Beware of Wall Street’s Armchair Epidemiologists -@wsj (Wall Street Journal) It is still possible that coronavirus will follow the pattern of SARS and be contained quickly, but less than 5% chance on that. More likely, it could become a pandemic -@mlipsitch (Marc Lipsitch) –COVID19 @V2019N
In this issue
Batten Down the Hatches! Global Recession Ahead: The New Coronavirus Pushes China’s Economy to a Freefall!
-The Medical Field Has Yet to Grasp Fully the COVID19 Virus
-The 760 Million People Quarantine or the Health Gulag Difference!
-The Willy E. Coyote Moment: China’s Economic Freefall!
-The Vaccine Elixir? Global Recession Ahead, Batten Down the Hatches!
Batten Down the Hatches! Global Recession Ahead: The New Coronavirus Pushes China’s Economy to a Freefall!
The Medical Field Has Yet to Grasp Fully the COVID19 Virus
It is best to understand that the basic reason for the coronavirus is called an epidemic (eventually, a pandemic) is that a lot of unknown factors are involved in its evolution. And because of this, its multiplier infection and fatality rates have yet to be determined. (bold and underline in articles are mine)
From CNN (February 14): As an outbreak of a novel coronavirus has swept through Hubei province, China, the US Centers for Disease Control and Prevention has been preparing for its worst case scenario -- a widespread outbreak of illnesses in the United States. "Right now we're in an aggressive containment mode," CDC Director Dr. Robert Redfield told CNN's Chief Medical Correspondent Dr. Sanjay Gupta in an interview on Thursday. "We don't know a lot about this virus," he said. "This virus is probably with us beyond this season, beyond this year, and I think eventually the virus will find a foothold and we will get community-based transmission."
From the International Business Times Singapore (February 14): The COVID-19 coronavirus has spread drastically in the past few weeks. Hong Kong's leading epidemiologist believes that the virus could infect around 60 percent of the world population. The warning came after the World Health Organisation said that the recent cases of patients who had not visited China were the tip of the iceberg. According to an article published by a prominent news platform, Prof Gabriel Leung the chair of public health medicine at Hong Kong University said that the main question was to figure out the size and shape of the iceberg. Another scientist Ira Longini a World Health Organization adviser who tracked studies of the virus's transmissibility in China said that the virus might get transmitted enough to affect two-thirds of the population which could be in billions. Longini said that the virus spread before the effective quarantine was in place.
From Reuters (February 12): China's coronavirus epidemic may peak in February and then plateau before easing, the government's top medical adviser on the outbreak said. In an exclusive interview with Reuters, Zhong Nanshan, a leading epidemiologist who won international fame for his role in combating the SARS epidemic in 2003, said the situation in some provinces was already improving, with the number of new cases declining.
From the Reuters (February 12): The coronavirus epidemic may be peaking in China where it was first detected in the central city of Wuhan but it is just beginning in the rest of the world and likely to spread, a global expert on infectious diseases said on Wednesday. The Chinese government’s senior medical adviser has said the disease is hitting a peak in China and may be over by April. He said he was basing the forecast on mathematical modelling, recent events and government action. Dale Fisher, chair of the Global Outbreak Alert & Response Network that is coordinated by the World Health Organization, said that predicted “time course” may well be true if the virus is allowed to run free in Wuhan. “It’s fair to say that’s really what we are seeing,” he told Reuters in an interview. “But it has spread to other places where it’s the beginning of the outbreak. In Singapore, we are at the beginning of the outbreak.”
In an interview with the Harvard Gazette, Marc Lipsitch professor of epidemiology at the Harvard T.H. Chan School of Public Health and head of the school’s Center for Communicable Disease Dynamics said, “We know that the spread is even greater than it was then. It was likely then that it would spread more widely, but there was still hope for containment. I think now that it’s in more countries — even Singapore, which is really good at tracing cases, has found some cases that aren’t linked to previous known cases — it’s clear that there are probably many cases in countries where we haven’t yet found them. This is really a global problem that’s not going to go away in a week or two….Unfortunately, I think it’s more likely to be that it’s gathering steam. We’ve released a preprint that we’ve been discussing publicly — and trying to get peer reviewed in the meantime — that looks at the numbers internationally, based on how many cases you would expect from normal travel volumes. And a couple of things are striking. One is that there are countries that really should be finding cases and haven’t yet, like Indonesia and maybe Cambodia. They are outside the range of uncertainty you would expect even given variability between countries. So our best guess is that there are undetected cases in those countries. Indonesia said a couple of days ago that it had done 50 tests, but it has a lot of air travel with Wuhan, let alone the rest of China. So 50 tests is not enough to be confident you’re catching all the cases. That’s one bit of evidence that to me was really striking. Second, I was reading The Wall Street Journal that Singapore had three cases so far that were not traced to any other case. Singapore is the opposite of Indonesia, in that they have more cases than you would expect based on their travel volume, probably because they’re better at detection. And even they are finding cases that they don’t have a source for. That makes me think that many other places do as well. Of course, we’re making guesses from limited information, but I think they’re pretty likely to be correct guesses, given the totality of information.”
And because of its complexity, different opinions have been voiced by experts.
Aside from complexity, issues related to government responses, transmission channels (e.g. airborne or not?), detectability, availability of applicable testing kits, medical supplies and workers, quarantine centers, the number and the quality of public health centers, the monitoring, surveillance and control measures, the accuracy of disclosed cases, transparency of information, public awareness and precautionary measures, as well as, compliance with medical treatments, and many more, have influenced the rate and scale of dispersion of the coronavirus.
The 760 Million People Quarantine or the Health Gulag Difference!
Meanwhile, to rationalize a sanguine outcome, economic and financial spinmeisters continue to project short-term impacts from it, disregarding the unintended consequences from recent policy measures and the multiplicative rates of the disease.
In their campaign to contain or eradicate COVID-19, the Chinese government have recently locked down over 80 cities! Beijing, Shanghai, and Chongqing, according to the Taiwan News, had likewise been placed under “closed-off management” on the 10th of February.
And in its escalation, “wartime management” orders, also imposed last week, barred people from leaving their homes or apartments in the 2 districts of Hubei, according to BingePost.com.
Even the western mainstream media have now seen it.
From the New York Times (February 15): Residential lockdowns of varying strictness — from checkpoints at building entrances to hard limits on going outdoors — now cover at least 760 million people in China, or more than half the country’s population, according to a New York Times analysis of government announcements in provinces and major cities. Many of these people live far from the city of Wuhan, where the virus was first reported and which the government sealed off last month. Throughout China, neighborhoods and localities have issued their own rules about residents’ comings and goings, which means the total number of affected people may be even higher. Policies vary widely, leaving some places in a virtual freeze and others with few strictures. China’s top leader, Xi Jinping, has called for an all-out “people’s war” to tame the outbreak. But the restrictions have prevented workers from returning to factories and businesses, straining China’s giant economy. And with local officials exercising such direct authority over people’s movements, it is no surprise that some have taken enforcement to extremes.”
By the way, Vietnam joined China’s bandwagon last week. From UK’s DailyMail (February 13): A series of villages in Vietnam were put under quarantine today after six cases of the deadly coronavirus were discovered there. The lockdown of 10,000 people is the first major quarantine outside mainland China since the outbreak began. Police officers in face masks were today guarding checkpoints in the farming region of Son Loi with villagers facing 20 days in quarantine.
With such a draconian approach to combat an epidemic/pandemic, which essentially freezes social and commercial activities of a significant segment of their population, what relevant precedence has there been? Where?
In the COVID-19 case, this time is different!
The Willy E. Coyote Moment: China’s Economic Freefall!
As noted last week, in a survey, entrepreneurs comprising the small and medium scale industries expressed extreme pessimism.
[See The nCoV China Shocker: The Lockdown of 80 Cities and Provinces! BSP Drops Overnight Policy Rate as QE Supercharged in December February 9, 2020]
News anecdotes appear to confirm such despondency, as a wave of closures whacked both the restaurant and hotel industry!
From Reuters (February 14): “A report published this week by China Cuisine Association said scare over the epidemic has cost the catering sector 500 billion yuan in lost earnings during the week-long Lunar New Year holiday, with 93% restaurants shutting down operations. Other restaurateurs have also publicly spoken of the pain they’re facing. Jia Guolong, chairman and founder of a leading restaurant chain Xibei, told Chinese media last week he could only cover the cost of running his chain of more than 400 restaurants for three more months.”
From Global Times (February 13): As epidemic control and prevention efforts are ongoing, the hotel closure rate nationwide is more than 80 percent. The occupancy rates of most open hotels are just over 10 percent, an industry insider said. As the impact of the outbreak has intensified, more than a dozen overseas airlines have suspended some Chinese routes or reduced their flight schedules. Tourists have also canceled travel plans during and after the Chinese New Year holidays, making it difficult for international hotel groups in China to maintain daily business operations
Incredible!
And not limited to the restaurant, China’s economic meltdown in pictures…
Figure 2
Construction steel demand plunged 88% while theater box off receipts had been near zero, according to Goldman Sachs.
Figure 3
Daily Passenger traffic plunged in the third week of January, while passenger traffic during the Lunar New Year crashed. (data from capital economics)
Figure 4
Meanwhile, China’s coal consumption and property sales also dived!
Que Horror!
And with businesses starved of liquidity, the initial reaction has been the scramble for cash through bank loans. From Reuters (February 10): More than 300 Chinese firms including Meituan Dianping (3690.HK), China’s largest food delivery company, and smartphone maker Xiaomi Corp (1810.HK) are seeking bank loans totaling at least 57.4 billion yuan ($8.2 billion) to soften the impact of the coronavirus, two banking sources said. The firms, including China’s dominant ride hailing service provider, Didi Chuxing Technology Co, Megvii Technology Inc and Qihoo 360 Technology Co, were either involved in the control of the epidemic or had been hardest hit, the sources told Reuters on Monday.
Banks provided some 537 billion yuan (about USD 76.89 billion) as of Friday (14th), according to the state owned Global Times.
Because the second-largest economy has become dependent on global chains, dislocations on domestic enterprises have percolated abroad.
As I have noted two weeks back, “Because the war on people translates to the disruption to the global division of labor, shocks to the demand and supply chains will occur.”
[The Coronavirus Pandemic: Who is Panicking? More From the Year of the Rat: Will History Rhyme? February 2, 2020]
From Bloomberg (February 11): Global supply chains look to be suffering longer-than-expected disruptions tied to coronavirus as China’s government tries to nudge idled factories back to work to limit the damage to the world’s second-largest economy. To contain the crisis, Chinese authorities have ordered city lockdowns and extended holidays but the human impact is unrelenting, with deaths topping 1,000. The economic fallout could extend well into March with rising numbers of bankruptcies, increasing layoffs and worsening demand, according to economists at Nomura.
From the pharmaceutical industries of the US and India to Asian and European auto production plants and even to New Zealand’s SMEs have reportedly been severely affected!
Most importantly, the incipient signs of breakdowns in international trade and finance.
From Reuters (February 11): As the coronavirus outbreak in China shows no signs of abating any time soon, some companies that buy and sell goods in the Chinese market are considering the legal defense of force majeure. Force majeure refers to unexpected external circumstances that prevent a party to a contract from meeting their obligations. The underlying event must be unforeseeable and not the result of actions undertaken by the party invoking force majeure. Natural disasters, strikes, and terrorist attacks can all be force majeure events. Declaring force majeure may allow a party to a contract to avoid liability for nonperformance.”
And here is the thing, with the use of force majeure, an avalanche of lawsuits could be impending! Will a string of defaults follow too?!
Truly stunning developments!
Yet, these are accounts from those directly hit. The impact on the secondary, third, to the nth chain should be next.
How can one even put growth numbers to them???
The Vaccine Elixir? Global Recession Ahead, Batten Down the Hatches!
Of course, the imminence of a swift discovery of a vaccine, as media has been bombarding the public, should supposedly halt the advance of the COVID-19.
Though I share that hope, the reality is that vaccines of its forebears MERS and SARS have yet to be made available.
“SARS happened in 2003, and we don’t have a SARS vaccine. MERS happened in 2013, and we don’t have a MERS vaccine” said Laurie Garrett, Recipient of Pulitzer Prize, Polk and Peabody Awards and former Sr. Fellow of @CFR.org, in a recent interview. As such, Ms. Garrett also inferred that “it’s highly unlikely that a vaccine for #COVID19 will be developed soon”, according to The Epoch Times.
GAZETTE: People have said a vaccine is probably at least a year away. Do you have a sense that this is going to need a vaccine to finally bring it under control?
LIPSITCH: That seems like the scenario which is most plausible to me right now. Vaccine efforts are very much needed, but I think we should be clear that they won’t necessarily succeed. There’s a lot of effort being put into them, but not every disease has a vaccine. [Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, said Tuesday that a vaccine could be ready in 18 months, according to CNN.]
And even should a “working” vaccine be discovered soon, a world floating in shocking leverage of 322% of estimated GDP, or $255 trillion in debt as of the 3Q of 2019, according to the Institute of International Finance, would be seismically shaken, if not violently disrupted by the ripples from the Xi government’s response to the COVID-19.
With Japan and the Eurozone at the brink of recession, while others post a meaningful decline in growth rates (as India, Malaysia, Singapore, Thailand, South Korea, Mexico and more), China’s battle with COVID-19 must likely serve as a trigger or a tipping point for a global economic convulsion!
Aside from fiscal measures, will massive liquidity injections by global central banks, plug real economy dislocations, also help save the day?
Can monetary inflation offset the coming wave of layoffs, losses, bankruptcies, closures, and then defaults? Do banks and financial institutions have sufficient wherewithal or capital to serve as a firewall against the latter? We are about to see.
“Investors are realizing this virus scare is yet another piece of evidence about how fragile global economic growth is. It’s completely a guess about what the impact of the virus will be.”
Batten down the hatches, folks!
