If you haven’t, I’d suggest you go online to watch Boris Johnson’s March 12, 2020 press conference regarding the UK’s management of the Covid-19 pandemic. Johnson, along with UK Chief Scientific Officer, Patrick Vallance, and UK Chief Medical Officer, Chris Witty explain in sobering clarity steps that have been taken to date, steps that are about to be taken and the road ahead. Beyond detailing their full plan, they also explain why each step has been taken and the importance of timing and sequencing.
Contain. Delay. Research. Mitigate.
They explain that this virus is more dangerous than ordinary flu because there’s no existing societal immunity. That virus spread in the UK is about 4 weeks behind Italy and some other countries. That while the UK has 590 confirmed cases and 20 patients in ICU, it is likely that between 5,000 and 10,000 people in the UK are already infected.
That the containment period, which has bought them valuable weeks, is now over. It is now time to prepare for the peak, which should be a few weeks away. They are asking anyone exhibiting symptoms to stay at home for 7 days. This will help to further delay the peak. Delaying the peak gives the healthcare system more time to prepare and pushes the peak into warmer weather months. The weather matters because most respiratory illnesses subside in warmer months and therefore won’t be competing with this new virus for healthcare services. They also anticipate that warmer weather will slow the spread of the virus, thereby elongating but shrinking the peak of the curve. Again helping not to overwhelm their healthcare system.
Older people and those with other health complications are most at risk. At some point in the coming weeks - but not yet, they’ll ask the most vulnerable to practice social distancing. Isolating themselves as much as possible to remain safe while the virus peaks.
And peak it will. Their high-end estimate is that 80% of the population may become infected in the coming months. They admit that’s very speculative and higher than most other countries' estimates. Not only will the virus spread, but they want it to.
They're not closing schools. In fact they are asking schools not to close unless guidance changes. Yes, they’re considering the practical impact to people’s lives of having all kids home from school, but as children seem much less vulnerable they are a key component to achieving societal immunity.
If they contain the virus too much, society won’t develop broad-based immunity. And when it comes back, this whole process will restart. But if they let it spread among the least vulnerable, while best protecting the most vulnerable, when it returns it will be no more threatening than a typical flu - still dangerous to some but not running rampant among us.
Everything they are doing is guided by science. The best science. The virus is going to continue to spread, it’s unavoidable. People are going to die. How many? They are confident that 1% or less of those infected, and those fatalities are skewed hugely towards older people. The number they are much less certain of is the infection rate. But science informs their path forward. And science will continue to inform their path forward.
When asked why they are taking a different path forward than other countries such as the US, they repeat - science is guiding their path. They are not cheerful. They are not panicked. They are thoughtful, clear and confident. And it makes sense. Develop the required immunity, in the safest way possible and leverage the coming warm weather.
That was Thursday, March 12, 2020.
And then came Monday. March 16, 2020. Neil Ferguson of Imperial College London releases a paper titled, “Impact of non-pharmaceutical interventions (NPIs) to reduce Covid-19 mortality and healthcare demand” And all hell breaks loose.
Ferguson’s paper weighs two approaches to managing the pandemic; Mitigation vs. Suppression. Supposedly based upon data from Italy collected in the past couple of days, Ferguson models out projected fatality rates if (i) Do Nothing - literally nothing is done and people don’t change their behavior in any way - which Ferguson acknowledges is unrealistic (ii) Mitigation - estimating the potential impacts of various measures similar to those outlined by Johnson et al on March 12, whereby societal immunity is achieved during a peak and then quickly subsides and (iii) Suppression - basically all hands on deck to stop the virus from spreading until an effective vaccine can be achieved.
Ferguson is clear on a number of things. He does not take into account ethical or economic impacts of any choices. Based upon data he collected - in the previous few days - he has doubled the assumed rate of infected patients requiring ICU.
Based upon that, Ferguson projects that general ward and ICU demand would exceed capacity by 8 times. But even if all patients could be treated, Mitigation would only cut fatalities in half versus his (admittedly unrealistic) Do Nothing estimates of 500K (Great Britain) and 2.2-2.4 million (US). This is his most optimistic projection.
Ferguson summarily rejects that as unfeasible and concludes Suppression is the only choice.
What we are currently experiencing is Ferguson’s Suppression on steroids. Universal Social Distancing, Home Quarantining, School and University cancellations plus people working from home.
Ferguson allows that this has never been done before, may not be successful and for it to be successful it must be maintained until an effective vaccine can be developed and distributed widely. 12 months, 18 months or more.
In not so many words, Ferguson realizes people likely will revolt. So he proposes some vicious cycle of Suppression for as long as possible, then releasing the valve to let life resume - at which time the pandemic will start anew because we won’t have developed immunity - and just when it gets rolling, shut everything down again. Back and forth until a vaccine.
Ferguson deems this successful because his model tells him at no time does the demand for healthcare exceed supply. That’s it. He assumes no increase in capacity. He’s doubled the UK’s assumptions on healthcare requirements. All over the course of a few days. And published. And we’re all living under pseudo-martial law.
My very non-scientific conclusion? It’s batshit crazy.
So what happened? What happened between March 12 and March 16 to cause Ferguson to write and publish this paper and for it to have triggered such a dramatic policy response?
Enter Wall Street
I posit:
1. Neither our major banks nor our financial system are stable and healthy, nor have they been for awhile. By that I mean that neither is capable of withstanding any meaningful deleveraging and accompanying asset price declines.
2. Ordinary Americans would scream bloody murder and perhaps take to the streets before bailing out Wall Street again.
Recall that on the afternoon of Wednesday, March 11, the major banking CEO’s rushed to Washington to meet with President Trump and let the press in to talk about how healthy they all were. Markets had fallen almost 6% that day. A few hours later, Trump gave his speech from the Oval office to announce the shut down of travel from Europe.
By noon March 12, markets were down an additional 8.5%. Shortly thereafter, the Federal Reserve made a midday announcement that they would make available several trillion dollars of funding to the repo market. After rallying for about an hour, stocks reversed and ended the day down 9.5%.
On Friday March 13, the Fed announced it would purchase $37 billion of Treasuries and Mortgage-Backed Securities. Stocks shot up. Trump declared a National Emergency.
Then on Sunday, March 15, the Fed cut interest rates 100 bps to zero and announced it would begin purchasing an additional $700 billion Treasuries and MBS.
On Monday, Ferguson released his paper. So?
It’s important to understand that financial market instability had been revealing itself since at least September 2019. Some bank(s) or other player(s) in the overnight repo market were having trouble finding funding. The Fed intervened to provide funding.
It was downplayed in the media and when mentioned it was written off as a temporary, technical glitch in the market. But it didn’t go away. It lingered and began to worsen.
Markets had been exhibiting some increased volatility and oil prices had softened somewhat, then on March 3, 2020, the Fed made an emergency 50 bps rate cut. Then on March 6, KSA announced they would be significantly increasing oil sales and oil prices collapsed more than 30%.
This, the collapsing oil price and its ramifications - and not the virus - was the trigger that sent stock markets plunging and Treasuries soaring. This was why the banks headed to Washington a few days later on March 11.
The banks knew they were in trouble. They needed markets to turn for the better soon - or else. Thus the multi-trillion Fed repo commitment. The explicit resumption of QE. The markets still kept falling. They had to pull out all the stops. The Sunday bazooka. The Fed established a $1 trillion commercial paper facility.
The banks knew the scale of the problem was huge. Much bigger than 2008. The public wasn’t going to get behind bailing banks out - again - because they had overleveraged themselves - again. Unless it wasn’t their fault. The virus. They had to blame the turmoil on the virus.
But the virus wasn’t set to peak in the US and most of Europe for several more weeks. There was no way the banks were going to survive several more weeks of deleveraging. The banks would be revealed to be insolvent before the virus peaked.
They had to change the plan. The crisis needed to be pulled forward. They needed people to panic now so as to paralyze them with fear and confuse what was happening. But how could they reverse everything UK leadership and even US leadership had said. That washing our hands and staying home if you’re feeling sick was the best answer for now.
They had to get an expert to run into a crowded movie theater and scream, “Fire!” Fuck washing your hands and staying home if you feel sick. Fuck preparing for the peak. Fuck isolating the most vulnerable in several weeks while the resilient among us suffer mostly no or mild symptoms while building up the necessary societal immunity. Fuck using the warming temps to flatten the curve. Fuck all of it. Fuck science. We need to panic. Now.
We need to lock this shit down. It doesn’t matter that science told us we were past the point of containment. It doesn’t matter that you’re telling us all to stay home - all of us, the thousands or tens of thousands or hundreds of thousands or more who are already infected but not symptomatic, we need to stay at home, living with those most vulnerable. Spending hours a day with those most vulnerable. Infecting them. Fuck it that science told us the best route also happens to be the route that lets most of us continue to live life normally. Going to work. Dining out. Kids going to school. Fuck reality, we are somehow going to Suppress the virus. We are going to kill it.
Are we literally going to extinguish the virus? Has anyone even suggested that? Other than hedge fund manager Bill Ackman, who clearly knows more than everyone when he says we should declare a 30-day “spring break” and be done with this. He’s worth a shit ton of money so he must know. Fuck science.
Or are we jumping on Ferguson’s crazy-train and locking this shit down for 12 months, 18 months, or more until a vaccine is available? We’ll get to crawl out of our caves and glimpse the sunlight once every few months, so that’s good.
Should I be concerned that Ferguson’s paper lists the UK Department for International Development as its funding source, whose directors include the current Head of European Portfolio Operations at Blackstone and others hail from Unilever and Lloyds Banking?
What is the plan? What are we trying to achieve? I long for the reasoned clarity of March 12.
It’s beginning to feel like the only plan is to paralyze, confuse and distract the public so that Wall Street and corporate America can raid the public coffers once again. And once they steal enough - enough to reflate asset prices, enough to preserve their position on the fun side of the chasm that has become our obscene wealth gap, I suspect we may return to science. To the path outlined that day. To protecting the most vulnerable as we pursue societal immunity.
More people will die. Small businesses will be destroyed. Tens of millions of people will despair. And they’ll tell us they saved us. Again.
March 20, 2020