Editor's note: You can find a full transcript of Doc and Matt's briefing, complete with slides, below the video. If you'd like to view a pdf of the slides, click here.
Dr. David Eifrig: Hi everybody and welcome back. This is COVID conversation number six.
I'm Dr. David Eifrig and with me is Matt Weinschenk. And we are socially distancing.
Welcome back, Matt. How was your week?
Matt Weinschenk: The same as every other week. I think I say the same thing every week. But yeah, I'm just grinding along and staying inside and doing what we can.
Doc: Fantastic. It's been, gosh, bordering on six, seven, eight weeks now for this craziness. Alright. Let's remind people that if you have questions, you can write us at firstname.lastname@example.org. We read everything. We see everything. And we might or might not comment.
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Feel free to share this with anybody you want. Feel free to ask us if you can share it to anybody you'd like. We'd love to imagine and hope and think that we're adding some value.
Let's jump right in and I'm going to just take the lead on this…
I want to remind people… Someone wrote in and said to let Matt Weinschenk stick to his stuff and me stick to the medical stuff. To that I say –
And the reason for that is, folks, Matt is trained as an econometrician and has a Master's from Hopkins, considered probably the top place in the world for this kind of stuff. So he knows numbers sideways to Sundays. He thinks about this stuff. He and I are on the same wavelength on a lot of things and when we're not, we explored it. We dive in. Matt, I would say, knows as much as I do about the science. Maybe not the human physiology and the human body. But he knows the stats and numbers.
So if you don't like what you're hearing from Matt, replay it and listen again because what he's saying makes sense.
Matt: I don't know. I wish they had pointed out stuff I got wrong. But I think maybe it's just silly to have me talk about it when there's a doctor – I was going to say sitting right next to me – right next to me on the screen, down over here. I think it's all in good fun, so…
Doc: Yeah, yeah. Let's dive in… I want to be a little hopeful about diseases, but also point out to you the history so we can imagine what the future would be like.
On the chart on the left, what we should is since 1900, the black line is all cause mortality. And then the more orange, yellowish line is infectious disease causes. And what you can see is over time, over history in the United States all cause mortality has dropped considerably. It's been cut in half.
But the reason for that is the success we've had with infectious disease. You can see the spiked in 1918, but you can see noninfectious causes has kind of stayed the same for a long period of time.
Now look at the chart on the right… This is more recent showing you that with the HIV/AIDS epidemic that shot up. Science. We participated in trying to figure that out. We figured that out and now that's plummeted.
But influenza and pneumonia have not really changed since 1980. And I would argue that these viruses are much, much more tricky and capable than we realize. And that leads me to suggest to you scientists, doctors, vaccine makers – we're not going to knock this off and cure this. We've been studying and looking at it for a long time. And I don't think – we could be coming on that moment where we do with the corona – but we've been looking at corona for a long time. The guy Fauci, that's been his lifetime goal is to come up with a universal vaccine for influenza, pneumonia, and corona stuff.
I just don't think it's going to happen in the next few years. And if someone's saying they've done that I would caution you. And I would not believe it 'til we had lots of evidence that the stuff works. That the cure works.
So with that lead in, I want to be optimistic but also somewhat pessimistic.
Matt: It does seem that people, you know, they say we'll have a cure or a vaccine in 12 to 18 months. And people kind of put it on their calendar, like, alright 12 to 18 months. That's all we've got.
But that's a guess. And it's a wild guess.
Alright so, in general, good news – U.S. deaths coming down.
This is the chart we look at each week. Way down near 1,500. That's certainly good.
On the confirmed cases, we see a big spike upward…
Probably an artifact of more tests being run, but it's hard to tell. In general, we floating along on that 30,000 new cases per day, rolling three-day average. But the thing about these that we want to point out is… Our theme today, if you want to put it that way, is that the data is messy and the data is unreliable.
So here's three different counts of daily new cases in the U.S.
We've got the one that we've been using first. You see there's a big drop and then a big spike. If you look at the Johns Hopkins data – this is this one – there's a big spike and then a big drop. And this is the U.S. CDC, there was a spike there and then a drop. So here we're getting worse, here we're getting better.
It's messy and it's really hard to tell what's actually going on. And again, it's different in different locations. It's different if you look at test positive rates and hospitalization rates. It's different standards for reporting and not everything's… Everything is really messy. That's going to be a theme that I think comes through this week.
And here's one. This is just… we won't spend too much time on this.
If you look at statistics you know pretty well how many people are going to die every month or every year, however it goes. But in the last year, there's been a huge spike in excess deaths, rights?
This is how many deaths there should be. This is a study out of Yale. So in January we're coming along and then we have this big spike. And, of course, a lot of that is coronavirus. But according to the numbers as of April 4, I think this is 15,000 too many deaths in those weeks and only about 7,000 of them were reported COVID deaths. So there's something else going on here.
Is it being undercounted? Are people not getting other treatments they need? I don't know. I mean you can take this all sorts of ways.
Doc: Yeah, and Matt, just to keep up with that theme. I ran this and looked at this this morning. This is daily data that comes out of New York City's Health Department. And it's raw data, but it's compiled and it's in rows and columns and it should be correct. But just to show you how the data feeds and all that are getting just a little bit cattywampus. In this for all cases – hospitalized cases – they've got that 22% are female, 29% are male, and 9% are unknown.
So I don't know about you, but that's 60% when you break the numbers down by sex. This data that's being put in there doesn't add up properly in some of the spreadsheets. And that's problematic. And that's going to be a theme that will come out. And maybe next week we'll turn to some of the testing problems. We probably won't dive into that unless I get really wound up from my coffee.
But go ahead and show us… You found another one of these great charts here.
Matt: Oh I did, but I want to – let me give a little color on when you're dealing with messy data.
So people do all sorts of things with this. They say, "Oh well, we can't trust it so forget about it all." And I don't think that's the right thing to do because some data – even bad data – can be better than no data. And one of the things, just this morning, so Wednesday, the GDP data came out for the quarter. And I think it was a quarter for quarter annualized rate down 4.8%. And that would be through the end of March.
But that was worse than expected even given the updates to forecasts. But people complain about GDP because it's not a perfect number. But what you do is you have to understand what might be wrong with the number. And then you have to use other things to confirm whether things are going the right way or the wrong way.
So don't throw out all the data, but don't treat it as gospel either. Collect as many sources as you can and try to see what makes sense and what you can find actually in there. That's all you can do at this point.
Alright, here's some more data for you…
We showed you a spread map last week of a dinner in China in a restaurant where COVID spread throughout the restaurant. This is a call center in Korea. The people in blue are the ones who are diagnosed with COVID. So you can see it got a lot of people on this side of the floor. You know there are, like, clusters here. It's just really interesting. You know, you've got all these people, it skips these three and goes along here.
You only have a few people down on this side. And I think… I just find these interesting. I think the one takeaway you might take is that this was the 11th floor of a tall building and on this floor 43% of the people were infected. But in the building only 8% were infected.
And these people must have been sharing the elevators and the lobby and things like that… the stairs. So it would suggest you really have to hang around someone awhile. You can't just pass them in a hallway. Obviously you could, but at least maybe it's not… You know, you've got to stick around to really catch an infection from someone.
There's not too much takeaway from this. I just find it really interesting when they're doing these things.
Doc: I want to point out again like I did last week on our restaurant map… Look at all the places where people didn't get infected. I mean, that's more fascinating to me. Or at least didn't test positive. And this goes to the beauty of the innate immune system in humans. And that's another rabbit hole.
But it's entirely possible that for these people that are sitting right next to, and on top of, each other that their bodies cleared it without even going into antibody mode. And cleared it quickly. And cleared it asymptomatically. I mean there's a lot of possibilities to explain both the positives and the negatives. But I find the negatives even more interesting, right?
Do you think this study, do you think they'll do it again in a couple weeks to see if –
Matt: At this location? Yeah, I don't know. I don't know.
Doc: Hopefully they do. Anyway, great great chart.
Matt: And just one more thought. So if you're talking about sending people back to work, like you look at this side and good, "Look, you can't talk about sending people into a call center. You know, they're going to get… It's going to spread right through there."
But then how did these – how did this side not get it? Why didn't these guys give it to everyone else on this side? It's so strange. I don't know. Well see.
Matt: So moving on, talking about reopening. And obviously still the topic of conversation. This is a chart from Morgan Stanley that shows what sort of way this thing can play out…
We showed you essentially this chart I think two weeks ago, but they've changed it a little bit. Essentially they added real numbers here, right? It was theoretical before and it was kind of a smoother slop. And now we're seeing here's where we are. The dark blue ends here, so here's where we are, coming up on 35,000 new cases. It seems like we've peaked there.
And now we're getting these – no, we've got these antiviral trial results. I don't want to get into that too much and I don't consider myself an expert. But the Gilead drugs seem to be useful but not a magic cure. Again, we'll get into that.
Serology tests coming in. We started to get some of those on a small scale. So we're coming down this slope. We're hitting these checkpoints. Again, here's the fear. Maybe there's a second wave after people go out. We don't know yet. Here's the vaccine – 12 to 18 months. Mark it on your calendar. We'll get it right about there.
You it's just a thought. You know, it's… People don't know what's going to happen. They don't even know how this thing ends or what a path is. And I found this useful to at least think about. It's not going to be exactly right, but it is the checkpoints we're going to be hitting.
Doc: Yeah and just to divide into the antiviral trials for just a second…
There was a combination – normally you do a Phase II and then a Phase III – they did a Phase II and Phase III together. They stopped it. The Phase II was showing actually some harm and the Phase III was showing some benefit. And so, this is the problem with rushing everything. We're going to, again, get data that doesn't quite line up. And when you have political players, then you have health care players, and then you have media, you have a circus.
The health care people want to show great results. Positive results. The media want to make it seem like oh my God, the world is ending. We need something. And the political people want to say, "It's okay, it's okay. We're going to throw money at it." And they want to look at it and say, "Oh look this drug worked," even though it didn't in the Phase II and did in the Phase III, let's go ahead and use it.
That's the real danger and risk. I want to warn people that's coming. If you individuals, and we as a society, as people don't take control of it… Like, look at data. Analyze it. Think about the logic, the rationalization of it. Be very careful about trusting political people, media, and the health care.
I'm assuming people are trying to do this, but if you've been a lifelong player at the CDC and you want more grant money, this is the way to get it, right here. So just keep that in mind.
Matt: And you know, wonder drugs are rare, so usually the answer to these things is, "well, okay, you know it might a little bit like," but that doesn't really get anyone's attention. But usually whether you're talking about remdesivir or hydroxychloroquine, it's usually, there's not this screaming, amazing miracle. Usually you go, "ok well there's some costs and benefits and we'll see… we'll see if it helps." So. It's usually not that simple.
Doc: Yeah and just again, stay on that, you don't have to stay on that chart, we can leave this up for a minute. This goes back to this idea of it takes great physicians and great scientists to notice in the data something's wrong, something looks interesting. Even if it's anecdotal, and then propose it. But you have to have a hypothesis about the mechanism of action of a drug or these things and why they might work on the coronavirus.
So the idea, when I first started hearing people talk about hydroxychloroquine, it didn't make any sense. Because malaria, which this drug is used for, and those mechanisms, are slightly different – I would argue a lot different – but let's just say they're slightly different… Corona, people would have looked at this and seen that drug associated with let's say a common cold or other coronaviruses as a possibility.
And so the fact that it had never shown up before means just randomly someone probably somewhere said "wow we gave or we found 10 people that had hydroxychloroquine and they were taking that maybe before they came in, maybe we decided to give a little bit to them because we're an experimenter and it seems safe, maybe we're in a third-world or lesser developed country where there's more freedom to kind of do that. That still needs to be tested. Science with true design of the science to prove that it's not causing harm and bad harm. And we're filled with… history's filled with drugs that were thought to work, but weren't really tested and were dangerous. So we've got to be careful about that.
And again this is the theme: Data and caution. So go ahead.
Matt: Yeah. Okay, there's a saying here again we're talking about reopening there's a saying in epidemiology, "even pandemics are local" right?
These are things that are passed along, person to person. And it's going to be different in different areas. So if we're talking about we've… we've delegated this to the governors to decide when to shut down, when to reopen. And that makes sense because every state is different. You know, Washington was infected early, so let me… here, let me back up. If you're in blue, it means you peaked way back in March or April 1st. The growth in cases peaked. So Washington got it early, California's just been a success story, hasn't had many infections. I don't know why they [pointing to MT and WY] peaked so early, maybe they just don't have enough people. But on the other end -
Matt: Yeah. If you're in pink or red, you are only meeting or tying a new high, and this chart was really made in the previous weeks. So if… I'm here in Maryland, we're just, we're still at our peak. Our peak might be going higher, but we have not eased off the peak yet so maybe, you know… It may be time for Washington to reopen, maybe not Maryland. And Texas and Georgia are reopening, this shows a peak of April 2 to the 8, so you know. Maybe they're past the peak, and that's not even really the only criteria for if you should reopen, but it's certainly one of them. You have to be coming on the downslope. So…
Doc: So do you think things are worsening or getting better? Next slide?
Matt: Ah, now that depends, doesn't it, Doc? Pandemics are also political now. So let's see here, alright. Is the coronavirus situation getting worse? Democrats, 59% say yes, it's getting worse. Only 13% of Republicans say it's getting worse. Right is it getting…
Doc: Wait, you mean science and logic is political?!
Matt: I know. And you know, it's exhausting, is the word I would use.
Because everything has to be political now and you can see it in some of our feedback and, I don't know, people want to argue some things. Obviously we have our own views and we try to, try to know that we have our bias and obviously this comes a lot from your information sources, I think. But also I think the most important thing here is that this has, this disparity has greatly increased over just the last two weeks in this survey, so. Things are getting more… So anyway, we just take the average of the independents, so that's 39% it's getting worse and getting better, so.
So there's no way out. But, the other thing, as far as reopening goes, is you can't just reopen.
I mean, people are staying home because of orders, but they're staying home because they don't want to get sick and they, you know there are fears around this thing. So, here's a survey from Cowen and Company. When restaurants and bars are allowed to fully reopen, how do you think you'll respond? 36%, I'd probably avoid going out altogether for a while, even when they reopened. And you know, 36, 31, 28 – start going out again, but less than in the past. So this, you know people are not going to spring right back out there.
When I think about this question, I think about kind of two stages. Some people say, you know, society's totally going to change and people aren't going to do the same stuff they used to. I'm kind of in the boat, I think I don't know if the number's two years, three years, people are going to travel again, they're going to go to concerts and baseball games again. I don't think we're going to see… maybe people wear masks when they catch a cold, something like that, they'll wash their hands more. I don't see huge changes in how we spend our time down the line, but I don't think, you know there was a point where, if we got an all clear, I thought people would go out and have a huge party, and they'd start spending all the money they didn't spend. But I think it might be slower than that.
Doc: Yeah, and the chart on the right essentially shows that there's only about 7% that report they would go out immediately. And then the next one is one month after the all-clear they'd go out. So 22% is all say within a month they're going to go out and rebuild, resell, reopen, redo all these things. So, we've got to be careful here again about how fast this thing's going to come back, at least reported in this survey.
Matt: Yeah. Let's see here. Okay, we're well into the economic section here. This is an interesting survey of some small businesses.
And it's great when you can see these surveys over time. I think this is 8,000 small businesses. And I'll go through this real slow, so what are the expectations of your business recovering? In March, 30th, 90% of small businesses expected to recover. You've only seen that come down to about under 80% now, as of April 20th. What are your expectations to recover, that's ever recover. What about recover in the next two years? That's gone from call it 70% down to 50%, so small… you know, over the course of a month, you know, not even 3 weeks there, I think as small business owners have been seeing their doors close, have been seeing people not coming in, it's gotten quite pessimistic out there.
Doc: Are you yawning at your own self talking?
Matt: I am. I'm yawning. It's a long day.
Doc: Well, you have young kids.
Matt: Yeah, we have two little kids. It hasn't been… it hasn't been easy. All I care about is when schools open again, that's the only thing I'm watching for.
Alright, so moving on to the markets and stocks. Just another wild chart here.
The number of companies withdrawing guidance. Most companies offer guidance, they say "hey, next year, we'll make this much, this many sales, this much in profit." Sometimes they do cash flow. But in this last quarter, about 200 companies have said, "no we're not, we're not going to guess anymore. We're not going to give you an estimate for next year because it's just too unpredictable."
Head guidance, you know, who cares sometimes what management says, you know they've got a story to sell, so it's not always that useful, but you've just never seen anything like that.
And the stock market also is particularly concentrated. So the stock market has been rising, I think it's down to 7% off the peak, so it's really had quite the bounce back. But it's very concentrated. This shows right now the top five stocks in the S&P make up 21% of the market. That's the highest since the 70s which was a period of conglomerates and all sorts of things – there's a lot of reasons why it may have been high then. But this is a huge ramp up and these are the five companies right now that are making that happen.
Doc: And I just want people to listen to that and understand it, think about it. The S&P 500… five companies. So 1% of the S&P 500 is now 21% of market value of the S&P 500. So.
Doc: Just keep that in mind.
Matt: So when we say the market's going up, a lot of it is that these guys are going up. And we had earnings from Alphabet yesterday, they were good, I mean you know, their earnings are down, but better than expected. I think people who are watching this will know what Microsoft and Apple and Amazon have done, they're going to come out today. But you know these… this is a situation that benefits the largest, right? You know they have flexibility, they can still raise money, they…
Doc: Have cash
Matt: They have cash, they're… they don't depend on the people walking in their front door. This really could be a serious…
And here, here it is. So this could be a serious shift from small to large business. This green here is the S&P 500, which is essentially large businesses, and the black is the Russell 2000, which is small caps. Usually, coming out of a rally, small caps will come back faster. They're only, they're still down 14% whereas the S&P's down 7, so there's really a lot of appetite for big business here and small caps are still lagging behind. Is that because of the true advantages of the big companies? Could be. It could be that this is an opportunity, people are still scared of small caps, but they're going to come back. We'll have to see. But just definitely a big business tilt to the bailouts, and to where people can still shop, and who has the flexibility to survive this thing. So it's going to – it could change the makeup of our economy pretty severely.
Doc: Alright. Credit spreads?
Matt: Credit spreads. We check in on this – a little bit of an eek up here in the credit spread. So that shows a little bit of fear returning to the market, but still definitely coming off the peak, 7.7's not… you'd still consider that crisis mode, I think. But nothing too ridiculous, and again here's the rally in the S&P 500.
Same thing with the VIX, coming down, rally here. You know that looks pretty… not complacent, but that looks pretty encouraging if you were going to expect stocks to go up.
And we've seen a lot more earnings. So last week we showed you this. This here is the surprise on the current quarter of earnings. Last week earnings missed estimates by about 8%, and now you add in the ones that came out this week and now we're only missing by about 2%. So that's in general encouraging from earnings, but again most of these earnings are just through March, so April's really the month that's going to make or break these things. So we'll see, we'll see when they come.
Doc: And just to be clear, this is taking analysts' estimates and how much they missed this by, so it's still, they're missing it by… earnings are worse than expected. But it's… their miss is less bad than it was from last week.
Matt: Exactly. Yes.
And last week we ended with a nice summary, a quote from Howard Marks, which I thought was nice. So here's a visual summary, kind of to what we're thinking. This is the classic standard path of a bubble or a bull market. And you can see, usually it goes up and smart money's in here, and institution's here, and the public starts getting in here. And then there's, you know the come down, it always happens. And then there is a nice rally where, "hey, we're returning to normal" right? That's the delusion there.
But of course, things go down from there. Every market, every time the market goes down, there is a rally within it. And then it can go down further. So the question is, are we, are we really here or did we come all the way down and are we coming up this way? And there's reasons this coronavirus bear market might look different than this, right? It is kind of a one-off. We do know that it'll be over someday.
So maybe we don't get this fakeout. I don't know, we still don't have the answer. I mean, I'm still trepidatious, I don't want to… I can't say go out there and buy stocks. I think the Fed is keeping the financial market moving, but I just don't think that Congress is going to keep the economy up quite enough. But you know, maybe if you can look two years out, everything looks okay. It's really tricky.
I think you, we're going to ease into some things like we did last week. We're still finding some option trades that work, but it's, it's tricky. It's definitely one of the hardest times. It's harder than the financial crisis, which you know I was picking stocks in that period and I think this is much more difficult to suss out what will happen.
Doc: Yeah, and I just want to point out that between the point that's the bull trap and the return to normal, where we've come up into that area, this is all, in my opinion, been driven by the Fed and government saying they're going to get involved and saying they're going to buy all these assets. They're going to buy bonds that got declassified or classified down to junk status from the lowest level of investment-grade. They're going to do all this stuff.
And I want to point out: They've not bought a single stock, the Fed, they've not bought a single bond yet. So they haven't done these things that they've alleged to promise. And I just would be cautious here in believing and anticipating that the world is going to return to normal with the Fed owning – call them what they are, junk bonds. And low-grade investment-grade stuff. I… it makes me nervous. I'm again, trying to be on the half-full side of things, but it makes me uncomfortable that's it's just come back magically.
And I see a lot of people talking about technical levels and this and that as legitimizing the moves on the next levels. And once you get above that or this. The economics, right, that's what has to make a difference and matter. And if restaurants and people who are in the service business can't get back to work, which is a large portion of our economy, that's problemsome. And so, a $600 check or a couple of those, I'm not sure how much that gets small businesses back up and running quickly.
Again, I want to be hopeful and positive, and not too negative. But I'd just say be careful with your hard-earned money, folks.
And again, we didn't make any changes to that, to this really. It's kind of been a quiet week as far as big developments. I mean, it's kind of crazy, I mean, no weeks are quiet compared to what it used to be, but there wasn't any huge changes to what I was thinking.
Doc: Right. And I, we were talking about this earlier, I'm still in the same place sort of on the virus stuff, more the best case. And I'm still a little bit… I'm more on the worst case on the economic stuff. And maybe we'll dive into it next week and we'll… not now, we've almost run out of time. But one of the things that's been bothering me is why China reported such great results. And some stuff came out this week where the WHO and the CDC came out and said, here are some clinical things, clinical symptoms, that would indicate you should be considering COVID-19. And they broadened it and made it super, super wide.
The problem is the WHO's definition – the WHO doesn't require as it has in past pandemics and epidemics with viruses – SARS, MERS, – to include the clinical piece. And on February 16, that's what China did.
And let me just clarify this. China before was testing everyone and the test characteristics and quality of these tests might have been giving a lot more false positives. And when they started including symptoms and symptomatic analysis, those are the people that would be tested and told to quarantine. So you had to have the symptoms – boom, they're cases and they're able to corral this stuff. So we've got to be careful.
You know, government officials – we talked about this – political people want everyone to be tested. Well, if in the moment you do that, if you have a test that's super sensitive, you can run into the problem of false positives. And then the specificity of the test – you need to think about a test of, when the result is positive or negative, what's the predictive value that that number truly represents what's going on. And that's problematic.
I don't want to dive down the rabbit hole. But in science and medicine, there's a thing with bacteriology and I showed you that from that early chart, about how we've knocked out a lot of infectious diseases in this country, in the world. And it's a thing called Koch's postulate, which centrally – we won't dive into that. But let's just say I'm worried that the political side is taking over from the medical and the science side.
And I would like to see places and people get out and interact more. I don't think the virus is as deadly as once thought. I think the evidence will show that. And like I said, I'm more on the best case side for the virus stuff and I'm more on the worst case side for the economic stuff. So, that's all I have.
Matt: Alright, that's all I have too, Doc. Again, questions – we don't always address them directly but we try and incorporate anything you ask about as best we can. And sign up at healthandwealthbulletin.com. That's for free, for updates. And we'll… I'm sure you'll hear from us next week.
Doc: Thanks, Matt.
Matt: Thanks, Doc. Bye everybody.
Doc: Alright, see ya.