“Panic causes tunnel vision. Calm acceptance of danger allows us to more easily assess the situation and see the options.”
Simon Sinek
According to the World Health Organization (WHO), an estimated 1.5 million people worldwide died from tuberculosis in 2018, and an additional 10 million individuals contracted the disease. Also, in 2018, WHO data suggests there were 228 million new cases of malaria worldwide, resulting in around 405 thousand deaths. Each year, anywhere from 11-20 million get sick from typhoid, with about 150 thousand dying from it. Depending on the year and the severity of the strain, literally tens of millions of people will get ‘the flu,’ and anywhere from 300 – 600 thousand will die…each and every year. Finally, if those stats weren’t depressing enough, how about this one from the WHO website: “Pneumonia accounts for 15% of all deaths of children under 5 years old, killing 808,694 children in 2017.”
Human beings are social creatures, and are subject to infectious diseases. Consider this snippet from a scholarly paper by Kappeler, Cremer, and Nunn on sociality and health posted on the NIH website: “Two unavoidable costs of sociality are important in this context. First, disease transmission mediated by social contacts—either between conspecifics or between members of different species—has become a major issue in the world economy and in human health. Some infectious diseases such as influenza, HIV and Ebola are sweeping the globe, causing major trauma and economic damage…The second unavoidable cost of sociality involves competition and resulting social stress. Social stress is known to cause major health problems through increased susceptibility to infectious and non-infectious disease.”
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4410382/
In English, you could sum up that last paragraph as: the closer we are in proximity to others, the more we will swap our diseases, viruses, bacteria, and all kinds of other bad stuff. Basically, people have cooties, and you can’t just say “circle, circle…dot, dot, dot…now you have your cootie shot.” It just doesn’t work that way, but it would be great if it did.
Unless you have been in a cave or otherwise seriously detached from the news, you have heard about the 2019 Novel Coronavirus (2019-nCoV). This new virus has caused an outbreak of respiratory illness, primarily in and around Wuhan, Hubei Province, China. While many Americans might not have heard of Wuhan, it is one of the larger cities in the People’s Republic with a metro area population of around 11 million. By comparison, the Census Bureau’s 2018 estimate for Chicago was 9,498,716. Obviously, it is a big place, and big places are hard to quarantine.
Yesterday (1/30/2020), a statement from the WHO about 2019-nCoV relayed the following information:
“Representatives of the Ministry of Health of the People’s Republic of China reported on the current situation and the public health measures being taken. There are now 7711 confirmed and 12167 suspected cases throughout the country. Of the confirmed cases, 1370 are severe and 170 people have died. 124 people have recovered and been discharged from hospital.
The WHO Secretariat provided an overview of the situation in other countries. There are now 83 cases in 18 countries. Of these, only 7 had no history of travel in China. There has been human-to-human transmission in 3 countries outside China. One of these cases is severe and there have been no deaths.”
In the United States, the CDC has identified 6 ‘positive’ cases of the virus and ruled out 114, with another 121 still under investigation, as of 1/31/2020. As such, by comparison to other infectious diseases which are household words (influenza, pneumonia, malaria, cholera, etc.), and I am not trying to be cavalier here, 2019-nCoV is something of a lightweight…at least at this time. The problem is the unknown. After all, this is a brand-new virus, and we don’t know much, if anything meaningful, about it. Ignorance is NOT bliss in instances like this one.
As a result, the WHO labeled 2019-nCoV a PHEIC (Public Health Emergency of International Concern). In response to this, the US State Department put all of China, not just Wuhan, on a Level 4 Travel Advisory…DO NOT TRAVEL. Here is the language:
“Do not travel to China due to the novel coronavirus first identified in Wuhan, China. On January 30, the World Health Organization determined the rapidly spreading outbreak constitutes a Public Health Emergency of International Concern. Travelers should be prepared for travel restrictions to be put into effect with little or no advance notice. Commercial carriers have reduced or suspended routes to and from China.
Those currently in China should consider departing using commercial means. The Department of State has requested that all non-essential U.S. government personnel defer travel to China in light of the novel coronavirus.
In an effort to contain the novel coronavirus, the Chinese authorities have suspended air, road, and rail travel in the area around Wuhan and placed restrictions on travel and other activities throughout the country. On January 23, 2020, the Department of State ordered the departure of all non-emergency U.S. personnel and their family members from Wuhan. The U.S. government has limited ability to provide emergency services to U.S. citizens in Hubei province. On January 29, 2020, the Department of State allowed for the voluntary departure of non-emergency personnel and family members of U.S. government employees from China. On January 31, 2020, the Department of State ordered the departure of all family members under age 21 of U.S. personnel in China.
The U.S. Centers for Disease Control and Prevention (CDC) has issued a Warning for all of China. The CDC has published suggestions on how to reduce your risk of contracting the Novel Coronavirus. Visit the CDC webpage for expanded information about the Novel Coronavirus, including prevention, signs and symptoms, and treatment.”
Due to this, three major US airlines (United, American, and Delta) have announced they are canceling all flights to China until such time the appropriate powers that be deem it safe to resume.
Seemingly shifting gears, my father has long told me I am prone to underreact to serious stuff and overreact to [baloney]. Fair enough; the old man might be right about this. Admittedly, I am not an expert on infectious diseases; however, I do read a lot about economics, probabilities, and even history.
What we know to be true: there are roughly 8 thousand confirmed cases of 2019-nCoV, with a known mortality rate of a little over 2%…all the deaths being in China. From thelancet.com, several Chinese (Chen, Zhou, Dong, QU, Gong, Han, et al.) found the following in a study of all confirmed 2019-nCoV cases (99) in Wuhan Jinyintan Hospital from January 1, 2020, to January 20, 2020:
- We observed a greater number of men than women in the 99 cases of 2019-nCoV infection. MERS-CoV and SARS-CoV have also been found to infect more males than females
- About half of patients infected by 2019-nCoV had chronic underlying diseases, mainly cardiovascular and cerebrovascular diseases and diabetes
- Our results suggest that 2019-nCoV is more likely to infect older adult males with chronic comorbidities as a result of the weaker immune functions of these patients
- By the end of Jan 25, 31 (31%) patients had been discharged and 11 (11%) patients had died; all other patients were still in hospital. The first two deaths were a 61-year-old man (patient 1) and a 69-year-old man (patient 2). They had no previous chronic underlying disease but had a long history of smoking
- Of the remaining nine patients who died, eight patients had lymphopenia, seven had bilateral pneumonia, five were older than 60 years, three had hypertension, and one was a heavy smoker
- In conclusion, the infection of 2019-nCoV was of clustering onset, is more likely to infect older men with comorbidities, and can result in severe and even fatal respiratory diseases such as ARDS
- https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30211-7/fulltext
Separately, the China National Health Commission released details of the first 17 deaths up through January 22, 2020. The median age of the decedents was 75, with a range of 48-89 years. Of the 17, 13 were men. Taken together, this (somewhat limited) research suggests older, already sick people are more likely to contract 2019-nCoV, primarily men. As with just about every other known respiratory disease, the older and sicker they are, the more likely they are to die. Doesn’t that sound familiar? Because of this, the US has shut down travel with China and the markets have freaked out, down 2% today. Any firm doing business in China has taken a beating, and just about everyone else is feeling the pain.
By comparison, the CDC estimates from October 1, 2019 though January 25, 2020, the following:
- 19-26 million flu illnesses
- 8-12 million flu related medical visits
- 180-310 thousand flu related hospitalizations
- 10-25 thousand flu deaths
- https://www.cdc.gov/flu/about/burden/preliminary-in-season-estimates.htm
- Not surprisingly, older, already sick people are most likely to die from the flu
Even so, I can get on a metal tube (otherwise known as a plane) and zoom through the sky to just about population center in the United States I darn well please. No one other than my wife and American Express can stop me. Well, that might be a bit of a stretch, as I am not as young, fit, or strong as I once was. Hmm. I am right in that virus’s target market, aren’t I?
I imagine any number of people would consider what I have written to be either cavalier, ignorant, or naïve. Perhaps it is a combination, as many things are. However, investing ultimately comes down to, well, dollars & cents. Since the market close on 1/23/2020, last Thursday, the S&P 500 has ‘lost’ a little over $828 billion in market capitalization. I would argue this is mainly, if not almost exclusively, due to the panic (yes, panic) over 2019-nCoV.
Let that number sink in: $828 billion in the span of a little over a week. That works out to be, get this, a little over $4.87 billion per known death (170). That is only the US, and just the S&P 500 (which, admittedly, makes up the majority). Doing a little ‘back of the envelope’ math, if we assume US market cap is about 45% of global market cap (it is, thereabouts) and the global markets are down about the same as the US (3%) since last Thursday (they are, thereabouts), there has been roughly a $1.8 trillion decline in stock market wealth since 1/23. Wow. That works out to be a little over $163 thousand per resident of Wuhan…about a decade of per capita GDP in that metro area (est. $16,500/year). Do you think we can get folks over there to stay inside until this mess blows over for some fraction of that? I think it is worth a shot.
Whew.
In closing, I am not certain I have made a point other than: freaking out over this type of stuff can cost a lot of money! History and what little research we have suggests 2019-nCoV might…might…be as bad as this year’s strain of flu. However, we haven’t been freaking out about that as a country, yet, have we? If the stock market is a good barometer, the answer is not really.
Have a great weekend and DON’T watch the TV!
John Norris
Managing Director
Chief Economist
All the opinions expressed in this newsletter are mine and mine alone. They do not necessarily reflect the views of Oakworth Capital Bank and/or any of its directors and/or associates. As always, my opinions should not constitute a solicitation to either buy or sell investment services/securities AND are subject to change without notice (as my wife will gladly tell you).