Marko Kolanovic’s last note documenting trends in COVID-19 infection rates in countries and states which are in the process of reopening after weeks of strict lockdown protocol received quite a bit of interest.
His analysis – which showed a decrease in infection rates after the easing of national lockdowns with >99% statistical significance – was picked up by multiple national media outlets, sparking a predictably contentious debate.
As ever, I discussed the note in exhaustive fashion, touching not just on the numbers that served as headline fodder for mainstream outlets, but also on all the nuance and tangential points. I was also keen to communicate to readers that the overall thrust of the piece related to risks stemming from the politicization of the pandemic.
It’s true that Kolanovic set out to show that the lifting of lockdowns is not necessarily accompanied by an increase in coronavirus cases, but little attention was paid to the broader points he raised about politicization.
In his latest note, out Thursday afternoon, he picks up where he left off, in an effort to drive those points home and deliver a fresh take on the proper way to analyze the evolution of the pandemic.
“Politicization of the COVID-19 epidemic could on one side lead to paralysis and delays in reopening the US economy and on the other side to geopolitical tensions that could cripple the recovery of global trade”, he writes, noting that “reopening the US economy is a complex process that is influenced not just by the virus but also by messages sent by the media and politicians”.
Clearly, the interplay of those messages has the potential to influence consumers, investors, and voters in the lead up to the election.
In the weeks after US equities abruptly plunged into a bear market, Kolanovic called for a swift rebound in stocks. At this point, there is no longer much ambiguity – he was correct. The Nasdaq 100, for example, is a mere ~4% from record highs. The S&P is up 36% from the March lows. It’s true that laggards are still off materially from pre-COVID levels, but even cyclicals caught a bid over the last several sessions.
Having called the surge, and now wary of the political fallout from the pandemic amid worsening tensions between the US and China, Kolanovic is now dialing down the bullishness.
That is not my interpretation – he spells it out explicitly. To wit, from Marko on Thursday:
Reopening only half of the economy will not be sufficient to support our current forecast for all-time highs in 2021. On the other side, a complete breakdown of supply chains and international trade, primarily between the two largest economies (US and China), would justify equities trading drastically lower. As the market staged a substantial rally (nearly ~40%) since our out-of consensus bullish call, we are dialing down our positive outlook on equities and would like to see these political risks show signs of normalization.
To be sure, one can hardly blame Kolanovic for adopting a more cautious stance in light of spiraling Sino-US tensions and considering the scope of the rebound already witnessed. As hard as this is to believe, we are one good month away from the S&P recouping its pre-virus levels.
After expressing a more cautious view on equities, Marko says he “received many requests to update [the] analysis of virus spread post reopening”. I’d be willing to bet “many” is an understatement.
Kolanovic proceeds to remind America that when one applies statistics to the study of trends, “there won’t be perfect alignment of data points and there will be outliers”.
Of course, that doesn’t mean the statistical relationship ceases to exist. “One cannot disprove the statistical relationship by highlighting that, e.g., a particular state or country doesn’t follow the trend”, he writes, adding that he “does not predict that an increase of cases cannot come back”. In other words, Marko never said that a second wave isn’t possible.
That said, as of Thursday, he writes that “the data and facts are still true” – that is, Marko notes that “since the removal of full lockdowns, be it in the US or globally, on average, there has been no deterioration”.
Here is the passage which will doubtlessly grab still more of the same kinds of headlines his last note garnered:
Below we update as well as add several more metrics that reconfirm findings from our note last week. Specifically, we show that since reopening, both across US states and world countries, levels of hospitalization, hospitalization growth rates, % of positive tests (and associated testing rates), cases growth rates, and number of cases have not deteriorated, and on average they have actually improved. We also added “second derivative” metrics, e.g., the last two-week rate of change for these measures, to show that as more time since reopening passes, there is no adverse change in “second derivative.” Results are summarized in the table below.
This time around, Kolanovic includes a full appendix with charts for each one of those metrics.
He goes on to say that his initial estimate of the full-population COVID-19 mortality rate (around 0.4%) has been “confirmed exactly” by the CDC (see here for the data, and here for CNN’s summary of the CDC’s latest estimates).
Kolanovic contends that even now, there’s a tendency for the public (and even some experts, he says) to misinterpret the data. He provides the following summary color on the subject:
…the mortality profile of COVID-19 changes exponentially with the age and health profile of sampled population. For instance, looking at the number of fatalities in nursing homes vs. their very small population (e.g., in the US it is 0.4% of all population and nearly half of fatalities), one can see that nursing home population could have ~250 times higher mortality than the rest. We also know that those above 65 years of age may have ~25 times higher mortality rate than young populations, so in some cases nursing homes could have a ~10,000x higher mortality rate than, e.g., young healthy individuals. In short, COVID-19 mortality is not calculated by dividing the number of fatalities by total population but needs to be calculated based on the demographic profile of a sample, with specific consideration of age, health, etc. with specific focus on nursing homes.
That leads Marko to suggest that because nursing homes are clearly a matter of concern, a “two-track” approach to analyzing the virus may be desirable. By that, he means separating COVID-19 analysis for nursing homes from the study of the pathogen’s track as it relates to everyone else.
When breaking down the data on nursing homes and COVID-19, Kolanovic finds an outlier in New York, but really, the specifics matter much more for policymakers than they do for everyday people, for whom the broader message is what’s important.
On that score, Marko sums up by saying that although “age is still the most important driver of general population COVID-19 mortality, in order to assess the efficacy of the COVID-19 response (and hence how to improve it), one should separately analyze data for the general population and nursing homes”.
When it comes to his outlook for asset prices considering the risk that virus politicization leads to, on one hand, needless delays in the reopening push which in turn hampers growth and impedes the recovery and, on the other, the prospect that the pandemic will be used as an excuse to restart the trade war to the detriment of global commerce, economic activity and, ultimately, markets, Kolanovic tries to stay positive.
“Ultimately we think that politicizations of COVID-19 will backfire and will be abandoned”, he says, before cautioning that “some self-inflicted damage could perhaps happen first”.