My last few posts have been a coronavirus COVID-19 series, so I’m putting in the links here so as to refer back to them easily for now. These are the six posts so far.
I was saying in my post on 24th February that if COVID-19 broke out to become a global pandemic then it would perhaps be the most predictable natural disaster in human history and this post is to explain why that is, and also the look at in detail how this is different from the normal surge in influenza cases that is seen in the winter months every year.
The image below was taken during the recent COVID-19 decontamination of Dolmabahce Palace in Istanbul and I’m posting it just because it is a beautiful image, and seems appropriate to use in a historical look at this kind of pandemic:
First though, I’ll have a look at the stats we have seen in recent weeks on the spread of COVID-19 worldwide, and compare them to the numbers I was looking at in my post on 18th February. On 18th February there were 73,451 confirmed cases and, of those, there were about 1100 cases outside China. That was 30 days ago, and in the meantime cases outside China cases have risen to 154,546. Over that time therefore, cases outside China have been doubling approximately every four days and, just to put that in perspective, if cases were to increase at that same rate for another thirty days, then confirmed cases outside China at that point would exceed 20 million. To put that number in perspective it is estimated that in the 1889 pandemic, the ‘Russian Flu’, about 40% of the world population was infected, and in 1918, the ‘Spanish Flu’, about a third of the world population was infected.
In terms of the fatality rate, in terms of reported deaths per confirmed case that was about 2.5% on 18th February, and that has risen to about 4.15% now. The fatality rate in terms of reported deaths versus reported deaths per reported recovery that has dropped a bit from the 14% on 18th February to about 11.52% now. Overall the true eventual fatality rate may be between those numbers, I was suggesting 5% to 10% range on 18th February and that still looks reasonable, lower than SARS at 10% and a lot less than the more virulent Mediterranean version MERS at about 35%, though all of those numbers would likely be higher than the real numbers, as they would exclude many cases never picked up because those infected were asymptomatic or developed only mild symptoms.
On to the history.
The symptoms of human influenza were first described by Hippocrates about 2400 years ago, so flu in various forms has been with us for much of, and possibly all, of recorded history. In that time there have been many flu pandemics, though the further back that was, the harder it is to distinguish these from other disease pandemics, due to the lack of detail in the older historical records. In the first instance most of these pandemics were easy to confuse with the regular flu casualties in the winter months, but the difference was that the virus was a new strain to which humans had not yet developed immunity. After the first wave or three that immunity would develop in human populations and the virus would just become another of the many flu pandemic has-beens that return in the winters. Any new strain starts small, and unless you are familiar with the history of these pandemics, appears unthreatening in the early stages:
The fact that a new strain of influenza is new is the key difference, as exposure over time builds both herd and individual immunities, reducing the impact of subsequent outbreaks. The key example to illustrate that would be when Columbus ‘discovered’ the Americas. I say ‘discovered’ as the existence of the Americas was no surprise to the many people who already lived there, but the important point here is that at that point two human populations that had been isolated from each other for a long period, during which both had been exposed to, and built immunity to, those new diseases that had emerged during that period of isolation, introduced those diseases to another population that had not previously been exposed to them. The impact was dramatic.
In Hispaniola (modern Dominican Republic and Haiti), the Taino people who encountered the Columbus expedition in 1492 had a population of 250,000 at that time. By 1517 only 14,000 remained. The impact of the new european diseases on the native american population killed by some estimates perhaps as much as 90% of that population in the decades after they were exposed to them.
That works both ways of course, though the more populous europeans, also exposed historically to diseases originating in Asia and Africa, brought most of the new diseases to this exchange. It is argued by many historians that in return syphilis was introduced to Europe, initially in a very virulent form where the flesh would melt off the body, and death would be within week or months, rather than the decades that the later and milder forms of the disease took. This was a disease that had a huge impact on Europe over subsequent centuries, though not comparable in scale of course to the devastating impact of the diseases introduced to the american populations.
The point is that a new disease, or new strain of an existing disease, has a disproportionate impact as it first sweeps though the population, and every so often, as a sufficiently virulent new influenza variant develops and makes the step from animals or birds to humans, then it develops into a pandemic that can have a major impact, depending on the communicability of the variant and the parts of the population most vulnerable to it.
Over the last few centuries the first generally agreed influenza pandemic started in Asia in 1580, another started in Russia in 1729, another two started in China in 1781 and then 1830-3 and then the first ‘modern’ pandemic started in Russia in 1889, and for this and subsequent epidemics we have reasonably detailed numbers. There will most likely have been numerous other pandemics not listed before ‘modern’ times but only those with higher death rates will have made it into the records.
In this ‘modern’ period there have been five previous superflu (new variant) pandemics that infected at minimum 250 million people, and these were the Russian Flu in 1889-90, the Spanish Flu (originating region unknown but unlikely to be Spain) in 1918-20, the Asian Flu in 1957-8, the Hong Kong Flu in 1968-9, and the 2009-10 Flu (mixed american and asian variants). Four of these pandemics, all except the Spanish Flu, had relatively low death rates in the 0.03% (2009-10) to less than 0.3% (Russian, Asian and Hong Kong Flus), but the Spanish Flu had a much larger impact as the death rate was at least 2%, killing somewhere between 20 to 100 million people worldwide, out of a global population of about 1.8 billion at the time.
The Spanish Flu also had a disproportionate impact as unlike most superflu pandemics, which preferentially killed higher proportions of the very young, the old and the weak, the Spanish Flu epidemic preferentially killed the young and strong, as they were killed by their stronger immune systems, triggering something called a Cytokine Storm where an immune overreaction killed the virus hosts.
I’ve been reading about these epidemics since I was a teenager, as I’ve always been interested in history and read widely, so I’ve been watching new possible pandemic candidates as they’ve emerged and petered out over recent decades, such as SARS and MERS, or widened into pandemics with low death rates such as the 2009 epidemic. When I was writing on 4th February about the coronavirus post that I was going to write I was therefore already alarmed about this new variant, and astounded by the obvious lack of preparation that governments had in place for containing any new superflu pandemic, as it has just been always been a matter of time before the new superflu pandemic would emerge, likely from China, and every so often one of those pandemics would be virulent enough to kill millions of people. Governments should have been aware of this risk and at least somewhat prepared for this eventuality, and I remain astonished that this has caught them so unprepared.
So what about COVID-19? Well the fatality rate is still a work in progress, but it already looks at least comparable to the Spanish Flu from 1918-20. In terms of the sections of the population most vulnerable to the disease the numbers so far suggest strongly that the very young are among the least likely to die, which is unusual, but that the most likely to die are the most predictable groups, the old, the ill, the obese and the smokers, and that among these groups the death rates may be over 10%, though these numbers likely exclude numerous cases that weren’t identified because there were no symptoms. Western world populations have the oldest and most obese populations and that seems likely to be the reason that while Italy only has half the confirmed cases that China has admitted at 41k versus China’s 81k, the number in deaths is now higher than in China. I would add a caveat here though in that while China may well have now stopped the progress of the pandemic, the quality of their numbers is nonetheless doubtful. Those particularly at highest risk are those in their 80s or 90s, and those with heart disease or diabetes.
So what is the overall health impact likely to be? Well the number infected has yet to be determined, and despite the very slow start that Western governments made in containing this pandemic, it may well be that the measures being taken mean that the proportion of the world population infected is considerably lower than the third of the world population infected in 1918-20. The outbreaks in Singapore and Hong Kong particularly seem to have been contained by swift and firm action and while they may not be typical in terms of their situations as islands with dense populations, that success may well be replicable elsewhere. The fatality rate might look higher on the numbers we have so far, but factoring in the large number of those infected (perhaps 50%) that seem to be asymptomatic or just develop mild symptoms, might be equivalent or lower than in 1918-20, with the deaths being in parts of the population that are less economically significant than in 1918-20.
The economic impact is another question of course. Much of China seems to have been shut down for at least a couple of months, and that is now happening in much of the rest of the world. This is reducing economic activity, reducing consumer spending and disrupting supply chains. This may well result in a world recession this year and, depending on the number of waves in this pandemic (there were three main waves in 1918-20), this may well reduce world economic activity for the next couple of years.
What about after that? Well historically periods where economic activity is significantly depressed by natural or human caused (notably war) disasters, tend to be followed by reconstructive periods of strong activity. The first world war and then the Spanish Flu developed into the roaring 1920s, and the second world war delivered an economic boom that lasted into the 1960s, with that boom being strongest and most durable in those most beaten down in the second world war such as Japan and Germany. The odds favor the period after this pandemic being a strong recovery, possibly considerably stronger than the generally tepid growth in much of the developed world since the financial crisis in 2007/8. We’ll see.
I’m planning my next post over the weekend or on Monday, and that will be the bigger picture levels and targets for SPX on this move now that the major support at rising support from the 2009 low in the 2350 has been broken.
A couple of other announcements to make:
Stan and I are doing a free public Big Five and Key Sectors webinar tonight at theartofchart.net at the RTH close at 4pm EST. That’s covering AAPL, AZN, FB, GOOG, NFLX, TSLA, IBB, IYR XLE, XLF, XLK, XRT. If you’d like to attend then you can sign up for that here.
We have also scheduled a special free public webinar at 4PM EDT Sunday 29th March to look at COVID-19 and the Financial Markets, and in that webinar we will be considering COVID-19’s impact on the economy, systemic risk and impact on dealers, the Fed’s actions and credit risk, and reviewing potential trading opportunities. Be There Or Be Unaware! If you’d like to attend you can sign up for that here.
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