10 Thoughts About Coronavirus
No one really knows what to expect. So be careful putting too much faith in anyone’s forecasts, narratives and “statistics”. This is a pandemic now. It can’t be eliminated. But what we can do is reduce its impact. Here are some thoughts about Coronavirus so far:
1) You have to get ahead of it in order to stop it. It’s better to panic early. It’s rational for society to be panicking however it is not rational for you and I, individually, to be panicking. The “paranoia” we are experiencing is really helpful. What’s important to understand is that the point of the quarantines isn’t to prevent us all from getting sick. The point of the quarantines is to slow the spread of the virus enough to prevent overloading the healthcare system. So, while staying home, from an individual risk perspective, seems unnecessary and an overreaction, from a systemic risk perspective, it’s the only prudent thing to do. So no, you and I aren’t going to die. We might not even get sick. But we might get others sick and that might cause others to die. So, you would rather be blamed for overreacting.
2) If we reduce the infections as much as possible, our healthcare system will be able to handle cases much better, driving the fatality rate down. And, if we spread this over time, we will reach a point where the rest of society can be vaccinated, eliminating the risk altogether. So our goal is not to eliminate coronavirus contagions. It’s to postpone them. The more we postpone cases, the better the healthcare system can function, the lower the mortality rate, and the higher the share of the population that will be vaccinated before it gets infected.
3) The Coronavirus is rapidly spreading. It’s hard to know the rate of infection but it DOES spread rapidly. Many people compare it with the normal flu or car accidents (or with any other possible way to die from) which is wrong for two fundamental reasons. First, you should do not compare raw data even if that is statistics — things that don’t have the same variance should never be compared. Also, something that is exponentially growing cannot be compared to something that is static, the future is uncertain.
4) The Covid-19 is slowing down in China and accelerating elsewhere. A few thousand infected people in a month can be easily turned into couple of thousands in the next months. Daily infection rate is now higher in the US (about 50%). The US has limited capacity to deal with the additional healthcare burden resulting from a large increase in severely ill people.
5) Even if the risk of dying from Coronavirus would be smaller than the risk of dying from other things e.g a car accident (still a wrong assumption), but even then, it will be irresponsible on my part to ignore Coronavirus because the one is systemic and the other is idiosyncratic (unsystemic), which means that if I don’t act accordingly, I will help Covid-19 spread — and other people to die.
6) Second order effects are probably going to be more severe than the actual virus, and that means the things that are not immediately obvious that we could be thinking about. The fact is that nobody really knows what the long-term consequences of this Coronavirus infection will be, what negative effects it will have on the economy, on politics and society.
7) People seem to default to either panic mode or denial. It’s either, “The world is ending!” or “What’s the big deal?” That’s because our minds default to view things through how they affect us, not how they affect the country, the community, or the world. We also tend to think linearly, not exponentially.
8) We don’t know what we don’t know. There could be a miraculous vaccine discovery next month. Warm weather might eradicate much of this thing by summer, or whatever. And no surprise, we could see a recession. The spread of Coronavirus might be labeled as a catalyst of a situation that was already towards the end of the cycle with inverting yield curve, crazy high market valuations and the huge amount of debt in the system. Some possibly good news is that a paper from SSRN (Social Science Research Network) stated this: “This result is consistent with the fact that the high temperature and high humidity significantly reduce the transmission of influenza. It indicates that the arrival of the summer and rainy season in the northern hemisphere can effectively reduce the transmission of the COVID-19”
9) While monetary policy tools can help to foster capital markets and support some economic activity, they cannot do anything to slow down the spread of the Coronavirus, nor can they alleviate people’s fears of the disease. It is a public health crisis first and foremost, traditional economic measures like tax cuts and looser monetary policy, cannot fix the underlying problem. The Fed and others have already been playing a dangerous game by propping up capital markets through rate cuts and liquidity injections. Every time that rates are cut, the room for maneuver is reduced. This means that by focusing on the short-term financial markets and economic issues, the central bank is exposing the whole economy to potential more painful diseases should a big recession come. That’s not to say that the Fed shouldn’t have done anything but, cutting rates and boosting the Fed’s balance sheet is not going to achieve much.
10) World Wealth Organization declared Covid-19 a pandemic. I’d say we’re looking at something similar to the H1N1 flu in 2009. It will make its way around the world, but just try to stay healthy and hygienic and things should be fine. One cool infographic from Visual Capitalist about the history of pandemics:
Originally published at www.trading-manifesto.com
