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China And South Korea Models Seem Like Only Way To Contain COVID-19
Kenneth Rapoza
Kenneth RapozaSenior Contributor
Markets
I write about business and investing in emerging markets.
Wuhan Works To Contain Spread Of Coronavirus
A cleaner wears a mask as she works at a hospital on March 12, 2020 in Wuhan
. Flights, trains and ... [+] Getty Images
On Wednesday night, President Trump finally took the coronavirus COVID-19 se
riously. He banned all travel to EU countries for 30 days.
The disease may seem benign to some. Around 95% or more of the people who ge
t it will survive and symptoms are generally mild and far from scary. But wh
at is scary is how fast it spreads. And there are too many unknowns about th
e disease to find comfort in the fact that less than 1,000 people have it.
China went from 1,000 patients to 80,000 in a matter of roughly six weeks, m
ostly all of it in a self contained, quarantined state called Hubei.
Italy went from around 20 cases two and half weeks ago to over 12,000. It is
now the Hubei of the Western world.
Travel bans on China helped mitigate spread from travelers coming to the U.S
. from there. All early cases last month were from China travelers. They hav
e since healed.
The U.S. was caught flat footed by Europe, cruises, and European business tr
avelers at major conferences. The U.S. is now playing catch-up in the mitiga
tion phase.
Today In: Markets
Trump reiterated what the World Health Organization said this week, calling
the coronavirus a global pandemic.
We are probably one sick politician, or one more circuit-breaker on the Dow
away from declaring a national emergency, forcing the NYSE to close.
“When people don’t want to go out to crowded events you start to wonder if
fear begets more fear. We are seeing a lot of that now,” says Patrick Heal
ey, founder and president of Caliber Financial Partners in Jersey City, N.J.
“Until you see fewer cases in Europe, I’d be worried. The threat of sprea
d is greater there than it was in China,” he says, citing France, Spain, Ge
rmany and the U.K.’s slow response to the crisis.
Beijing Works To Contain Spread Of Coronavirus
Life goes on. A Chinese family at a park in Beijing on March 9, 2020. Since
the novel coronavirus ... [+] Getty Images
Cutting The Tail
Italy was about two weeks too late, but at least they are doing something to
save Europe. They shut themselves off. This is literally a “stop the world
I want to get off” moment. Italy took the China approach. They put themsel
ves on lockdown.
The U.S. has two fairly solid case studies with how to respond to COVID-19.
One is the China path of lockdowns and forced quarantining, coupled with mas
sive stimulus.
The other model is South Korea’s massive free testing and treatment, which
also corralled the disease and kept infection rates low. Mortality rates are
even lower at just under 1%.
A hybrid model of both seems to be best: lockdown clusters of the virus. Tes
t like crazy.
China is healing. It’s already got its stimulus plan lined up.
Italy Clamps Down On Public Events And Travel To Halt Spread Of Coronavirus
Italy is closed. They have taken a China approach to travel bans and quarant
ine. They acted late on ... [+] Getty Images
“The China approach has worked. It’s been a draconian clampdown and takes
away quarterly growth,” says Philipp Carlsson-Szlezak, chief economist for
Boston Consulting Group in New York. “The high frequency data in China, the
proxies for movement for goods and people, all of those see a nice pick up.
And the infection rate curve of new cases in South Korea has bent downward.
Just hope we don’t see any worsening outbreaks.”
By slowing the spread of the virus, which includes potential spreaders who c
ame from high risk countries like Italy, China, South Korea and Iran, buys h
ealthcare officials time. It keeps hospitals from being overwhelmed, which i
s what is happening now in Italy.
A nearly three month lockdown of Hubei, the epicenter province, means Hubei
now officially has less infections than Italy. The number of new patients in
China’s "ground zero" has slowed to double digits, instead of thousands th
ree to four weeks ago.Eventually, South Korea may also be forced to implemen
t a version of the lockdown model to stop the spread of infection after some
one working in a call center tested positive for the disease.
Concern In South Korea As The Covid-19 Spreads
Closed stores in Mangwon Market on March 12 2020 in Seoul. The South Korean
government raised the ... [+] Getty Images
Without any firm facts on transmission, the risk of spreading the disease wi
thout showing signs of it are high.
As a result, China has maintained strict control of peoples movements in maj
or cities. The South Korea testing model is harder for China due to its mass
ive, urban population, which is why it is so important to keep those cities
fairly inoculated.
From on the ground accounts in Beijing, that inoculation requires school clo
sures, no movies, no malls, no non-essential businesses open and most bank b
ranches closed.
Businesses close at 6pm to get sprayed with disinfectant. Street fumigation
takes place regularly. Building sterilization takes place several times a da
y.
Italy is doing exactly this now. Spraying public spaces, primarily.
In China, face masks must always be worn or else you can’t ride in taxis, t
ake public transportation, or enter any business. Temperature readings are m
andatory upon entering an office building. People with slight temps get sent
straight to quarantine, according to sources there.
Entire neighborhoods are blocked off to non-residents, with security personn
el patrolling to check for proof of residence.
Apartments housing someone with the coronavirus are forced into quarantine.
No one can leave.
Beijing has under 200 cases today. Shanghai has under 30, according to Johns
Hopkins University data.
“We just can’t impose a China style quarantine, but corporations can impos
e a work from home policy. You can cut off work travel and that is already h
appening,” says Brendan Ahern, CIO of KraneShares, who is working from home
on Thursday. “Corporations here are acting pretty quickly.”
NBA has canceled its entire season. The NHL put the rest of its season on ho
ld. Major League Baseball is thinking of postponing opening day. The BNP Par
ibas Tennis Open was canceled, scheduled for this week in Indian Wells. Coac
hella, the outdoor indie rock event, was postponed. Broadway has postponed s
hows for a month. Private colleges are sending kids home for the semester. P
rincess Cruises isn’t setting a course for adventure for the next 60 days.
Concern In South Korea As The Covid-19 Spreads
Members of the Sout Korean Army Reserve forces spray antiseptic solution to
guard against the ... [+] Getty Images
Mega Stimulus
If the U.S. is dragged reluctantly into a South Korea/China lockdown model,
it would usher in a further drop in economic activity. Mega stimulus will be
only thing keeping it alive.
It is unclear if Republicans and Democrats can work together on this, as som
e may see a destroyed economy as a way to finally get rid of Trump in 2021.
“You’ll have the market constantly repricing and mispring,” says Nancy Pe
rez, a fund manager at private equity firm Boston Private in Miami. “Both p
olitical parties will have to take this on. No party wants to be blamed for
not doing something.”To offset the drag, fiscal stimulus is necessary to ma
ke sure companies can meet payroll and rollover debts, preferably at no inte
rest directly from the Fed.
Disaster relief legislation from Congress can draw on the unlimited checkboo
k of the Fed to help keep individual, corporate, and even municipal bankrupt
cies from soaring.
“I’m looking at dozens of companies in the S&P 500 right now that can lite
rally go bankrupt if the government doesn’t act together on this,” CNBC st
ar Jim Cramer said on Squawk Box this morning. “The government should not b
e collecting any cash right now.”
Quarantining a city like New York would represent a significant tax on all b
usiness activity. Administration talk of a payroll tax cut is not enough. Bo
ld tax cuts and deferments would be best. For Cramer, a tax holiday for six
months or longer is even better.
UNWFPA's NYSE Bell Ringing in Celebration of International Women's Day
U.S. government has to come together on this and pump stimulus into the econ
omy, save people from ... [+] Patrick McMullan via Getty Images
In the first 8 days of the month, China has:
Required banks to provide a grace period for the virus-hit small and med
ium sized enterprises (SME) immediately upon application in repaying the pri
ncipal and interest of their outstanding loans until June 30.
Waived penalty interest
Banks are providing special loan quotas for firms in Hubei, and lowering
the financing costs for SMEs.
The Politburo called for accelerating the investment on "new infrastruct
ure", including 5G networks and data centers
Beijing waived social security taxes for SMEs for five months retroactiv
e to February 1.
Phases Of A Pandemic
According to the Center for Disease Control’s "Pandemic Influenza Plan," up
dated in 2017, there are four distinct pandemic stages in terms of caseloads
— initiation, acceleration, deceleration and preparation for the next wave
.
Europe and the U.S. are now in the acceleration stage.
Hubei is in the deceleration phase, but this comes following two months of l
ockdown.
Self-protective quarantine, lockdowns of outbreak clusters and testing are t
he best precautionary approach to pandemic outbreaks, writes Nassim Nicholas
Taleb, famous “black swan” forecaster and author of the book Skin in the
Game.
Taleb and colleagues from New York University and the New England Complex Sy
stems Institute wrote in a note published recently that cutting mobility in
the early stages of an outbreak, especially when little is known about the p
athogen, are essential.“It will cost something to reduce mobility in the sh
ort term, but to fail do so will eventually cost everything,” they wrote.
US-STOCKS-MARKET
We are going lower until either China is fully functional, or Europe gets ov
er the hump. They're ... [+] AFP via Getty Images
Earlier this week, a shutdown announcement posted outside a hospital in Hube
i province’s capital city of Wuhan, touted the treatment of more than 1,700
patients since February 2 without a single fatality.
“If a general return to work occurs this week and new infections do not spi
ke, Chinese markets could quickly be on the mend,” thinks Vladimir Signorel
li, head of Bretton Woods Research in Long Valley, New Jersey.
Indeed, they are doing better than the U.S. The S&P 500 is down 23.2%. The C
SI-300 Index in Shanghai is down 8.3%.
Should new cases balloon out in Shanghai and Beijing, it would be a huge blo
w to containment efforts and worsen the global economic outlook. Investors w
ould then calculate similar re-occurring outbreaks in Europe and then in the
U.S. once they get cleared of the one they are dealing with now, possibly t
aking them well into the summer.
“We may have a couple quarters of negative growth and a technical recession
because of demand destruction,” says Perez. “Prepare for the volatility.”
Says BCG’s Carlsson-Szlezak, “If we are still dealing with this until the
summer, with China-style quarantine measures in effect in places like New Yo
rk, it will have a massive impact on the economy,” he says. “How massive?
We don’t know.”
Follow me on Twitter or LinkedIn.
Kenneth Rapoza
Kenneth Rapoza
I've spent 20 years as a reporter for the best in the business, including as
a Brazil-based staffer for WSJ. Since 2011, I focus on business and investi
ng in the big |
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