ALL POSTS PRIOR TO 2021 HAVE NOT BEEN REVIEWED NOR APPROVED BY ANY FIRM OR INSTITUTION, AND REFLECT ONLY THE PERSONAL VIEWS OF THE AUTHOR.
A 3rd SCHOLAR FINANCIAL SPECIAL REPORT
From Dr. Ron Rhoades
EMAIL: ron@scholarfinancial.com (clients)
EMAIL: ron.rhoades@wku.edu (students, family, friends)
Text #; Cell Phone #: 352.228.1672
Saturday, March 14th – 10:00 p.m. CT
Dear Students, Clients, Family and Friends:
This communication is designed to update you on the Coronavirus(COVID-19) and its potential impacts upon you.
FIRST, A BRIEF STORY.
I am currently returning from Florida, where my mother-in-law (who lives with my wife and I) had been visiting relatives. Rather than have her take her return flight back, we decided that flying was NOT an option. There is no reason to have her be exposed to potentially dozens, or hundreds, of people, passing through airports and on a plane.
While over 1,200 miles of driving over 2-3 days was not pleasant, I can find two positives out of this:
· First, I am in the “good graces” of my mother-in-law, at least for a period of time; and
· Second, I can now say that I went to Florida for Spring Break! (Even if most of my time in the State of Florida was from behind the wheel.)
Soon I’ll be back at home in Bowling Green, Kentucky, “hunkering down” with a freezer full of food, canned goods, a recliner, computer and fast internet.
As you will see, I expected to be “bunkered” like this for many weeks to come – and for much longer than the 3-5 weeks you often see in news stories. I’ll explain why, in the pages that follow.
ABOUT THE CORONAVIRUS IN THE UNITED STATES.
Here are some observations I’ve discerned from listening to, and reading, from economists and other sources.
1. Mortality Rates Vary Widely – By Age.
Why go to such measures to retrieve my mother-in-law, now in her 70’s? It’s all about minimizing possible exposure for her to the Coronovirus. Why? Because it is imperative that the older a person is, the more careful they need to be.
From Italy, which has had a large outbreak over the past few weeks, and whose health care system is fairly modern (but still overburdened), comes this chart:
As seen, the older you are, the more significant your chances of dying from the Coronavirus, if you get it.
In Italy, about 1 out of every 7 of those over 80 years of age who were infected subsequently died.
For those ages 10 to 40, the mortality rate is 0.2%, or 1 out of 500. Still a significant number!
As seen, those ages 40-49 have about a 1 in 250 morality rate.
Those ages 50-59 have about a 1 in 80 chance of dying from a Cornovirus infection.
If you are ages 60-69, the chance of dying is about 1 in 28. For those ages 70-79, about 1 in 12.
The mortality rates across all ages may be higher, or lower, depending upon how many infected people are identified by testing. There is reason to believe that the average mortality rate for all ages, estimated by some to be about 4% (1 in 25), may be substantially lower as many infected with the Coronavirus have no symptoms, or mild symptoms, and are not tested. Also, much depends on the robustness of the health care system – i.e., the availability of medicines, ventilators, intensive care beds, etc.
Hence, the mortality numbers stated in the chart, above, may not be as bad as indicated.
2. Mortality Risk is Affected by Underlying Health.
But, these “averages” don’t account for differences in underlying health.
People with pre-existing illness are more likely to get seriously ill from Covid-19. Such pre-existing conditions include, but are not limited to: cardiovascular diseases, diabetes, hepatitis B, chronic obstructive pulmonary disease, chronic kidney diseases, and cancer.
Just possessing either diabetes or hypertension (high blood pressure) are likely to increase the likelihood of mortality by 60% or more.
3. How Widespread Is the Coronavirus in the U.S.?
There are likely 100,000 cases (or less, or even more) in the United States currently, but only 1,629 cases were reported by the CDC today.
How rapidly is it spreading? We don’t know, because so few working testing kits are available. Many of those who have symptoms are not being tested.
From March 3rd through March 8th, only between 1,000 and 2,000 tests were conducted each day. For March 9th and 10th, the total number of tests each day did not exceed 3,000. Only 17,000 or tests were undertaken - in total to date (as of March 14th reported numbers) - and realize that many patients receive two or more tests. So the actual number of persons tested in the U.S. is even lower.
The fact of the matter is, there are not enough components for many of the test kits that are being put together. Rather than have hundreds of thousands of tests available (or “a million tests” available, by eight days ago, as one government figure stated), there are only tens of thousands of tests. The lack of available tests has greatly hampered the ability to detect who has the virus, and to isolate those who have been exposed. This will lead to further widespread community transmission.
Because so many individuals (perhaps 70% of those infected) have no symptoms, or mild symptoms, and because so many individuals with greater symptoms are being denied tests currently, it is likely that the actual number of cases in the United States is far, far greater than reported officially. As stated above, the actual number of current cases could well be 100,000, or greater.
4. Will the Coronavirus Be Contained Within a Few Weeks? (No.)
Many schools and businesses have announced closures (or “work-at-home” or “online classes”) for a period of a few weeks.
In actuality, some medical experts are projecting that, in the United States, the Coronavirus will not “peak” as to number of cases until late April or early May. That is 7-8 weeks from now. And that’s only the “peak” of reported cases; there will still be cases thereafter.
“Peaks” may also vary by region of the country, or even by communities.
Realize that the Coronavirus may last only 2 weeks or so in those who have mild symptoms, but it may last for 4-7 weeks (or perhaps more) in severe cases.
One question that often arises is whether the Coronavirus will disappear, as other viruses appear to do, over the summer months. The reality is that none of the common flu viruses completely disappears during the summer months!
But, community transmission is much lower in summer months. There are several theories about this, including increased exposure of viruses to UV radiation. Another is the fact that flu particles exhaled by a person don’t travel as far in higher humidity environments – the flu particles are absorbed by water vapor, which causes them to fall to the ground much quicker. Other theories exist, such as less time spent by persons indoors.
One of the problems of the Coronavirus is that – unlike most common flu viruses – this is new. That means a great deal of the population has not had the virus before, and have not built up anti-bodies to it. Which means broader transmission is probable, compared to other flu viruses.
So, let’s get real. I hope I am wrong – but what I am reading suggests that the Coronavirus will be with us for months, and perhaps for up to a year (or longer?).
A vaccine will hopefully be developed, but flu vaccines are generally not 100% effective. But, vaccines greatly reduce the number of those infected, and help to stop the spread of the virus. Let’s hope vaccines for the Coronavirus are developed, and deployed, quickly.
5. If You Do Have “Severe” Symptoms, What Is That Like?
Those who have been hospitalized with the virus, and placed into intensive care, the greatest risk appears to be related to pneumonia-like symptoms. Patients often report having been put on a breathing tube. Imagine a tube down your throat, and the feeling that you are choking constantly. Also imagine medical staff removing your saliva from your lungs every couple of hours.
Your blood pressure also likely soars, placing you at greater risk for a heart attack or stroke.
Then imagine not knowing if you will die. Your body must start producing anti-bodies to the Coronavirus fast enough so that its effects can be countered. All the while, you are wondering if you will survive the next hour, or not – for days.
In other words, it is not a pleasant experience.
6. Where to Go for Information About the Virus.
There is a lot more information about the Coronavirus available from the Centers for Disease Control (www.cdc.gov). And that information gets updated each day. I recommend you pay attention to this resource, as well as other credible resources.
PRACTICAL IMPLICATIONS FOR HOW WE LEAD OUR LIVES.
First and foremost, “hunker down” if at all possible.
Stay at home. Don’t go out. BE SAFE.
This is not just another flu virus. This is a serious, serious virus that is spreading rapidly in the United States, and globally.
In my travels these past few days, I have seen many individuals take this seriously. But many, many more are doing their “usual thing” – i.e., making no adjustments in how they will live their lives.
Second, identify your support network, and resources to obtain “necessaries” (food, etc.).
1) Who is checking on you? If you are alone, someone should be calling you three times a day.
2) If you are relying upon another person who is bringing meals to you, is that person under the age of 40 and free of underlying health conditions? If not, perhaps someone else should be chosen.
Even then, have a discussion of the risks of transmission, even for those ages 10 years through 40 years. While there is a temptation to ask younger persons to “go to the store” for you, etc., realize that the mortality risk among all those ages 10 through 40 years old could still be 1 in 500. That’s still quite significant. (I hope it is not that high.)
3) Rather than sending anyone “out” to the store or to “run errands,” consider home delivery of groceries and prescription drugs and other necessaries. In fact, identify what services exist, and how deliveries occur. Can deliveries occur to your front step, and then can you retrieve the items after waiting several minutes for the “air” to clear from the departing person?
Even then, since the Coronavirus can exist for some time, on many surfaces, for any delivered items consider washing down the outside surfaces of packages with soap and hot water. Then wash your own hands with soap for 20 seconds. And continue to wash food preparation and other surfaces in the home, with a soapy water solution, often.
Third, think how this will affect you – if the Coronavirus does hang around for months.
Considering travel?
I would suggest you cancel any trips that are not “essential” – at least through April. (It is likely that you will need to cancel trips in later months, but not certain at this point.)
If you can work and live at home, are you prepared for weeks – if not months – of self-isolation. For most of us, this will be a new experience. Is your home optimized (with fast internet connection, excellent modem, good computer, good software, good screens) for this new reality?
Self-isolation may also lead to increased anxiety and depression, for many. (Consider ways to have more “Facetime” or “Skype” or similar meetings with family and friends and colleagues, as a means of maintaining social connections.)
Investigate resources that might be, or become, available to you. “Work from home” arrangements. Unemployment compensation benefits. Paid sick leave. Family leave. (Some of these potential benefits, or resources, are being addressed in the legislation making its way through the U.S. Congress currently.)
I hope that we will see greater relief from the U.S. Congress soon. No-interest loans for small businesses. Mortgage payment extensions. And other forms of “debt relief” and support for both employers and workers who are affected. (A few countries are actually handing out cash to every citizen, but I don’t foresee that happening in the U.S.)
Fourth, college students – get used to online education.
I hope to see my students back on campus before the end of this semester (mid-May). But, don’t count on it.
Students who are not used to taking online classes will be forced to adapt.
This may require much greater exercise of the “self-control” muscle! And avoiding procrastination!
Many students should learn more about “Zoom.” It may become (for some universities, such as WKU) a means of holding face-to-face communications (via the web) with your professor, or with team members. Visit https://zoom.us/resources for some basic videos about Zoom.
And … professors like me, who are not used to teaching online, are seeking to adapt their instructional techniques to online delivery. We are working hard to identify how to best engage with our students, online rather than face-to-face.
Be aware that it is quite possible (but not certain, by any means) that Fall 2020 semester classes may also be (primarily) online. So, make the investment to learn online tools, as your instructors suggest from time to time.
ABOUT THE ECONOMY.
I continue to search for potential impacts on the U.S. economy, and the capital markets.
As an aside, why have stocks (and interest rates) gone down one day substantially, then up the next day (often substantially)? In other words, why the many, many “ups” and “downs.” The reason is … uncertainty.
The application of game theory to similar scenarios suggests that when answers to major questions – such as the effects of a disease upon the economy – are not known, then wide variances occur over time in assessing the impact of the development. In other words, the “market” (i.e., all of the analysts and investors) might, collectively, believe one day that the impact will be far more substantial than previously thought, and the stock market goes down and interest rates fall. The next day, news comes out that the market participants may (on average) conclude that the economic and market impacts will not be as severe as thought, and the stock market goes up and interest rates rise.
That’s what has happened over the last few weeks. The “ups” and “downs” result from many, many participants trying to figure out just how severe the economic impacts from the Coronavirus will be. The answer is … unknown, because this is all still so new to medical researchers, and to those who seek to guide our economy through policy decisions.
While the future impacts on the economy and the capital markets remain uncertain, consider these recent developments …
· Congress is acting to assist those who are furloughed from jobs, and businesses large and small. Up to $50 billion in government funds have also been freed up by the Presidential declaration of a “national emergency.”
o In my view, this is only the tip of the iceberg, in term of government spending that will occur to bolster the economy.
o I expect hundreds of billions of dollars, or even an additional trillion of government spending, over the course of 2020 that is related to boosting the U.S. economy in response to the effects of the Coronavirus.
· Central banks around the world are taking actions to loosen monetary policy.
o The Federal Reserve has taken measures to ensure that the money markets (very short-term notes, i.e. – loans) are functioning effectively.
o Interest rates have fallen very significantly for U.S. Treasury securities. In fact, to record lows for 10-year and 30-year U.S. Treasury bonds.
§ Interest rates can fall further. I would not be surprised to see interest rates on short-term U.S. government debt to fall to 0%, or below. (Several countries in Europe, and Japan, have already experienced this for prolonged periods.)
· The fundamental problem, however, is both a supply problem (limited manufacture of goods and production of services) – and a demand problem (consumer spending falls off a cliff due to reduced incomes and not shopping for many retail products – from clothes to appliances to cars to homes and much more). These problems cannot be countered effectively via monetary policy alone.
o It will take vast government spending to support workers, independent contractors, small businesses, and many others. Without a paycheck, consumers can’t spend. (Over half of Americans live paycheck to paycheck.) Without sales, small business cannot survive.
o Alternative ways of producing services and goods will likely be developed, that minimize the risk of community transmission. Think … “working at home primarily” for some 50% or more of the U.S. workforce.
o Delivery services will proliferate for goods of all kinds – as businesses seek to find ways to get their products into the hands of consumers (at least, those consumers who still have money to spend).
In summary, I anticipate a sharp economic decline, based upon the information available to date.
The duration of the decline is the key unknown, in my view.
Under one scenario, the U.S. takes the radical steps to contain the virus. We get to the point, within several weeks, of minimizing community transmission, and being able to quickly identify and isolate those with new exposures. The U.S. “gets back to work.”
Under another scenario, community transmission continues for many months, if not years. Especially in a society, such as the U.S., where individuals don’t like their freedoms (including freedom to travel) to be restrained, and fines may not deter violators.
Many other scenarios, both short-term and long-term, exist.
About Investment Portfolios.
Strategic asset allocation, with targeted rebalancing, is still the best way to deal with this uncertainty, and with any economic impacts that may occur.
U.S. stocks remain “overvalued” somewhat, overall, despite the recent declines. However, as I wrote about a few days ago (in update #2), U.S. small cap value stocks are likely somewhat undervalued, relative to historic norms.
Foreign emerging markets stocks, especially value stocks, also appear to be attractive.
There is greater risk in intermediate bonds and long-term bonds, if interest rates rise from their very low levels. But, there is as equal a possibility that interest rates fall further, as opposed to going up.
I’ll provide more insights later. Until then, if you have questions, please drop me a line.
I’ll be at home, hunkered down but working hard to review investment portfolios of my clients, communicate to all about the potential future economic and other impacts, and seeking ways to stimulate the online education of my students.
Thank you, and be safe!
Ron A. Rhoades, JD, CFP®
Personal Financial Advisor
Scholar Financial, a fee-only investment advisory firm
