Stocks gained ground again yesterday. Bond interest rates hovered near all-time lows. The dollar continued to weaken. In response, oil prices expressed in dollars, rose. As for the coronavirus, trends were mixed. Several of the recent hotspots, from Florida to California, showed some improvement. But the spread has widened and more states than not are showing rising infection counts, bad news as we enter back-to-school season.
The ingredients for a significant second wave are present. While the hot spots have peaked, the widened path of contagion suggests that Covid-19 spread in the U.S. is not contained. Death counts are rising again. This is not true all over the world. The key is testing. Say what you will about the number of tests, clearly there is no national coordinated testing strategy in the U.S. The government’s Operation Warp Speed is helping to accelerate the development of a vaccine. Signs to date show progress and clinical results so far have raised optimism. While some Phase III trials could end this fall with approval of first vaccines coming before year end, there is no assurance of that happening so quickly. It will take time to ensure safety and to measure the longer term efficacy of any one vaccine. If there is to be a second wave this fall that accelerates the number infected and hospitalized, a vaccine won’t avoid it.
Costs to test for the virus have been estimated at anywhere from $20-40 per test. While commercial lab companies have been overwhelmed at times, particularly in regional hot spots, there is plenty of unused or underused capacity available. Washington, using executive orders, could order university labs, veterinary labs, etc. to participate in an Operation Warp Speed for testing should it choose to do so. To date, President Trump has been an opponent of large scale testing for reasons more political than medical. Around the world, nations with strong testing and tracing regimens have gained some degree of control over the virus. Among developed nations, only Great Britain is seeing an infection rate higher than ours.
The key to effective testing is quite simple. Make it ubiquitous and get the results back quickly in order to separate the infected and non-infected. If everyone who could be tested were given the ability to do so weekly, and results were available within hours instead of days, those infected could be isolated for 1-2 weeks while those testing negative could go on with daily lives including going to work, school, or a restaurant. The costs to test in this manner for a month or two would be well under $100 billion. To put that into perspective in a world where Congress is debating a $1-3 trillion fourth relief package, our GDP pre-Covid-19 was close to $20 trillion. 1% is $200 billion. Thus, if effective testing allowed the majority of Americans to live daily lives more fully, a 1% increase in GDP, would pay for the testing two times over! Read William Galston’s column in today’s Wall Street Journal for similar suggestions.
Simply said, the nation is at a critical juncture. It is about to reopen, or at least attempt to reopen, schools. Cooler fall weather will move most of us indoors. Outdoor restaurant seating will disappear. Many restaurants will die if they can’t seat people indoors or are restricted to 25% of capacity. The math doesn’t work. Cut revenues by 50-75% and cut costs by 25%. That doesn’t reach profitability.
Testing alone won’t solve the problem. Look at professional sports. Major League Baseball and the NBA are in full swing. The NBA has put all players and staff into a bubble. Only those testing negative are allowed in. All were within the bubble for two weeks before the start of play. Leave the bubble and you can’t return. Testing is done daily. The NBA season is moving forward, disease-free so far. MLB has a similar testing regimen but players don’t live in a bubble. Teams failing to protect, letting players go out to restaurants for dinner like the Miami Marlins, have seen the impact. The Marlins and Cardinals are now overwhelmed by infection borne out by testing. Their seasons are doomed. Baseball itself may not make it to the end.
Proper testing must be done alongside the use of masks, social distancing and proper hygiene practices. We have been learning for months what happens when the disease isn’t respected properly. Breakouts in states like Florida or California come because too many simply chose not to abide by the public health policy rules. Once their states or cities were overwhelmed, they started to behave better and infection rates moderated, after the fact unfortunately.
Fall is going to make containment more difficult once we are all forced indoors into closer quarters. If we cannot separate those infected from those not, letting everyone mingle will simply magnify the spread.
To get a proper testing regimen in place requires no new technology. It simply requires commitment. President Trump wants to be reelected. That will become much less likely if there is significant spread this fall. The disease itself isn’t going to change. What needs to change to gain control is the way we implement proper policy. More and more people today are wearing masks and maintaining proper distances. Bars are closed as are large venues. But implementation isn’t uniform. It might be difficult to change the President’s mind but massive outbreaks changed the tune of many Southern governors in recent weeks. Congress could weigh in by allocating more dollars for interim testing in the fall. Universities can offer greater testing for their students and communities.
If the testing regimen doesn’t work, as a nation we would be out less than $100 billion for trying. But if it does work, our economy will recover faster and perhaps 100,000 lives or more will be saved. Sounds like a pretty good risk-reward ratio to me.
Getting off my soapbox, we will continue to get a lot of economic data this week. The key numbers will be embedded in Friday’s employment report. The other key will be the fourth relief package now making its way slowly through Congress. Besides funds for testing, what is urgently needed is ongoing economic help for those displaced by the virus. That includes individuals, small businesses, local governments, and schools. Support to date has allowed most to tread water at a minimum. If aid cannot be provided to allow them to continue to remain operating, then we will see massive business closures and layoffs. The divide between Democrats and Republicans is wide but we can’t afford many weeks of bickering. The supplemental unemployment payments up to $600 have ended. Even if restored, there are going to be a couple of weeks where the money flow stops. There will be a compromise. But every day it takes to get there, means a few more small business closures.
For the past three months, our economy has bounced back at least as well as expected. But the rate of improvement is slowing. Bond yields are slipping. The dollar is in decline. We may be healing but we are healing at a slower pace than others, unable to get control of the Covid-19 infection rates on a national scale. That can change. If we take proper steps, our recovery can accelerate once again. We will heal economically faster. If we play hear no evil, see no evil, and speak no evil, we will continue to recover more slowly than other developed nations. It’s our choice.
Today, Patrick Ewing is 58. Comedienne Selma Diamond turns 100.
James M. Meyer, CFA 610-260-2220