July 30th, 2021
Is Your Portfolio Ready For A 2000% Spike In Pandemic Cases?
Dear Retail Investor,
The pandemic case count is ramping up in the U.S.
The markets are gearing up for a major spike.
Our analysis below shows how a 2000% spike in cases could be here in weeks.
And like it or not, a big part of the country could be enforcing mask mandates and lockdowns again soon.
But here’s the good news.
There’s a strong possibility — we’re thinking even probability — that there will be both a huge spike in cases and that life will continue on basically as normal while the U.S. economic engine chugs along.
Things could really go either way at this point.
That’s why we’re making this one simple move, which actually prepares us for either outcome — continued recovery or crushing lockdowns.
Here’s the setup.
Potential 2000% Spike In Cases Ahead
Despite endless funding and truly bright and experienced minds working on Covid-19 research and analysis, there’s still truly little we know about this pandemic.
Its origins, how to cure it, the best preventative measures, etc.
They are all still being widely debated, while conflicting information is constantly making headlines.
However, one thing that is clear is that this pandemic seems to affect populations in waves.
And today it’s looking like the next wave (and possibly the largest wave of all) has already started in the U.S.
It should be expected as well.
Greater spread of Covid-19 is the likely result of travel and public events opening up again, as well as greater economic activity in the wake of mass vaccinations.
That’s why we’re focused on how bad the next wave will be, and how to get ready for the potential financial implications of it all.
And it’s why we’re going to start off looking at what’s been happening in the United Kingdom.
The UK is in the midst of its “next wave” of the pandemic.
The chart below was taken from Google’s pandemic data dashboard on July 18th and show’s both how large and how quickly the current wave hit the UK:
You can see every wave easily. They are big.
The most recent surge in confirmed positive tests — which started at the end of spring and peaked around the 18th of July — nearly surpassed previous all-time highs.
This information alone should have sent the markets into a March 2020-style panic.
But it didn’t.
This chart below, captured the same day (July 18th) shows the death count in the UK attributed to the pandemic:
This chart shows the death rate has barely budged while the total number of confirmed cases had soared to levels last seen in January 2021, when more than 1000 people per day were succumbing to the pandemic.
There could be a number of reasons for the low death rate.
The UK is one of the most highly vaccinated countries in the world.
It took advantage of its post-Brexit independence and placed huge orders for vaccines instead of going through the bureaucratic acquisition process dozens of other European nations required for the EU to put in orders.
As a result, the UK has delivered 123 doses of vaccine for every 100 residents, which is right up there with the highest in the world (the U.S. is at 106 doses per 100 residents).
That could be one factor keeping death rates low, even while case counts are spiking.
Or it could be because of the actual variants of the pandemic themselves.
The dominant variants may well be more virulent and less lethal, which would be a normal development according to the virulence / lethality spectrum most viruses fall on. (Viruses tend to evolve and mutate to become less lethal over time, because killing their hosts is counterproductive to their survival, though this is not always the case – sometimes viruses can evolve to become more lethal).
Doctors and scientists are still trying to figure out and predict how Covid-19 will continue to evolve, but there are no definitive answers yet.
It could also be down to better treatment protocols, or some combination of these things.
Either way, it’s clear that cases may be spreading fast, but deaths aren’t spiking, and most governments aren’t yet instituting aggressive lockdowns and other countermeasures.
In fact, England has actually been opening up.
In the midst of this most recent wave, England hosted a major soccer final with more than 60,000 attendees (and thousands more who breached security at the stadium and watched too).
Again, still no lockdowns and other economy-halting measures.
Now let’s go to the U.S.
The chart below is the curve of daily positive tests in the U.S., as of July 26th:
It looks a lot like the UK a few weeks ago.
After a long and steady decline from the winter holiday season, a new spike is forming in the US.
If the U.S. follows on the same trajectory as the U.K., the infection rates are going to be huge again.
If you look back to the holiday high, the peak daily rolling average passed 240,000.
It had since fallen to just over 11,000 new positive tests reported per average day by June.
That was a 97% decline in case rate.
But if the case rate is rising and returns to past highs, the inverse of 97% will make some truly eye-catching headlines.
After all, the average case rate is currently up more than 200% from June lows.
We could be weeks away from a 2000% increase in reported cases from the June lows.
And even then it will still be below the highs of last holiday season.
These numbers make it a truly unpredictable situation.
But even though unpredictable, it can still be prepared for.
Two Ways To Go From Here
We’re not going to sit here and say we know how it’s going to play out.
After all, we saw how the nationwide lockdowns in March of 2020 were widely accepted by the public.
Most weren’t opposed to 15 days of staying home from work to “slow the spread”.
But nine months later, it was a much different story.
When an outbreak with 10 times more confirmed cases than the initial March 2020 outbreak hit, only about half of states and many of the large urban areas initiated aggressive lockdowns.
So you’re not just trying to predict the future number of cases here.
That would be relatively easy, as we can see what happens in the UK and elsewhere and expect it will probably happen in the US as well.
But it’s much more complicated than that.
You have to predict the numbers, then the public’s reaction to the numbers, and then how the politicians will react to the public.
There are just too many variables.
And when there are too many, there’s one simple way to prepare yourself for any outcome.
And how about a high-profile prediction that tech stocks would underperform in 2020?
That prediction came from Byron Wien.
Wien, if you don’t know, is the vice chairman of the Blackstone Group (NYSE: BX) and former chief investment strategist at Morgan Stanley (NYSE: MS).
Let’s take a look at the FAANG stocks to see how accurate Wien’s prediction was.
(The FAANG stocks are listed on Nasdaq and comprised of Facebook, FB; Amazon, AMZN; Apple, AAPL; Netflix, NFLX; and Google – AKA Alphabet – GOOG.)
As you can see, these tech titans absolutely crushed it.
Had you taken Wien’s advice, you missed out on some big profit opportunities.
I could go on with many more examples of how “expert” stock advice is often wrong.
But you get my point.
Build up a big enough cash position in anticipation of a drop in stocks.
We’re not saying sell everything and run away.
Frankly we foresee minor precautions (i.e. the return of mask mandates, increased pressure on those who haven’t been vaccinated to get the jab), and this current wave that’s still rising in the US will be about as big an event as it has been in the UK (which isn’t much).
But we want to make sure you’re ready for all outcomes, and have enough cash to buy the dips if there is an overreaction to what’s coming.
Because if a sharp decline in stock prices does come, you will be glad you were ready.
And if it doesn’t, well, the opportunity cost of missing out won’t be that much.
Always remember, stocks go up stairs and down elevators.
There’s always time to buy on the way up and not always time to sell on the way down.
Until next time,
– Dear Retail Investors Editorial Team
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