We know that other coronaviruses are seasonal. Take a look at this chart of four other common coronaviruses over the past eight years. Notice a pattern? They all peak in January and February, dying down after May. If SARS-CoV-2 is anything like the rest of its family, it will follow suit. And those with mild symptoms often don’t make antibodies, since their bodies wipe out the infection before that part of the immune system needs to activate.
This is why Moderna’s trial vaccine results are important. The company said doses of the drug produced COVID-19 antibodies in all of its 45 study participants. Today, the H3N2 flu still pops up every winter, and we count it with our usual seasonal illnesses. I suspect that to happen with SARS-CoV-2 as well.
Scientists believe the virus has mutated multiple times already as people traveled around the world during the pandemic’s early days…
And this will likely continue, which can be good (stronger virus) or bad (weaker virus). But the salient point is that all that work for a vaccine now might be for naught in later COVID-19 seasons or waves.
Vaccines don’t work that well on mutating viruses… and will NOT work here.
SARS-CoV-2 virus is an RNA virus. That means it has RNA as its genetic material instead of DNA.
RNA viruses are more likely to mutate. That’s why vaccines don’t work nearly as well. RNA viruses include influenza, Ebola, and HIV. It’s the reason we need new flu vaccines every year – the virus changes too much each season.
And even if we do get a vaccine, efficacy rates could be low if scientists incorrectly guess which strain is likely to pop up during the next season, let alone which strain is in Alabama versus California. That’s why we’ve seen efficacy rates as low as just 19% with the flu shots.
The pandemic isn’t over, but with a global population of 7.8 billion today, the death rate is about 0.003%. That’s minuscule compared to the Spanish flu.
The Fed
The pandemic has simply exposed the existing warts and fragility of our financial system to a wider audience.
For the second time in a dozen years, the Fed is creating, lending, and buying at zero interest rates – unprecedented amounts of digital dollars, coincidentally – to cure our economy’s ills…
To help us through what Fed Chairman Jerome Powell said on Sunday was more like a “natural disaster” than anything.
Should we just raise “free” money after every tornado or hurricane then, too?
Legendary investor Warren Buffett said a few weeks ago that he was jealous of U.S. Treasury Secretary’s Steve Mnuchin’s job and ability to “keep raising money at negative interest rates.” And the Oracle of Omaha warned of “extreme consequences” if this keeps happening.
Even without negative rates, inflation has ravaged the “mighty” U.S. dollar. Since 1913 (the year the Federal Reserve came into existence), the dollar has lost 96% of its purchasing power.
There’s something odd to me about Powell’s juxtaposition of “another Great Depression is unlikely” and “no one really knows.”
Finally, we have lost our bond market to the Fed. The Fed is effectively dictating bond yields and well on its way to full-scale ‘yield curve control’ similar to Japan. With prices fixed, there’s no need to trade. Let that sink in for a moment.
Over the last decade, the Federal Reserve, and Central Banks globally, have engaged in never-ending “emergency measures” to support asset markets. While the stated goal was that such actions were to foster full employment and price stability, there has been little evidence of success.
The chart below shows the expansion of the Fed’s balance sheet and its effective “return on investment” on various aspects of the economy. No matter how you analyze it, the “effective ROI” has been lousy.
These are the unseen consequences of the Fed’s monetary policies.
The Stock Market
Valuation – The S&P 500 12-month blended forward P/E ratio rose above 21x.
Overall, investors are skeptical of the current market rally (and high valuations).
Here are a couple of charts that show the disconnect between the stock market and economic trends.
- S&P 500 vs. truck tonnage:
S&P 500 vs. consumer sentiment:
It is hard to overstate the degree to which psychology drives an economy’s shift to deflation. When the prevailing economic mood in a nation changes from optimism to pessimism, participants change. Creditors, debtors, investors, producers, and consumers all change their primary orientation from expansion to conservation. Creditors become more conservative, and slow their lending. Potential debtors become more conservative, and borrow less or not at all.
As investors become more conservative, they commit less money to debt investments. Producers become more conservative and reduce expansion plans. Likewise, consumers become more conservative, and save more and spend less.
These behaviors reduce the velocity of money, which puts downward pressure on prices. Money velocity has already been slowing for years, a classic warning sign that deflation is impending. Now, thanks to the virus-related lockdowns, money velocity has begun to collapse. As widespread pessimism takes hold, expect it to fall even further.
Debt
For the last four decades is every time monetary policy tightens, it has led to an economic slowdown, or worse. The reason is that a heavily debt-burdened economy can’t support higher rates.
The relevance of debt growth versus economic growth is all too evident. Over the last decade, it has taken an ever-increasing amount of debt to generate $1 of economic growth.
In other words, without debt, there has been no organic economic growth.
Running ongoing budget deficits that fund unproductive growth is not economically sustainable long-term.
While it may appear such accommodative policies aid in economic stabilization, yet it was lower interest rates increasing the use of leverage. The consequence was the erosion of economic growth and deflation as dollars were diverted from productive investment into debt service.
Unfortunately, the Fed has no other options.
Currently, the limits of profligate spending in Washington has not been reached, and the end of this particular debt story is yet to be written.
But, it eventually will be.
COVID Vaccine
Some hopeful news on the vaccine development front and comments from Jerome Powell stent stocks sharply higher on Monday.
Rapid progress is being made toward delivering a viable vaccine for the coronavirus responsible for COVID19. For example, researchers at Inovio Pharmaceuticals were able to design a vaccine in just three hours once they received a sequence for the virus. Along with a team of scientists from the University of Pennsylvania and the Wistar Institute, Inovio has been working on that vaccine since this past January. And after just 83 days, they began the first human trial, which represents an absolutely unprecedented level of speed.
The research already completed proves that the vaccine works “in a test tube.” The new phase of the study involves testing the vaccine in low-risk people just to make sure the vaccine is well-tolerated by humans. Approximately 40 people are being tested during the so-called Phase-One Clinical Trial at locations in Kansas City and at the University of Pennsylvania. The final results from this test are expected by this summer.
If no problems with patient tolerance emerge, Inovio will proceed with a Phase-Two Clinical Trial, in which the “at-risk population” will be tested. Phase-two is where they test it on larger numbers of patients and confirm the vaccine’s efficacy in humans. In preparation for Phase-Two, Inovio has already produced enough dosing for several thousand test subjects.
As of April 8, 2020, the global COVID-19 vaccine R&D landscape database included 115 vaccine candidates, of which 78 were confirmed as active projects and 37 were still unconfirmed by CEPI. Of the 78 confirmed active projects, 73 were still at exploratory or preclinical stages, while the most advanced candidates had recently moved into clinical development. These clinical candidates include mRNA-1273 from Moderna, Ad5-nCoV from CanSino Biologicals, INO-4800 from Inovio, and LV-SMENP-DC as well as pathogen-specific aAPC from Shenzhen Geno-Immune Medical Institute. Numerous other vaccine developers had already indicated plans to initiate human testing in 2020.
Like the flu vaccines, the COVID19 vaccine will be indispensable even if it’s not 100% effective against every new strain that mutates. When all is said and done, emerging evidence will show that COVID19 is no more lethal than a normal influenza virus. However, it is much more contagious, meaning that without a vaccine more people will get it and so more people could die. Consequently, much of the panic will turn out to have been fueled by misinformation coupled with a lack of identified treatments or vaccines. We’ll see that outside of the New York area, the response was worse than the disease. Fortunately, the combination of viable treatments, isolation of high risk populations and the widespread availability of a relatively effective vaccine will enable us to put the panic behind us in 2020 and approach COVID-19 like any other influenza virus of the past 50 years.
Mortgage Delinquencies
You can put off paying your mortgage during the coronavirus pandemic due to the CARES Act. However, many are left anxious due to confusing messages.
Delinquencies among borrowers for past-due mortgages are soaring, a sign that Americans are struggling to pay their bills due to a wave of layoffs or lost income from the coronavirus pandemic.
Mortgage delinquencies surged by 1.6 million in April, the largest single-month jump in history, according to a report from Black Knight, a mortgage technology and data provider. The data includes both homeowners past due on mortgage payments who aren’t in forbearance, along with those in forbearance plans and who didn’t make a mortgage payment in April.
At 6.45%, the national delinquency rate nearly doubled from 3.06% in March, the largest single-month increase ever recorded, and nearly three times the prior record for a single month during the height of the financial crisis in late 2008, Black Knight said.
Stock Market Data
- Every week for the past 12 weeks, investors have pulled money from overseas equity mutual funds and ETFs. It’s on a scale now that rivals the worst of the 2008 financial crisis. Domestic funds have seen fewer outflows on a relative basis.
- The S&P 500 has been stuck in a range for a month, above its medium-term 50-day moving average but below its long-term 200-day average.
All Content is the Opinion of Brian J. Decker
