Author: Value Investor
Date of publication: 2020-04-18
Despite the widespread optimist, we have not really seen the worst yet in this pandemic. There will be a prolonged period of painful adjustments and losses. Stay prepared.
The short answer is no. In many respects, we are just at the beginning of it. Unless it is a seasonal thing - and nobody knows whether it is - we need to be prepared to its resurgence whenever the economy reopens and people are back to being congregated in small and not-so-small groups. If the virus is seasonal, then we will get a respite for a few months before going back to squire one (lockdowns) in the fall. This will continue until a vaccine is approved against this nemesis or a certain percentage of people (they say, some 70% of all population) get infected with it and, after recovery, acquire at least some immunity against the virus. But before the vaccine is found, how bad could it get? Let’s make a simple “back of the envelope” calculation. The population of the Un9ted States is about 330 million. 70% of this number is 231 million. Assuming (probably optimistically) that out of all infection cases only 1% will lead to death, yields the total number of mortalities in the USA: 2.3 million. All of the social distancing stuff and flattening the curve will not save us from the inevitable. Very important: it buys us time And this time is being used to develop a vaccine. However, by most estimates, there will be no approved vaccine for at least another 18 months. Of course, we cannot keep the economy shut down during this period of time. It will reopen - it is inevitable. The society as a whole will need to make a decision (and it looks like it has explicitly done just that) whether to save the old and the vulnerable or to save its way of life and wellbeing. Yes, enterprises, large and small, will reopen, but not all. Because of the overhanging threat of getting infected and killed, people’s behavior will be drastically different compared to what it was before the pandemic. Any activity where a cogeneration of people is a prerequisite - be it entertainment, leisure or activism - will just resemble a hallow shadow of its former self. There will be mass bankruptcies and layoffs in such industries. I would even argue that people’s behavior is already permanently altered and we might not expect of going back to our past normal even after this particular virus is completely eradicated, as there is always a risk of a new deadly virus appearing. The industries that will benefit handsomely from this situation are well know. They are the ones that make the “stay-at-home” economy possible: the likes of Amazon, Netflix, Google (Alphabet), Microsoft, and the whole high-tech sector that makes it possible. It will take time for the society and economy to adjust to the new reality. The virus, for sure, will still have a few nasty surprises for us, and the final death toll in the US is likely to be in the million range. This is a sobering time for all of us. It is time to reflect about the meaning of life and what is really important for us. But don’t get too pessimistic: we can only control what we can control. So there is no use of worrying about the rest. Stay healthy and stay prepared.