens to the situation at hand.
Second, I implore you to read my latest post ‘How I Come to My Conclusions’ as I want to be fully transparent about why I think what I do, so you can give my ideas the credence you believe they deserve.
Finally, I sincerely hope I’m wrong about much of what I’m about to say.
Okay, let’s do this.
COMING TO A CITY NEAR YOU
The first question on everyone’s minds is, ‘will Covid-19 come to my area?’
The answer is yes. Marc Lipsitch, professor of epidemiology at Harvard University, believes 40-70% of the worldwide adult population will contract Covid-19.
With the number of cases in the U.S. doubling every three days (following an exponential growth model), it’s clear we need to enact aggressive social distancing measures to flatten the curve to not overrun our health care systems.
This is now in effect to varying degrees in the U.S., but it’s going to be both too little and too late.
Remember, Wuhan was closed when there were only 572 cases on January 22nd, and they still exploded to over 80,000. The U.S. has taken far fewer extreme measures and with more total cases (many more are believed to be undocumented), so we should expect the situation to be much worse stateside.
But wait, we’ve encouraged social distancing measures in hot spot areas and even closed down businesses. Won’t that stop the outbreak?
Italy originally tried the same approach, but it failed. If you think it will work in the U.S. you’re mistaken. (This video sums it up quite well).
Fortunately, Italy quickly moved through the phases of imposing controls until they ultimately realized that a forced government lockdown with strict penalties for anyone who disobeys the rules is the only way to stop the spread. Measures continue to get stricter by the day.
Some feel that Italy reacted too late, and while this may be true, the point I want to stress is I’m extremely confident the U.S. has taken less strict actions and at a later stage than when they were enacted in Italy.
The boomerang will hit harder when it comes back around.
Italy’s same process will play out in the U.S. for many reasons, but one of them is simple math. The point in which extreme social distancing measures must be implemented to effectively ‘flatten the curve’ is before the hospital capacity is at 5% of its limit.
Governments simply will not react in time.
Sadly, the draconian but necessary measures will likely only come when the hospitals are full and pleading for help. And, as I explained in my previous post ‘A Bet We Cannot Afford to Lose’, reacting to the current data will always leave us behind the curve. Therefore, tragically, I believe the health care system collapse is inevitable.
To what degree will depend on each one of us, and what measures we take now to give everyone who needs care the best chance they have. Please, act responsibly.
ARE WE GOING TO REOPEN THE ECONOMY?
The second question on everyone’s mind is, how long will these social distancing measures be required?
But wait, what about the recent resurgence in support for reopening the economy?
Ah, yes, I remember that stage of the epidemic well. Italy was there roughly a month ago. After our initial lockdown phase (much more liberal than our current one), the citizens of Milan (the business capital of Italy) wanted to get back to work.
The ‘Milano si rialza’ (Milan gets back up) campaign went viral, and encouraged a temporary loosening of social distancing measures.
It was extremely short lived. As I anticipated would happen, Covid-19 has become politicized, with the right wanting to reopen the economy. Seeing that they are in power, this may come to fruition in the U.S.
This will be the social equivalent of a dead cat bounce (and, consequently, will be an amazing opportunity to short the market). It won’t last long. When the hospitals exceed capacity and are shouting from the rooftops, a mandated lockdown will eventually take place. As things worsen and as the hospitals cry louder and louder and the situation deteriorates, the laws will slowly become stricter over time.
(As an aside, the right’s cavalier position on Covid-19 will increasingly cost them favor with the public as the situation worsens, as they will be on the wrong side of this bet, potentially leading to the left gaining power in 2020).
When we look back at this decision in retrospect, the consensus will be that we should have reacted earlier and much more aggressively, taking the final but inevitable steps of strict lockdown right away instead of in stages.
I know this because it’s exactly what has happened where I am in Lombardy, Italy, and, so far in this crisis, the U.S. is following the exact same path.
WHY SUGGESTING SOCIAL DISTANCING WON’T WORK
Many of my ideas have come from Scott Gottlieb. In this thread, he makes an astute observation that ‘we didn’t prepare in Jan for March.’ Sadly, we won’t prepare now for summer.
In short, history will repeat itself. The only way we’ll learn the lesson is when hospitals are full.
HOW LONG WILL THE COVID-19 LOCKDOWN LAST?
I believe some form of a lockdown will be in place until a vaccine is found, which experts believe will be 18 months from now. As I am writing this article, the BBC has just released a video explaining why this will happen in the UK. The same will transpire in the States.
In my blog ‘3 Ways Coronavirus Will Disrupt the Poker World’, I began advocating that people should plan for a demand shock that lasted a year.
Everyone thought I was crazy.
I’m now increasing that timeline based on my understanding of how long it takes for a vaccine to be widely distributed. My ideas aren’t science fiction. They’re based on the research out of the Imperial College on what the next 18 months will look like. (They hypothesize a best case scenario of intermittent lockdown followed by limited societal function using a conservative 2:1 ratio).
Scott Gottlieb, former FDA Commissioner, who has been spot on about his predictions since January, also agrees.
To maintain this thesis, you only have to believe two things: the only way to stop it is extreme social distancing, and stopping Covid-19 will be a top priority.
We’ve already discussed the first, but let’s take a deeper dive into the second.
WHERE COVID-19 MEETS POLITICS
Even proponents of reopening the economy and the ‘let people die’ approach, will eventually realize that society can’t function without a medical system.
Second, the people will all support the lockdown. Currently, 96% support it in Italy. It won’t take long before the public perception shifts in the U.S. (Here are the 5 stages in which it will happen).
It’s not my intention to debate the pros and cons of economic lockdown, but one thing is for certain: the truth is extremely difficult to prove.
Furthermore, it’s equally difficult to measure, as there’s no conversion between human lives and economic output. But, when given the choice between the two, people will value human life more.
Finally, politics will come into play.
It’s clear from the data that Covid-19 disproportionately affects the elderly. Remember, the baby boomers control the majority of the wealth and represent the majority of the voters.
While there will be great pressure to return life to normal, and I believe it will happen sporadically in several cities around the U.S., when social distaning measures are relaxed the evidence is clear; there’s a resurgence in the spread.
Reduction in the transmission of Covid-19 will be every politician’s priority because it will increasingly become most citizens priorities. Again, this will happen in proportion to the hospitals reaching capacity and people’s parents and grandparents are being refused care.
Experts predict some states such as NYC are less than two weeks away from this threat becoming a reality, and we should expect more cities to follow.
The reason is two fold: lack of testing means we can’t properly identify and isolate cases and second, the social distancing measures enacted in the States (although some think are extreme) are a fraction of what China and Italy has done. And even in Italy, with more beds per capita than the U.S. and far higher rated hospital systems, they still collapsed.
Remember, when it comes to aggressive measures it looks like this: China > Italy > U.S.
Therefore, the opposite is true, when it comes to the size of the catastrophe, it looks like this: U.S. > Italy > China.
As hospitals overflow, stopping the spread will become a top priority, and, most importantly, those who are advocating this are the ones with money, influence and who represent the majority of the voting public.
The politicians will respond.
HOW DOES THE LOCKDOWN PLAY OUT?
There are two ways this will play out, both leading to a similar result. The first is that eventually, and likely too late, Trump will likely issue a nationwide lockdown of some kind, despite saying ‘I don’t think we’ll ever find that necessary’ on March 20th. Like he has many times on Covid-19, he’ll change his mind.
The second option is local governments do it one by one as cases hit them.
There will undoubtedly be a portion of the U.S. population which feels their rights are being infringed upon and they may try to riot. When the protestors meet the army, things could get ugly.
In what order this occurs isn’t what’s important. So long as you maintain the thesis that spread is inevitable, and reducing it will be a top priority, the result the same: an entire lockdown of the U.S.
The delay from when these measures need to be done and when it will be done means Covid-19 will spread silently and exponentially to most places in the U.S., which means it will require a much longer shut down period than we saw in China.
BUT WAIT! WHAT ABOUT CHINA?
Some have argued this won’t last long and point to China as a model for how we will recover.
They forget not the early and extreme actions the Chinese took, which aren’t happening in the U.S. In China, lockdown means not leaving the house.
Having lived in Macau for 3 years, I can state with confidence this collective psychology of the western world toward independence and personal freedom is wildly different than its Eastern counterpart. In the Orient, they listen to authority and respect the rules.
This won’t happen as much in the West and we’re already seeing examples of this defiance. Australia was forced to close Bondi Beach due to crowds gathering, and we’re seeing the same thing happen in California.
Even now in Italy, where citizens face heavy fines and jail time, people still continue to gather in public places, (such as parks), and they had to close them down. (For more on the differences between the U.S. and Asia, see this Tweet).
Therefore, a suggested lockdown simply won’t work to reduce the spread unless it’s forcefully mandated by the government. Even then, it won’t work as well as it did in the East. I’m seeing this first hand in Italy, where, despite the full blown enforcement of draconian measures (the most strict outside of Asia), the people still aren’t as cooperative as they were in China.
CAN’T LIFE JUST BE NORMAL AGAIN?
The reason we will not be able to return society to the workforce (like we’ve seen in China) is not only because we will not follow social distancing measures, but also because the West doesn’t have the same controls on its people. Of course, this is a good thing in almost all circumstances, perhaps except controlling the spread of a pandemic. (In fact, one of the risks we face is Covid-19 leading to more surveillance).
One of the many examples is China’s use of technology to closely monitor each citizen. They require their population to download an app and use an algorithm to assess each person’s risk, providing color codes to their citizens.
If, for any reason, your ‘flag’ turns from green to red, you must self isolate for 14 days. Leaving the infringement on personal freedoms and ethics of this aside, it’s clear we’re not going to be able to track people in this way. Our only choice will be draconian lockdowns.
LADY LUCK TO SAVE THE DAY?
It’s important to realize that outcomes aren’t binary and the unknown variables (i.e. chance) play a significant role in how things ultimately play out. When I write ‘this will happen,’ I’m speaking in terms of expectation, which means the most likely outcome if you ran this simulation thousands of times. In short, I believe my ideas have the highest probability of transpiring.
As I have many times at the poker table, when I’m in bad shape in a big pot, I pray for some luck. I’m doing the same here.
But in life, as in poker, there is variance, and we only get to ‘deal out the cards’ once. As a result, we’ll never get to see what probability my ideas had to occur. This is just how life works.
One such way in which society could get lucky is if Covid-19 vanishes in the summer (although, it’s likely to return in the winter, thereby restarting this vicious cycle). Experts are skeptical of the disease vanishing, but it’s one way in which my hypothesis doesn’t happen.
A second is we find a magical cure. Another obvious, but not to be understated one is I’m flat out wrong.
Naturally, there are more.
Many will think my ideas are radical, far off and unlikely to play out. That may be true. It also may be a sign I’m early to the party and have seen things that others aren’t yet seeing. In other words, I’m ahead of the curve.
Time will tell.
In a future article, I’d like to decode what I believe the effects of Covid-19 mean for the economy, financial world and markets.