Moving on from COVID-19

Seeing so many fragmented discussions about how and when we move on from COVID-19, I wanted to try to capture the considerations in a single, coherent note.

The vaccine and its timeline

Let’s start with the vaccine. Once a vaccine is available, then this crisis is mostly over and the world can return to normal, as getting vaccinated will (for most people) immunize them against getting sick from infection.

From the time of this writing (April 2020), we’re looking at 12 to 18 months before a vaccine will be available. Why so long? Because you can’t inject billions of people with something that isn’t very, very, very well tested.

Since closing the global economy for 12 to 18 months would be a financial and humanitarian catastrophe, a lot of energy is being spent thinking about how we can “open up” earlier. But this is far more challenging than many realize.

Herd immunity

If everyone in the world could get infected, most would live, and we’d find ourselves in a state in which the large majority of people have immunity through COVID-19 antibodies. This is often referred to as herd immunity.

So why don’t we just let the virus run its natural course, and reach herd immunity as fast as possible? For two reasons:

  1. An unacceptable number of deaths. Say 60% of Americans were infected through herd immunity. With a mortality rate of 1%, that would result in close to 2 million deaths. A reasonable ethics question is whether the costs (economic and health) of stopping the economy compensates the loss of such life? The United Kingdom, in fact, originally planned to attempt herd immunity, but back-tracked in the face of the second problem.
  2. Because of how extremely contagious COVID-19 is, letting the virus run its course quickly overwhelms the hospital system—which, in turn, results in a skyrocketing effective mortality rate, as many who would otherwise survive, die from lack of medical treatment.

Hospital saturation

For those who develop life-threatening COVID-19 complications, hospitalization, and in particular, access to an Intensive Care Unit (ICU), is their only hope of survival.

As it happens, there aren’t many ICU units in the world. As a consequence, a relatively small outbreak can immediately overwhelm the local hospital system. If on average there’s one ICU per 10,000 people, and a COVID-19 outbreak quickly results in 1% requiring an ICU, that’s one ICU available for every 1,000 who need one.

And when that happens, the consequences can be terrible, as we saw in Italy and Spain, where at one point, people over the age of 65 arriving to hospitals were simply sent home to die, as there was nowhere to treat them. Under such circumstances, the natural mortality rate of COVID-19, which appears to be roughly 1%, can increase to 10% and more, because so many die due to lack of hospital access.

And that brings us to possibly the most misunderstood aspect of this crisis:

The main problem with COVID-19 is not the individual risk of death. Rather, it’s that the virus’s contagiousness leads to outbreaks that immediately overwhelm local hospital systems, and that, in turn, results in a spike in deaths.

Mandatory lockdown works

How do you prevent outbreaks? Simple. You prevent humans from coming in contact with each other, which is what countries are doing through mandated lockdowns. Here in Spain, it’s illegal to leave your home except for necessary trips to the grocery store, pharmacy, doctor, etc.

When lockdowns are in place, people stop coming in contact with each other, and you soon start to see the “flattening of the curve”:

Voluntary lockdown, less so

The approach in the United States began mostly as an appeal for voluntary “social distancing”, which helps. However, in a voluntary system, not everyone will follow it. In fact, many—especially the young—don’t even understand the need to, as they perceive the problem to be one of individual mortality, which is a low risk for them.

And so we get situations like Albany, Georgia, where a group of people who likely didn’t really understand the risk, or perhaps believed that COVID-19 wasn’t present in their community, gathered for a funeral, which prompted a local outbreak, and immediate overwhelming of the local hospital system.

The problem with opening up

Donald Trump often speaks about wanting to open up, as soon possible, even if on a limited basis. This sentiment is echoed by politicians in other countries. Just today, as the curve is flattening in Spain, the scope of people allowed to return to work was increased.

So what’s the problem?

We are nowhere close to reaching herd immunity, and so new outbreaks will occur. And it only takes a very small outbreak to overwhelm the hospital system.

There is clear optimism of re-opening in the United States, as daily new cases have stabilized. But as of today, 60% of all cases in the United States are concentrated in only five states!

At present, there are 560,000 cases in the US. Since testing has been limited, let’s assume the total infected and/or recovered is 10 times higher, or 5.6M. With a population of 350M, that would represent less than 2% of the country’s population having been infected today. As such, the United States, like nearly all countries, is nowhere close to herd immunity.

So as soon as the United States, or any country in a similar situation, “opens up”, there will be people who mistake individual-mortality as the core risk, or are otherwise uninformed, will gather with other people, new outbreaks will occur, requiring new lockdowns, to flatten the new curve. This will happen over, and over.

This has already been observed in countries like Japan and Singapore.

What’s the solution? Test, Isolate, Trace

In the short-term, there’s little that can be done. We can watch each day as Donald Trump speaks of opening up soon, followed by Dr. Fauci trying to reign in false hope.

In the medium term, the solution seems to be a process called test, isolate, trace. Let’s call it TIT.

In a TIT process, the general population would be broadly, randomly and frequently tested, in order to try to find the real danger—those who are infected and contagious, but are asymptomatic. These are ones that cause outbreaks.

Such testing would obviously require a cheap and fast testing technology. When available, one could imagine traffic stops, voluntary drive-ins, random stops in malls, etc. Testing would be happening everywhere.

When an infected person is discovered, they would immediately be transported to an isolation center, where they would be kept until testing negative. Here in Spain, the federal government has been asking counties to identify hotels, convention centers and similar venues where infected people could be placed in such a TIT process.

When an infected person is discovered, an attempt would then be made to identify everyone they’ve been in contact with, and then those people would be located, tested, and for the positives, the process would start again.

It’s believed that a TIT process—combined with societal behavioral changes including social distancing, wearing masks and frequent hand-washing—would allow life to return to something resembling normalcy prior to the availability of a vaccine.

How do we implement TIT quickly? First, we need fast and cheap test kits to be available. Second, we need governments to organize and execute the process. Finally, we are likely to see achieving a TIT process tremendously accelerated through private technology initiatives.

Apple and Google have already announced a collaboration to develop mobile device based contract tracing technology, that preserves individual privacy.

There’s tremendous scope for technology to help. In addition to contact tracing, I would imagine that app-based tracking would also help in widespread testing, as it would be easier to identify those who have previously been infected, have antibodies, and can be skipped. At a certain point, random testing could be replaced with notifications of those requiring a test.


One final possibility to shortening the path to re-opening the world would be the discovery of one or more therapeutics that prove effective in the treatment of COVID-19. You’ve probably already heard mention of some leading candidates in the press—i.e. remdesivir and hydroxychloroquine.

Such therapeutics, if effective, wouldn’t provide the preventative protection of a vaccine, but would lower the effective mortality rate of infection in those places where the medicines are broadly available. For example, if something like hydroxychloroquine could improve the mortality by a factor of ten, then COVID-19 would become more akin to the common flu.


I’d like to conclude with a summary of what I believe are the key take-aways:

  1. It will likely be more than a year before a vaccine is available.
  2. The main problem with COVID-19 is not the individual risk of mortality. Rather, the main problem is that its contagiousness leads to outbreaks which overwhelm local hospital systems, resulting in a spike in deaths.
  3. The problem with opening-up prior to a vaccine, is the near certainty of new outbreaks, overwhelmed hospitals, requiring new lockdowns to flatten the new curves.
  4. The medium term solution will be a process called Test, Isolate, Trace i.e. TIT.
  5. Private technology may result in TIT moving from a medium-term solution, to a short-term solution.
  6. Therapeutics offer the potential to shorten the time to re-opening, as a means of lowering the effective mortality rate.

The Unfolding — Anatomy of the COVID-19 financial crisis

In 2020, I learned about the macro economist Raoul Pal through a number of podcasts, and his pessimistic view of the global macro situation resonated with me prior to the COVID-19 crisis. He believed a nearly perfect-storm of characteristics existed that pointed to the coming of a deep recession. And then COVID-19 happened.

To continue having access to his views, I subscribed to his Real Vision service, which he dubs, “The Netflix of Finance”. One of his latest videos, titled “The Unfolding”, lays out the ideas behind his belief that we are headed into the worst economic crisis of our lifetimes.

Although I don’t pretend to understand all of this completely, I’m wanted to try to summarize his thesis here, as much for myself as for the reader. I would, however, encourage readers, if they can afford it, to subscribe to Real Vision, as the content for those interested in finance is outstanding. (I felt The Unfolding alone was worth the subscription price.)

How we got here

COVID-19 hit the world at the worst possible time; at the tail end of a sequence of bad events:

  • In 2016, interest rates began to rise globally, which, as one would expect, caused economies to slow as we saw GDPs around the world begin to drop.
  • This would generally lead to a “normal” recession, but a second bad event happened at the same time: a trade war, which pushed world-trade into the negative, as seen by the dropping of the PMI (purchasing managers’s index), an index of the prevailing direction of economic trends in manufacturing and services sectors.
  • Less trade resulted in a stronger United States dollar, as USD were being removed from the global system. A strong dollar isn’t good for the world as a whole.
  • Lastly, we had an oil conflict, as Russia and Saudi Arabia began competitive production, which led to the collapse of oil prices. This severely impacts economies like the United States, which are heavily dependent on their energy industries.

Then we had the massive black swan, COVID-19, in which world economic out has ground to a halt. COVID-19 has created both demand and supply shocks. Demand, as in people are not consuming. Supply, as in companies aren’t producing anything.

Raoul anticipated three resulting phases:

  1. Liquidation
  2. The Bounce
  3. The Insolvency

Phase 1: Liquidation

Because of sudden panic and uncertainty, we saw the sale and liquidation of everything—stocks, bonds, gold, bitcoin, etc.—as people rushed to get into the temporary safety of cash.

Credit spreads widened, as everybody realized credit was going to get liquidated as well. This caused the financial system as a whole to freeze-up, at which point the Federal Reserve stepped in with a huge stimulus package.

However, this wasn’t really providing “stimulus”, but rather an attempt to simply getting the financial plumbing working again.

The stock market dropped by over 30%, which would be characteristic of a mild recession. Raoul feels there’s a strong possibility it will later drop by 80%, characteristic of a true depression.

Phase 2: The Bounce

Just like in 1929, we can expect and have seen an initial bounce. Over the past week, the stock market has risen more than 10%. In a six month period of 1929, the bounce of the Great Depression saw a 45% rise in the stock market.

Why? Because there is optimism in the face of the initial shock. New COVID-19 case numbers are stabilizing. Maybe we’ll find a therapeutic. Maybe we’ll get a vaccine. Maybe, maybe, maybe!

But the 1929 bounce was based on a false narrative, and this one likely is as well. Raoul believes things are far worse than the market is reflecting.

And this leads us into the final phase, the insolvency.

Phase 3: The Insolvency

Raoul believes we’re going to see the largest insolvency event in recorded history.

  • Global GDP growth will be negative, quarter after quarter.
  • The world has far too much debt. United States corporate debt between 1950 and 2019 has grown as a percent of GDP from 20% to 45%.
  • The United States government debt has grown to 110% of GDP, and will take massive additional amounts to try to stimulate the economy with new money. Central banks all around the world will try to stimulate.
  • The problem, however, is that the velocity of money will be zero. People have clearly changed their habits, until a COVID-19 vaccine is available. We can see this in sales data (50%+ drops) and traffic data from TomTom (down 80% in China on the weekends). I personally see this in myself; Even after this lockdown is over, I’m not going to expose myself to infection by going to restaurants, coffee shops, gyms and other group settings before a vaccine is available.
  • Perhaps one third of the $3T of BBB-grade United States corporate debt will be downgraded to junk rating, requiring their sale by credit-rating-constrained entities. But there won’t be any buyers, and so the market will freeze.
  • A pension crisis is being born, as the largest wave of people ever (the Baby Boomers) enter retirement, and they currently own (and will sell) a huge amount of stocks and bonds.

None of this can get resolved quickly, as “flattening the curve” means power cycling the economy over and over, country after country, as localized outbreaks occur, preventing the full economic re-synchronization.

US 10-year bond yields are dropping to zero. But then, the Consumer Product Index (CPI) will go negative (because nobody’s consuming). This means that real yields (the difference between CPI and the bond yields) will go up, and when real yields go up, you destroy the economy.

And this time, the Federal Reserve can not fix this. They have no room to continue dropping rates.

The growing strength of the US dollar will break the global financial system, as there is far too much global debt denominated in dollars, and not enough dollars to go around to pay this debt. All non-US currencies will drop, and some will collapse.

Corporations in South Korea, India, Brazil and elsewhere are desperate for dollars, and the banks will issue the limited supply to the best creditors. The worst will be left scrambling, and go insolvent.

The end result in a world of negative GDP, nobody with cash, everyone in debt—is insolvency. And full debt-deflation then happens when everybody becomes insolvent.

Raoul believes this is a generational shift, the “Fourth Turning” that Neil Howe talks about in his book. A massive, massive change in which the market crashes to depression levels, everybody goes bust, and which may end with the world having to abandon the dollar standard, as the US dollar skyrockets.


How to protect yourself? Raoul believes:

  • United States bonds should be OK in the short- to medium-term.
  • United States dollars should be OK for the short- to medium-term.
  • Gold and bitcoin should do very well in the medium- to long-term.

Readers of my book Money for Something who followed my own allocation, the Golden Butterfly—a slight tweak on the Harry Browne Permanent Portfolio—will fortunately already have a sizable allocation to long-term bonds, gold and cash, that will have held up well in the current crisis, and hopefully going forward.

The case against identity politics

In episode 45 of his “Waking Up” podcast, I loved this piece by Sam Harris on identity politics, and wanted to capture it here for future reference:

Sam Harris:

As far as I can tell, becoming a part of a movement doesn’t help anybody think clearly, so I distrust identity politics of all kinds. I think we should talk about specific issues, whether it’s trade or guns or immigration or foreign interventions or abortion or anything else. And we should reason honestly about them.

And I’m not the first person who has noticed that it’s pretty strange that knowing a person’s position on any one of these issues, generally allows you to predict his position on any of the others. This shouldn’t happen. Some of these issues are totally unrelated. Why should a person’s attitude towards guns be predictive of his views on climate change? Or immigration? Or abortion?

And yet, it almost certainly is in our society. That’s a sign that people are joining tribes and movements. It’s not the sign of clear thinking.

If you’re reasoning honestly about facts, then the color of your skin is irrelevant. The religion of your parents is irrelevant. Whether you’re gay or straight, is irrelevant. Your identity is irrelevant. In fact, if you’re talking about reality, its character can’t be predicated on who you happen to be. That’s what it means to be talking about reality.

And this also applies to the reality of human experience, and human suffering. For example, if vaccines don’t cause autism, if that is just a fact—which is what the best science suggests at this point—well, then to argue against this view, you need data. Or a new analysis of existing data. You need an argument. And the nature of any argument is that its validity doesn’t depend on who you are. That’s why a good argument should be accepted by others, no matter who they are.

So in the case of vaccines causing autism, you don’t get to say, “As a parent of a child with autism, I believe X, Y and Z.” Whatever is true about the biological basis of autism, can’t depend on who you are. And who you are in this case, is probably adding a level of emotional engagement with the issue, which would be totally understandable, but would also be unlikely to lead you to think about it more clearly.

The facts are whatever they are. And it’s not an accident that being disinterested—not uninterested, but disinterested, meaning not being emotionally engaged—usually improves a person’s ability to reason about the facts.

When talking about violence in our society, again, the facts are whatever they are. How many people got shot? How many died? What was the color of their skin? Who shot them? What was the color of their skin? Getting a handle on these facts doesn’t require one to say, “As a black man, I know X, Y and Z.” The color of your skin, simply isn’t relevant information.

When talking about the data, that is, what is happening throughout a whole society, your life experience isn’t relevant information. And the fact that you think it might be, is a problem.

Now this isn’t to say that a person’s life experience is never relevant to a conversation. Of course it can be. And it can be used to establish certain kinds of facts. If someone says to you, “Catholics don’t believe in hell”, it’s perfectly valid to retort, “Actually my mom is a Catholic, and she believes in hell.” Of course there’s a larger question of what the Catholic doctrine actually is, but if a person is making a statement about a certain group of people, and you are a member of the group, you might very well be in a position to falsify his claim, on the basis of your experience.

But a person’s identity and life experience usually aren’t relevant, when talking about facts. And they’re usually invoked in ways that are clearly fallacious. And many people seem to be making a political religion out of ignoring this difference, so I urge you not to be one of those people, whether you’re on the left or the right.

Email, please

Because every WhatsApp “informational” group eventually devolves into a water cooler chat, my app badge currently shows 1,457 unread messages. Because I rarely open Facebook, its app badge shows 312 unseen notifications. Because I participate in seven Slacks, with several “channels” in each, there are currently 117 unread messages in there.

Add in iMessage, Skype, Basecamp, Google Hangouts, Telegram, Signal & Twitter DMs, and we have a clear situation of contact-point overload.

If it’s important that I see what you have to say, there’s only one reliable channel—email. If you contact me through any of the others, let me apologize in advance—because I probably won’t see it.