2020-03-29 COVID-19 Update

It’s hard to write any one of these and feel that we’ve covered it adequately. There is a lot more analysis that could be done just on the topics we touch on here today. Consider this update a look at the forest more broadly than the trees.

Just this evening President Trump extended the social distancing guidelines from Easter all through April. Since Mid-March we’ve been using 6-10 weeks (total) as an estimate. This update takes us to the shorter side of that estimate. Dr. Gottlieb is publically supporting shutdowns through April as well.

This morning, Dr. Fauci was estimating 100,000 – 200,000 American deaths, in total, due to COVID-19. This is mixed news. The CDC estimated that the last flu season killed 34,200 Americans. An early study out of London suggested that 1,000,000 to 2,000,000 Americans could die from COVID-19. Dr. Fauci’s estimate clearly lands in a serious but less apocalyptic zone.

Hospitals

COVID-19 patients in CA ICU beds doubled overnight (March 28th). New York is starting to share ventilators, which was not a thing until now. You can watch a clip at the bottom that shows an Italian ICU using SCUBA gear as a makeshift ventilator.

A not-yet peer-reviewed paper and website has been set up to predict hospital supply and demand, including vents, over the next 4 months. There is more than one key takeway, lets look at their projections for the US as a whole:

Yikes, that’s a lot of needed resources. At this level, however, it looks like the shortage is in the entire US. They are kind enough to let us download their data, let’s look at just that date, April 14th, and see who needs beds. [1]

Basically, on the nationwide peak data (projected) there are 4 states with critical hospital bed shortages. The data is more nuanced than this, total hospital beds are not the same thing as ICU beds and ICU beds still need vents. The goal here is to highlight that the data shows different parts of the country getting hit very differently.

Ok what about Tennessee?

As far as global pandemics go, we are looking pretty good. This model has us peaking nearly three weeks out and landing at around 1,550 COVID-19 deaths by early August. We think that is a long way out to predict, however, it gives us an idea of where the next month is headed.

What we don’t have is county by county breakdown for these projections. If we look at TN counties with more than 10 cases it is clear where they are located right now:

Nashville & Memphis are going to have a much different experience than most of the rest of the state.

Mortgages

New Jersey is following CA in allowing 90-day grace periods on mortgages. Anecdotally, I’m hearing that people outside of CA & NJ are getting grace periods on a case by case basis. Let’s talk about this for a moment because it is really important.

A typical recession, such as 2008, has at least two things common to it that our current situation lacks. First, there is some sort of structural problem with the economy. Too much debt, overinvestments, outright fraud, a combination of the above, etc. Second, it’s beginning and endpoints are unclear, especially in the middle of it. So, if you are a bank or a mortgage company and you have customers that are failing to make their mortgage payments on time you do what you always do and take the house back.

In 2008 this caused massive problems. We’re not going to rehash that, but suffice to say everybody lost. No one wants that today. First, there are not known structural issues like in 2008, 2000, 1982, whatever. Second, it’s really clear when this started and kinda clear about when it is going to end (weeks or months, not years or decades).

I was on a conference call with other Knoxville business leaders last Thursday, including a commercial realtor executive and a bank CEO. Both of them made it clear that no one wants to be taking properties over. The landlords don’t want to take over strip malls and the banks are getting encouragement from the FDIC is help people make it through, including giving people grace periods on mortgages.

All of this matters because the alternative is a cascading failure of banks, mortgage-backed securities, the housing market, construction and more. NOBODY WANTS THAT. Because we know that this won’t last forever the major players seem much more interested in ensuring that there is a healthy, functioning market on the other side of this.

If making your mortgage is going to cause you problems call your lendor. Today. Also, expect to see more of these deals announced: we’re don’t think that the big banks would commit to them in CA/NJ without being ready to commit to them everywhere.

How we are shifting our thinking

The data that we have had time to analyze suggests that COVID-19 is going to play out in different areas of the US very differently. It may be more helpful to be thinking of COVID-19 responses in stages: shutdown (weeks), soft-open (months) and longer term effects (2-3 years), and to consider that different areas of the country may hit these stages at different times.

We really don’t if that will be the case, current policy is being made primarily at the state and federal levels. However, the vast differences in how this is already playing out would suggest that different policy responses could be anticipated.

Other

What we are watching next: The things we are internally focusing on next are: (1) what is going to happen in hospitals: we expect that if hospitals are overrun, that will trigger new responses from policymakers. (2) How long is COVID-19 going to be around in a significant fashion. We believe we need to update forecasts just to run our own business but expect that we need 5-7 more days worth of data at minimum, and 10-15 would be preferable.

Side note: the report about Advil worsening COVID-19 has been pretty much debunked.

Below – see a two minute clip inside an Italian ICU. Why does this matter? This is a recent clip but similar ones have been circulating for around a week. If NYC and LA end up like this you can expect much bolder changes from US policymakers, at least in the areas with the biggest projected hospital shortages.

[1] We are simplifying the model here, don’t miss that. Different states will peak at different times.