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What Reopening the Economy May Look Like
So, in the trend of following what the experts are saying, there has been a lot of attention paid the past two days in the epidemiological community to a "Road Map to Reopening" published by the American Enterprise Institute, including contributions from Dr. Scott Gottlieb (FDA Commissioner 2017-2019), Dr. Caitlin Rivers, PhD, MPH (Senior Associate, Johns Hopkins Center for Health Security), and others.

The road map has garnered significant praise, including from pandemic preparedness experts like Jeremy Konyndyk, who was director of USAID in the Obama administration, and headed up the administration's response to Ebola. If you don't want to read the whole report, there is a good executive summary on the AEI website:

Before getting into the bullet points, it is important to note that the CDC today released an update concerning estimates of R0 for the SARS-CoV-2 virus, provided by Los Alamos National Laboratory:

The study concludes that, without mitigation measures (lockdowns and other social distancing measures), the virus has an R0 of 5.7, which is extremely contagious (seasonal influenza falls in a typical range of 1.X for R0). An R0 of 5.7 basically means that, each infected person can be expected to infect 5.7 other people. 5.7 is quite high in the scheme of common viruses, on par with polio and rubella. Only Chickenpox and Measles have substantially higher R0 values. 

An R0 value of 5.7 without mitigation measures means that, if society wanted to go down the "herd immunity" route, roughly 82% of the population would need to be infected to confer herd immunity. The IHME's latest Infection Fatality Rate (IFR) estimate is 0.9% (IFR differs from Case Fatality Rates (CFR), which only count known reported cases, and is reflective of deaths from total cases, reported and unreported). IFR numbers are more reflective of actual mortality than CFR, but it is difficult to have solid estimates until there has been widespread serological antibody testing, which tells the epidemiologists what percentage of the population has already been infected, and developed antibodies to the virus as part of recovering. 0.9% is the best, most recent estimate we have though, so let's use that. To follow a herd immunity strategy (just reopen everything, and let the chips fall where they may) means ensuring that at least 270 million Americans become infected (82% of 330 million). If 0.9% of those infected persons then die, that is 2.44 million dead in the U.S., and more than 55 million dead globally. The economic consequences of that scenario are likely catastrophic. No public health experts or epidemiologists are advocating that solution.

So, what are they advocating? The Road Map has several phases, and other than implementing physical distancing measures, we have yet to complete any of the other steps required in Phase I (stuff that has to happen before society can be safely reopened). What are the other steps needed in Phase I to lay that groundwork? In a nutshell (I have omitted a few from the report, to focus on the ones below):

1. Maintain physical distancing to stop the chain of virus transmission (lockdowns).
2. Increase Diagnostic Testing Capacity and Build Data Infrastructure for Rapid Sharing of Results.
3. Increase Supply of Personal Protective Equipment.
4. Implement Comprehensive COVID-19 Surveillance Systems. 
5. Massively Scale Contact Tracing and Isolation and Quarantine.

Everyone is experiencing the physical distancing now, or at least is aware of it, so I'll move on to the others. To be able to safely reopen and avoid a second epidemic peak as bad or worse than the first, massive (and accurate) testing capacity needs to be available nationwide, with reporting to a central database where results can be monitored in as close to real-time as possible. Healthcare workers need sufficient PPE (respirators, face shields, etc.) to allow them to safely treat COVID-19 patients. Outside of the elderly and those with significant comorbidities, healthcare workers have some of the highest fatality rates for COVID-19. It is suspected that this may be due to them being exposed to high viral loads, from regular contact with infected persons. A nationwide health monitoring system for COVID-19 cases needs to be in place, similar to the U.S. Influenza Surveillance System, to assist in catching outbreak hot-spots before they become even more problematic. Also, once the testing and surveillance capacity exists, an army of contact tracers are needed to identify all of the known contacts of infected persons (and the contacts of those persons), so that they can be quarantined (stop the chain of transmission). Warm bodies are needed to do this work, much like census-taking, but technology (phone apps and the like) can certainly assist the effort. These are the prerequisites for just getting to starting to open back up safely. The study provides certain objective triggers for moving to Phase II (the reopening):

"Trigger for Moving to Phase II:
A state can safely proceed to Phase II when it has achieved all the following:
• A sustained reduction in cases for at least 14 days, 
• Hospitals in the state are safely able to treat all patients requiring hospitalization without resorting to crisis standards of care 
• The state is able to test all people with COVID-19 symptoms, and 
• The state is able to conduct active monitoring of confirmed cases and their contacts."

China has basically done Phase I. Countries like Denmark and Germany are making active preparations to ensure that they have all the Phase I prerequisites in place before starting to reopen. We still have massive testing capability shortfalls in the U.S., PPE supply issues, no nationwide COVID-19 surveillance system, and contact tracing is basically nonexistent at the scale that is needed. In some sense, the scope of the problem approaches Apollo-program levels of national mobilization. I believe we will eventually get there, but it will take time, and lots of money. 

So, following the Road Map laid out by some of our top public health experts is another possible scenario. I don't think anyone credible in the field of public health or epidemiology will tell you that they expect all Phase I preparations to be ready to roll by May 1.

A third possible scenario is something that falls between killing millions of citizens to achieve herd immunity, and following the Road Map to the letter. This scenario is one where we take a haphazard national approach to solving the problem, with many mistakes made along the way, like easing lockdowns, only to experience secondary or tertiary waves of infections and further lockdowns to get those under control. Eventually, the solution is likely binary. Either a huge percentage of the population is infected and millions die, or we eventually get to where we can implement the Road Map steps after trial and error, getting there out of necessity. 

Two scenarios would be total game-changers. One is an effective therapeutic treatment that makes serious cases of infection treatable. No such treatment exists yet, though clinical trials are underway. Another is an effective vaccine. No effective vaccine in humans for a coronavirus has ever been created (attempts with original SARS failed, no vaccine for the common cold). At the absolute minimum, the best experts around say 12-18 months best case scenario to get to a successful vaccine (which would then have to be mass-produced). The scenarios above likely play out in large part prior to that vaccine timeline.
Excellent synopsis Otter, thanks for sharing.

Sure seems we are going to be in this mess for quite some time, probably measured in quarters rather than months.
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That was an outstanding summary Otter. Why do I have this feeling we are going to try Option 3 then double back this fall when it fails? We need a vaccine really soon and and I know that isn't happening fast enough to save us.
(04-08-2020, 09:26 PM)fenders53 Wrote: That was an outstanding summary Otter.  Why do I have this feeling we are going to try Option 3 then double back this fall when it fails?  We need a vaccine really soon and and I know that isn't happening fast enough to save us.

“Americans can always be trusted to do the right thing, once all other possibilities have been exhausted.”  - Sir Winston Churchill

The quote is apocryphal, but it captures the sentiment. 
(04-08-2020, 09:40 PM)Otter Wrote:
(04-08-2020, 09:26 PM)fenders53 Wrote: That was an outstanding summary Otter.  Why do I have this feeling we are going to try Option 3 then double back this fall when it fails?  We need a vaccine really soon and and I know that isn't happening fast enough to save us.

“Americans can always be trusted to do the right thing, once all other possibilities have been exhausted.”  - Sir Winston Churchill

The quote is apocryphal, but it captures the sentiment. 
An election year was a real inopportune time for this.  We stay locked down long enough there is political risk.  People are impatient already, especially if they live in a state that isn't suffering much.  Open and closed states isn't working either.  I'm sure you've seen me mention how ridiculous that is in practice.  They flood across the border to entertain themselves.  We are busier than normal and very little is even close to essential.  For now there are millions of people earning more on unemployment with the kicker, which I find a little odd.  Major retailers that are staying open are showering employees with cash and prizes.  That's good because too many customers are being very rude.  Getting my feelings bent out of shape isn't all that important, but I get a daily survey of how any people are still not willing to take this seriously.  These people are more likely to get the flu, and spread it to five businesses in one day.  I'm just not optimistic we can control the spread without strong measures that are actually enforced.  It's a little late for that I suppose. 

All that said, it's pretty clear the stock market doesn't care unless it flares up again.  I guess I keep on trading until it doesn't work.
The reopening trade in my opinion is already priced in. The Russell 2000 index which measures small caps is up over 30% over the past 1 year. Sure it might have room to go higher but valuations are getting expensive and Biden might increase corporate taxes.

Just my 2 cents.
The no other suitable nvestment options thesis still appears to have legs.  Just add liquidity.  Valuation doesn't matter until it does.
Since the original post we've had a re-opening and now a minor version of reclosure. I find our thoughts from 9 months ago interesting.

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