COVID-19

A case study in epidemiology, markets and human bias.

The world is in pandemic. A previously unknown pathogen from China has exploded onto the scene and as of today, February 28 2020, the number of cases worldwide is soaring towards 100,000. Almost 3,000 are dead. The stock market has had its fastest correction – defined as a 10% pullback from a recent high – in history. Global supply chains are being disrupted as China has locked down the entire Wuhan province. Elsewhere supplies of masks, disinfectant and basic medicines are stretched, citizens of countries around the world are lining up anticipating the virus popping up in their neighborhood.

I’ve been following COVID-19 since it was first reported in China almost 2 months ago. Back then there were under 500 cases, with minimal cases outside of China. No one outside of Wuhan knew or cared about the spread. How did we get here? What about COVID-19 made it so much more difficult to understand and prepare for than it’s cousin SARS which saw 1/10th of the number of cases and 1/3rd the number of deaths during its year-long outbreak? Almost more confusing – why were markets, which are supposed to be discounting mechanisms on the future – so late to price this in?

Perhaps more pressing: where do we go from here? As the wildfire that is COVID-19 spreads across the globe, what can we expect over the coming months and years? Is this the zombie apocalypse or simply the flus bigger, badder brother? Will biotechnology innovators deliver us a solution on a platter in short order making the entire outbreak a mere footnote to the story of humanity’s relentless scientific progress?

I wanted to take a breather from tracking this outbreak to clearly write out what has happened and what I think will happen, if only to capture clearly my own mental processes. What did I get right? What did I get wrong? What am I missing as this pandemic takes its course?

The Think-Thread COVID-19 series will have a few installments:

1. Inefficient Market Hypothesis – in the early days of the outbreak, the SP500 continued to make new highs. Even after major corporations announced disruptions to their supply chains in China and there was clear evidence of spread outside of the mainland the markets marched higher. What did I say that I knew during this time? What actions did I take, which worked, which failed? What did countries do to protect their citizens? What worked and what made the pandemic worse? This is a post-mortem on the fastest market correction in history after a week in which the markets fell over 10%. Using my own experience, documented comments and actions in financial markets I’ll try to grapple with just how inefficient a discounting mechanism the stock market was in this particular instance.
2. Epidemiology, Nonlinearity and Market Shocks – given that markets did a poor job of anticipating the fallout from COVID-19, it makes sense to ask why? Are there lessons to be learned here about how our intuitions can lead us astray in the face of exponential growth? Are there parallels to other market shocks we can draw to try to anticipate what might happen next?
3. Contextualizing r0 with network graphs – The most popular statistical measure of virality is also its most basic. r0 is a measure of how many people, on average, one sick person will infect. While this definition seems straightforward there are many conflicting inputs to understand it in practice. Here I take a graph theory approach to create a more nuanced understanding of r0 and the implications for COVID-19 and other novel pathogens.
4. Innovation vs Top down Control: Moderna – How one biotech company was able to go from a digital copy of the virus DNA to the first human trial of a vaccine in just 42 days. Could MRNA be the cure we need?
5. Central banks and governments – Quarantines, fiscal stimulus, rate cuts, negative rates, travel bans and more: how have our governments and financial institutions responded to the COVID-19. What could they do better? What could have been worse?

In addition to these pieces, which will act as a detailed and more scientific post-mortem to the outbreak, I will be publishing a monthly Market Mind piece which is much more raw and granular look at how markets are digesting COVID-19 news.

I’m looking forward to taking a deep dive into this once in a century outbreak and sharing what I find. In the mean time – wash your hands, don’t touch your face, and most of all enjoy your freedom. Now is as good a time as ever to appreciate your loved ones, especially those who are at risk. I don’t say this to insight panic – we’ll probably be just fine – but it couldn’t hurt to call your mom or grandma and let them know they are in your thoughts.