Messari Daily Newsletter: Hedging Covid-19

Quick updates on what the health community is now calling "COVID-19", the disease that arises from complications from Wuhan’s coronavirus infections.

1. On the spread front, I’m paying the closest attention to the information former FDA commissioner, Scott Gottlieb curates and shares. His latest tweet is not great: “Deeply concerning: Singapore has 3 new cases of #COVID-19, bringing to 50 the country’s total case count. 8 are in intensive care. Singapore, with an excellent public health system, is going to provide far more information on viral epidemiology than China." There’s also a good detailed graphic on Singapore’s case growth, which may be the best proxy for what could happen if there’s an outbreak in the west. Unfortunately, this also means that the end of cold and flu season (warmer weather) likely won’t matter much.
2. The Diamond Princess cruise ship new keeps getting worse, as 40 new cases were confirmed. “39 new positive cases came from 53 additional tested. That’s ~3/4th of those tested [so the number may be much higher]! Moreover, a Japanese Ministry of Health *quarantine officer* was among those diagnosed… that he had not been wearing a full hazmat suit“. A full 5% of the ship is now confirmed infected. I hate to say it, but this might be the best control group we have to understand R0, incubation period, critical case rates, and mortality rates.
3. A couple of new “pre-print” studies also came out (aka not yet peer reviewed), the first study is the largest to date from the China CDC and reviews the first 4021 confirmed cases w/ COVID-19 from 30 provinces. They find an R0 of ~3.77 (95% CI 3.51–4.05) - remember that means that every patient infected infects 3.77 others - with a case fatality rate of ~3%, with males about 4x as susceptible (male 4.45%, female 1.25%). The bad news: an R0 of 3.77 is batshit crazy / borderline unstoppably high. The good news (for otherwise healthy people): this is almost certainly a high water mark for mortality (likely significantly understates mild cases), and could be a clear indication that smokers are much more susceptible than non-smokers (as there are major differences in smoking rates by gender in China). A second pre-print study is also alarming. A review of 1324 Chinese COVID-19 patients show incubation times up to 24 days (!!!), with only 43.8% of new patients having fevers. This will be hard to contain.

Maybe the most alarming piece though comes from the BBC yesterday: “Xi Jinping warned senior CCP officials that the measures taken to contain the new coronavirus were well beyond reasonable limits and had threatened the Chinese economy. There is growing concern that China’s economy, which has slowed during the Sino-U.S. Trade war, could be further dragged down.”

Xi warned CCP officials not to over-react to the Covid-19 epidemic to avoid hurting the economy. The streets in Shanghai and Beijing are (anecdotally) ghost towns, and many are still not going back to work even though they've been given the green light to do so. The biggest concern may be whether China is feeling the economic pinch to cut corners on containment prematurely?

I don’t think the risks here are priced into the market right now, as the S&P just hit new all time highs AGAIN.

***THIS IS NOT INVESTMENT ADVICE, CONSULT WITH YOUR FINANCIAL ADVISOR.***

But I am personally hedging my crypto exposure (in case bitcoin reacts as a “risk off” investment), and buying SPY puts and gold.

The fact we are at all time highs in the market right now is completely and utterly insane to me.

-TBI

P.S. Reminder to track my real-time updates here and list of top twitter follows here re COVID-19