The Outlook for the Global Economy Sours as COVID19 Details Emerge.

Two competing COVID19 camps have emerged.

One group, primarily bulls, suggest that the Corona virus results in a mortality rate somewhere along the lines of an influenza virus. The bullish case centers around this point; while bulls are alarmed that a new virus has broken out and apparently taken hold, this too shall pass. Accordingly, they look at the sell-down of equities as a buying opportunity.

Another group, primarily bears, suggests that the COVID19 virus represents different, uncharted waters for the global economy. They suggest that there will be implications that may persist for far longer than the typical influenza period and that failure to take this into account is overly sanguine.

Initially, I fell into the bull camp. Now, I’m of the opinion that my assessment was premature.

From a virology point of view, there are a growing number of scientists who feel that this specific strain of corona virus is different from the standard influenza strains that pass around the world annually. The virus has an r-nought considerably higher than the annual influenza strains. This, plainly, means that COVID19 is far more infectious than influenza. The reasons for the high r-nought could be that there is no natural immunity in the human population at this time. Should that be the only reason for the high infection rate, then over time, r-nought should decline as it cycles through the human population. However, there have been concerns, in the early stages, that the human body is not capable of producing a long term immune response to COVID19. Approximately 14% of infected patients still carry a detectable viral load after recovering from the illness, at least initially; there have been reported patients coming down with COVID19 again. If the human body is not capable of reliably and completely eliminating the viral load when infected, then this new virus might remain in the human body and potentially strike again, like other stubborn viruses on the planet, such as HIV, hepatitis, TB shingles, etc.

The reaction of governments throughout the world suggests their own medical assessments conclude, initially, that it is far better to NOT contract the virus, rather than become infected and recover. The Japanese government has elected to close all schools down all schools for a month. China opted to quarantine the entire city of Wuhan, for a period in order to limit the spread of the infection. The government of France has banned large gatherings until further notice. The government of Britain has suggested that they may ultimately opt to have ALL British subjects to stay home for a month (work from home) in order to reduce the risk of contraction. The government of Italy has indicated a comprehensive plan which includes such draconian remedial measures such as mortgage waivers, utility bill waivers, etc. This is indicative of a degree of risk that suggests whole economies could, for all intents and purposes, be shut down tempoarily. The World Health Organization has trotted out the term “mandatory social distancing”, potentially to lay the groundwork for quarantine worldwide, similar to that employed in Hunan China.

Discussions in the media and government officials, of an effective vaccine, are likely premature if the virus is stubborn. There is also uncertainly, given the potential for reinfection, that the virus will only be seasonal, like influenza.

If I was a conspiracy theorist, I could make a pretty compelling argument, based upon what is now known about the virus, that an influenza virus, when chimerically bonded with a SARS or MERS type virus, or even an HIV strain of some sort, would make a pretty effective weaponized agent. As a realist, one should be aware that many national governments experiment with viral agents and that accidental releases of viral agents happen continually. Given that there have been no mammals found in the outbreak area containing the virus, it seems odd to attribute this to some sort of cross species transfer. Any chimera virus could prove uniquely challenging to vaccinate, unless the government that produced the virus provided all of the data necessary to determine how the virus came into being.

In an interconnected world of travel, trade and manufacturing supply chains, rolling disruptions via quarantines will be brutal overall for the economy. There will be negative implications for most sectors of the global economy and there will be few sectors or specific companies that will emerged unscathed, if it gets to the point where mandatory social distancing come to pass. Entertainment, restaurants, hospitality, travel; the discretionary spending segments of the economy are the ones that immediately come to mind.

I would be very cautious at this juncture. The decision to drop interest rates by the federal reserve board of the United States is designed to dissuade those who are talking about a market crash. The central banks of the developed world can coordinate very effectively, but fiscal and monetary policy face unique challenges; just how does one stimulate economic growth when facing a potential global medical issue where people are told to stay home, to limit social outings, to not congregate and spend money? The developed world is a consumer driven economy, overwhelmingly. While online spending has growing importance, offline spending for travel, entertainment and shopping is still the major driver of the capitalist economies.

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