Italy Hits Peak Coronavirus, But As The U.S. Worsens, Patience Thins

Apparently we are all China now.

New York is the Hubei province, reliant on China for medical equipment. Wal-Marts in parts of the country have loudspeakers reminding people to wash their hands (China had drones), and the U.S. economy might be closed for a month, or more, if the government shares the view of people like Bill Gates, who continues to be on the media circuit talking about the hell week to come.

But the good news is that Italy seems to have reached peak coronavirus as expected. France, meanwhile, is revving up and about to hit 100,000. The Financial Times is hinting that the European Union is thinking now about how to re-open in the weeks ahead. More stimulus news is expected out of the EU tomorrow.

Meanwhile in the U.S., we are being told to do grocery shopping online despite online grocers being sold out and therefore impossible to schedule deliveries; we are being asked to wear masks (like China) despite not being able to buy them anywhere; and we are being told around 200,000 people will die, which is 12.5 times more than died in Italy, the worst hit nation of all in terms of deaths, despite having a 5 times larger population.

How is this possible? In simple math, 16,000 dead in Italy times 5 equals 80,000 dead. Even that number is high.

China, supposedly, and who believes them at this point, just had 82,602 cases. And their numbers have barely risen despite now counting asymptomatic carriers of the deadly SARS-CoV-2 virus.

Moreover, the Tri-State area of New York, New Jersey, and Connecticut have been on stay-at-home restrictions for roughly three weeks now, maybe four. And the curve is nowhere near being smashed. The region has at least two more weeks to peak.

Looking at the movement of the 10 year-Treasury yield declining, and the Baa-Aaa credit spread widening by nearly 190 basis points, equities have further to slide.

Maybe no one cares about Wall Street. That’s fine. But what about 13 million people who will be out of work by the end of this week, basically due to the government order to shut the economy down? The longer this lasts, the less likely they will be returning to work.

President Trump’s top doctors — Anthony Fauci and Deborah Birx — certainly can’t be blamed for the pandemic. Every day they deliver bad news. Nothing works. There is no “magic vaccine or therapy,” Birx says. It’s bleak.

As of April 5, the U.S. tested 1,762,050 people for the SARS virus. Of that total, only 332,308 tested positive, or 18.8% of all tests administered for the virus came back with a yes. Of the 332,308 people who tested positive, 41,372 required hospitalization, or 12.4%.

Hoping For Model Failure

Now that Italy is at peak, everyone is hoping to see a deceleration in the number of cases over the next two weeks. Italy cannot be reporting a thousand new cases a day by the third week of April or the market will go berserk.

Once it is clear that the new number of infections is in decline, and recovery rates are rising, this will give policy makers and investors a timeline as to when the curve gets flattened. Hopefully Europe can start re-opening at some point in early May.

The number of new cases has been flat in China now for weeks, despite a few flareups here and there warranting caution of a second wave. Most people are back to work, though we have no idea how many people were laid off. Many more than 10 million is a good guess.

Italy is important in all of this because the infection rate model was based largely on China data.

Fauci and Birx are not responsible for economic health. They are responsible for public health and are likened to "generals" in the campaign to win the war against what Trump has called an 'invisible enemy."

But a slow, drawn-out process of testing, flip-flop messaging by Trump, Fauci and Birx, and no clear vision or direction on medication or tracking those sick with COVID-19 all need to be taken care of before there is any perceptible dent in the infection rate curve. As a result, the message is that the public needs to hunker down and abide by China-style quarantine measures until the authorities figure it out and hospitals are not overwhelmed, which mainly seems to be the case in New York City at the moment.

During one of his daily press conferences last week, Trump said he would now be remaining in the White House, presumably in a sanitary bubble. He will turn the reins over to Fauci and Birx to hold court over the pandemic for the next couple of weeks.

“If we reach the end of April and the curve shows no evidence of bending or the possibility of restrictions being lifted early in some regions, markets will reprice for further economic dislocation,” says Vladimir Signorelli, head of Bretton Woods Research.

He thinks if we are still climbing to peak nationwide by the end of April, with no clear explanation to the public about what these numbers even mean, then look for another 20% discount on the Dow as the probability of another month of a shutdown increases.

As of April 5, the U.S. tested 1,762,050 people for coronavirus. Of that total, only 332,308 tested positive, or 18.8% of all tests administered.

Of the 332,308 people who tested positive, 41,372 required hospitalization, or 12.4% of those who contracted the COVID-19 disease caused by the new mysterious SARS from China.

Of the 41,372 that needed a hospital bed in the U.S., some 5,497 needed to be in an intensive care unit, or 13.2%.

And of the 5,497 who needed an ICU bed, 612 needed a ventilator, or 11.13%.

All numbers come from The Covid Tracking Project.

The Stay-At-Home Cliffhanger

News flow regarding the likely magnitude of a near-term downturn has not been promising. The labor market is not coming back this year, market consensus suggests.

Currently, “stay at home” orders of varying intensity blanket all of the major cities in the U.S. and Europe. Talk of extending them until Memorial Day in the U.S. is longer than the market was assuming just one week ago.

“There are now strong indications that restrictions will be in place longer than we had thought,” says Michael Gapen, an economist for Barclays in New York.

Not just Wall Street, but Main Street is questioning if the people in charge know what they are doing. As more people lose their jobs, or have wages cut, patience wears thin. It will wear even more thin if New York faces stay-at-home orders long after peak because Detroit or New Orleans replaced them as the new epicenter. This could last until June assuming each epicenter takes roughly six weeks to peak and plateau.

There is now accumulating evidence that U.S. economic activity fell off a cliff in mid-March.

Hardly a day goes by on Twitter without an advertisement from The New York Times NYT seeking subscribers. Is Macy’s M advertising in the Times? Is Broadway? Are hotels placing ads in the travel section? No, no and no.

Earlier signs of a collapse in the U.S. hospitality and travel industries are now accompanied by a record jump in jobless claims.

Soft data points to further erosion in consumer and business confidence this week, a week Fauci, Birx, Cuomo and Trump promised would be something that looks a bit like Armageddon.

“The size of this crisis is the largest since World War II,” says Sebastien Galy, senior macro strategist for Nordea Asset Management in Luxembourg.

Liquidity is first to disappear, then comes extreme fear by business owners, and then comes the wave of missed rent, missed mortgage payments, and corporate and sovereign bond defaults. Look for debt moratoriums and debt forgiveness to be increasingly bantered about the longer this goes on. Ecuador and Argentina will be the sign post there.

The intensity of the shock on securities markets is being curtailed by the actions taken by various central banks and government. The economies of the U.S., Europe and China are now dependent on government stimulus.

Western capitalism is in the ICU unit because of COVID-19. The tens of millions of people out there who are not sick and will probably not get sick are feeling the symptoms anyway.

College seniors lost their last months of goodbyes and setting up career-starting internships. High School seniors lost their proms. Most students in the U.S. that are not in class are simply not being graded. Classes are not online. It’s a lost semester.

Doctor Birx may be unable to find a solution to the public health crisis, the worst anywhere in the world in terms of infection count. China-style spending is the cure.

Barclays updated their worst case scenario on April 2. It assumes more intense containment measures and more layoffs.

Second quarter contraction could be as steep as 50% from the first, followed by an L shaped recovery and not a V, and not a U, which is becoming the base case now.

For Barclays, U.S. GDP ends the year down 12% in a severe case, with unemployment hitting a high of 20% before falling to 10%.