March 26 2020 Newsletter
A balancing act and some very good and interesting news
Many, if not most, seem to be naturally immune to Covid-19 or get it with very mild symptoms, but it is a serious threat for some, especially those with pre-existing conditions such as high blood pressure, diabetes and respiratory disease. In order to combat the spread of the virus, governments have decided to shut down as much personal contact as possible.
One difficulty is that a draconian lockdown will postpone widespread immunity against the virus – in other words, the tighter the lockdown, the longer it needs to be upheld, however the looser the lockdown, the more likely the health system will be overwhelmed.
The long term response – a vaccine – is still many months away unless some dramatic shortcuts are taken with vaccines widely being distributed without it being known how safe they are to use.
In other words, it is a balancing act that can easily go wrong with either more deaths or the economy being strangled. I have some more details further down.
However, there is some amazing news among this and that is shown in the graph below for the last six months, sourced from FIIG securities, a fixed income trader:
The white line shows the price of Iron ore , the red line is Newcastle coal (6000 kcal), the blue line is Met coal, and the green line is Brent crude oil.
Newcastle coal (thermal coal) is used in power stations, Met coal (metallurgical coal) is used in steel making.
Graph showing price of four commodities. Source: FIIG securities
As you can see the main Australian commodity exports have held up well and only oil, which we import, has dropped heavily which is good for petrol prices and many other products and services – oil is still quite central to our economy. We also export a lot of gas but that is mostly done under long term contracts.
Climate change advocates may not like this news, as they would prefer especially thermal coal to be used less and less.
However, for the wealth of Australia it is good news and, together with the gigantic stimulus package the government revealed, it gives Australia a good chance that we can weather this storm.
Personally, I find the stimulus package well-targeted. It supports lower income households who are hit hard by job losses and the difficulty of buying food and essential items, which are generally more expensive and not currently discounted, and it supports employers, who now have a chance to keep their employees for longer or re-hire them more quickly.
Here is a link to a short stimulus explainer from Netwealth.
A great amount of detail can be found in the Explanatory Memorandum of the stimulus package bills that you can find here.
For information on general support that is available to businesses as well as restrictions on non-essential services, this link may be useful.
I have not yet detected a change in sentiment, so it is not at all clear where the stock market or even Sydney and Melbourne property prices are going. There could be further downturns or the rally of the last few days could continue – that is not much of a prediction of course but it seems the virus is now a better known quantity and the main problem is how people are reacting or responding to this challenge.
Further Covid-19 Details
One question is how many people show symptoms. This graph (to the right) from the passengers of the Diamond Princess (the cruise ship with the many Covid-19 cases) shows how many of the infected passengers actually showed symptoms.
Source: Riou et al, “Adjusted age-specific case fatality ratio during the Covid-19 epidemic in Hubei, China, January and February 2020”
The graph shows that half or more of those under 20 or over 50 don’t show any symptoms when they catch the virus. The Diamond Princess case is also instructive in other ways as it was a worst case scenario of people crowded together for weeks with a common air condition system and communal dining facilities, when 20% of passengers and crew were infected. This is well explained at the following link.
Iceland has offered “free screening among the general, non-symptomatic, non-quarantined population” and just under 1% (48 / 5,571) were positive. If this is representative, then about 3,500 people have the virus in Iceland but only 12 were in hospital at the time of writing. This means that for a large number of people who are infected, but have no or few symptoms, only a small proportion has to be hospitalised, perhaps even fewer than for the common flu. (There is a possibility that only those who were at a higher risk chose to take the test but, even if those who took the test had a ten times higher chance of being infected, that would mean that instead of 3,500 people in Iceland with the virus there would be 350 and then 12 hospitalised people is still a very low number). Information on government testing of Covid-19 in Iceland can be found by clicking here.
Some 650,000 people die each year from the flu, though many more of those above 70 and with pre-existing conditions seem to pass away within a year of being weakened by the flu. The main difference with the Coronavirus seems to be that the Coronavirus does within days what takes the flu months. In other words, there are more and more signs that Covid-19 has a similar impact to a heavy flu, though much faster, but is much easier on the younger ones and, unlike the flu, can be spread by those who are infected but feel and look perfectly healthy (those who are asymptomatic).
Much of the above points to this virus being not much more than a faster-acting flu with most of those infected having far fewer symptoms than is common for the flu.
The UK thinks it will be able to distribute 3.5 million finger prick tests over the next few days. The test is expected to show who is infected and who was infected but has recovered. Once we have large-scale testing we will need far fewer if any lockdown measures, except perhaps for the very vulnerable as we know who has the virus, who hasn’t and who is now most likely immune. Those who are immune may then be quite likely free to interact with the vulnerable.
As always I am available for any questions regarding your insurance, superannuation, and investments, and our team are here as usual throughout these times. As an aside, a large number of AMP and MLC clients have lost their adviser. If you know one of those, please feel free to tell them about us.
AFP LRS Adv. Dip.FS (FP) MBiostats
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