Coronavirus Pandemic – Instead of a Lockdown, We Need More Meaningful Socio-Economic Measures

While mitigation measures are critically important in public places during a pandemic, it's debatable if a total lockdown helps save more lives than just a set of meaningful socio-economic restrictions. I believe that the former would do more harm to the physical and economic lives than the latter. Then again, such restrictions must not only be well thought out but also be uncompromisingly implemented. 

Here are five basic socio-economic ideas that can hopefully help strike a balance between the two opposing spectrums.

#1 Relocating Sit-down Dining and Movie Theaters to roof-tops of commercial buildings, including multi-story parking structures. The operators need to buy or lease air rights. To weatherize the place, all the operator has to do is install a retractable or permanent metal roof and durable awning windows around the existing parapets, with some cosmetic changes or upgrades. The sitting arrangement should have a social distancing built-in. The restaurants currently located inside hotels can also consider relocating operations to the hotels' roof-tops, thus enticing at least the hotel residents to dine in. Even after the pandemic, this concept might retain significant economic value. Religious congregations could follow this format until the dust settles.

#2 Converting the Cruise Ships to Passenger Ships. It may take years before the cruise lines recover from this doldrum (see the picture at the bottom of the post), so the cruise operators may consider making a navigational change to an old-fashioned passenger ship to avoid having to scrap the fleet and layoff the entire crew. The ship operators need to open up the three upper decks for more open-air space and install more technologically advanced internets so the passengers can comfortably perform office work while traveling. Unlike cruise lines, the ticket prices should include only breakfasts, letting passengers pay for the other meals according to their choice. To start with, the operators can try the US-Europe and US-Caribbean routes. Of course, they must initially qualify for the stimulus money to make the switch. This switch may have long-term economic value. It would be a great alternative to international air travel, especially for those afraid of air travel. 

#3 Switching to Solar Roofs. It's about time that our homes are more energy-efficient, switching to eco-friendly roofs with solar panels. Post pandemic, a sizable percentage of new homes should be built with all-solar panel roofs. Even when the existing houses with traditional roofs constructed with shingles, metal, concrete tiles, etc., require new roofs, homeowners should be encouraged to switch to all-solar panel roofs. It will not only save homeowners a ton in energy costs but will also be environmentally cleaner. It will also give a significant boost to the economy. This move should primarily be funded by the infrastructure stimulus, which is way overdue. Both existing and new homeowners opting for it will get a sizeable tax credit.

#4 Reinventing Student Loans and Phasing out H1-B Visas. We need a 5-to-7 year moratorium on all student loans except STEM education to make our education more labor-force friendly. In addition to STEM, the renewed student loan programs should include para-medical and counseling services like nursing, physical therapy, family counseling, etc. All financial aid must also go to those students only. Even the new STEM teachers will be big beneficiaries. Meanwhile, we have to gradually phase out the H1-B Visas -- preferably in the next five years -- to protect our new STEM graduates from the highly unfair foreign competition. Therefore, by the time these new STEM students graduate, the new H1-B would be non-existent. 

#5 Introducing Universal Basic Income (UBI). The federal government must introduce UBI to protect citizens, especially the poor and middle-class, from unprecedented calamities in the future.  The government needs to introduce a middle-class friendly, progressive consumption tax on durable goods at the national level to fund the proposed UBI. For instance, a middle-class family spending $3,000 on a pair of washer-dryer will not pay this additional sales tax, but a wealthy family spending $15,000 on a smart pair will pay this extra federal sales tax. Additionally, the introduction of UBI will help replace the existing welfare system, including Medicaid, paving the way for "Medicare for All" economically feasible.

It's high time that we think a little outside-of-the-box to avoid much socio-economic misery tormenting humanity.

Stay safe!

-Sid Som

homequant@gmail.com 

https://www.insider.com/abandoned-scrapped-cruise-ships-illustrate-struggling-industry-2020-11

Coronavirus Pandemic – Italy faces a more Horrific Second Wave

The on-going second wave of the pandemic in Italy has been more horrific than the initial one, requiring renewed lockdowns in the hardest-hit areas, especially tourist hot spots. Unfortunately, the rising death tolls have forced the extended death curve to form into a classic bi-modal one. 

(Click on the image to enlarge)

The above graph depicting the daily cases' full-spectrum tells the story the country has been facing. Here is how the second wave compares with the initial one. At the peak of the initial surge in March and April, the daily cases averaged 3,470 and 3,322, respectively, tapering exponentially to 888 and 263 in the following two months. As the second wave began in September with a daily average of 1,522, it promptly escalated to 11,760 in October. It rocketed to 32,940 in November, which is a whopping 9.5 times higher than the initial peak.

 
 

Despite being in a significantly better treatment environment now, the renewed death curve is fast becoming comparable to the initial one. For instance, during the initial wave in March and April, the daily death tolls averaged 413 and 518, respectively. Though the November average has jumped to 478, it has been escalating daily, with the toll jumping to 753 today and 731 yesterday.  

The regression between the daily cases and daily deaths during the second wave portrays the rising horror. The trendline has become exponential after surging past the intersection point of 25,000 cases and 200 deaths. Therefore, the linear trendline's r-squared value (not shown) is much lower than the r-squared value of the exponential trendline indicated here. As the scatter reveals, the daily deaths have started to further exponentiate after exceeding the 32,500/400 inflection point.  

On 3-31-2020, Itlay was number two worldwide, with 106K cases and 4K deaths, dropping to number six at the end of May with 231K cases and 33K deaths. The extended remission between the surges helped Italy move down to the number ten position (as shown above), although the recent explosion has spiked the caseload up to a massive 1.27M and deaths to 47K. 

The fact that the entire winter is still ahead and the mass distribution of vaccines is at least three months away makes the scenario all the more problematic for Italy, if not mostly grim. 

Stay safe!

Data Sources: 

https://www.worldometers.info/coronavirus/

https://en.wikipedia.org/wiki/COVID-19_pandemic_in_Italy

-Sid Som

homequant@gmail.com 

Coronavirus Pandemic – As New Frontrunners Emerge in Covid-19 Vaccine

 

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Though over two dozen companies are developing the Covid-19 vaccine, only ten companies are considered the frontrunners as they are already conducting the Phase-3, or at the very least, the Phase-2 trials.  

Among the ten, seven are well-established American and European multi-national corporations (MNCs). At the same time, the other three -- BioNTech (BNTX), Moderna (MRNA), and Novavax (NVAX) -- are mostly momentum companies, gaining significant notoriety in recent months for success in initial trials leading to this vaccine. To put the comparison in a proper perspective, let's compare the annual revenues: Johnson and Johnson's (JNJ) $80B vs. Novavax's $19M, Pfizer's (PFE) $51B vs. Moderna's (MRNA) $60M, and Merck's $47B vs. BioNTech's (BNTX) $122M. 

The only reason the momentum trio has been cited alongside the seven MNCs is their recent ascendence in the Covid-19 vaccine trials. Of course, BioNTech has been partnering with Pfizer, perhaps making it a much safer momentum player. 

As expected, the above correlation matrix shows how the trio shares high correlations among them but low to negative correlations with MNCs depending on the annual performance; for instance, while the trio has negative correlations with Glaxo and Eli Lilly, it has moderately high correlations with the better-performing MNCs like AstraZeneca, Pfizer, and Sanofi. 

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The momentum trio has registered significant gains this year: Novavax 589%, Moderna 201%, and BioNTech 100%. Among the MNCs, AstraZeneca's (AZN) 31% return is the highest, followed by Pfizer's 22% and Sanofi's (SNY) 19%. Glaxo's (GSK) 3% and Eli Lilly's (LLY) 4% are at the bottom. Most of the MNC gains have come in November as the investors are now betting on better-than-expected Phase-3 data.

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In the last two months (since 09/15), BioNTech (58%) and Moderna (34%) remain the two standout winners, while Novavax collapsed (-12%), leading to a negative correlation between Moderna and Novavax. MNCs have generated low to negative (+/-5%) returns, so their correlations remain elevated. Surprisingly, AstraZeneca's prior 0.23 correlation with Glaxo has now jumped to 0.90.

On the heels of last Monday's (11/9) great news from Pfizer, i.e., 90% effectiveness on Phase-3 trial, the market may see a new flight to quality, as investors rotate capital from the high-flying momentum stocks to the MNCs. 

Stay safe!

Data Source: Yahoo Finance and Macrotrends

Disclaimer: The author is not advocating any of the stocks listed here. Consult your Registered Rep, RIA, or Financial Planner for an appropriate asset allocation model and the suitability of stocks and other holdings for you.

-Sid Som

homequant@gmail.com

Post Pandemic, Home Ownership will require New Incentives, Promotions and Protections

Post pandemic, federal and state governments must provide additional protections and incentives to American citizens to buy primary residences. In doing so, retirement savings and investment in primary residence must be promoted simultaneously and economically interchangeably.

1. Restrictions on Foreign Home Ownership -– Since there is a real shortage of affordable homes in the US, foreigners must not be allowed to penetrate that segment of the housing market. Ideally, foreigners should be allowed to compete for the expensive-to-upscale homes only. Of course, that sector varies from market to market, so each state should regulate the price level and the corresponding inventory. Upon approval, the MLS and other sales agencies should allow the listing of those homes, clearly specifying "Open for Foreign Buying." Again, while the foreign buyers should be allowed to buy American homes, they must be prevented from competing for the inventory that the middle-class Americans demand. Since credit reports may not be available for them, a meaningful vetting process must also be established.  

2. Penalty and Tax-free use of Retirement Funds -- One of the primary obstacles to homeownership for the younger generation has always been the access to the required down payments and closing costs, which the primary mortgages do not finance. To incentivize the younger generation into buying primary residences, they should be allowed to use funds from their IRA, 401(K), Pension and Deferred Compensation plans totally penalty-and tax-free to finance down payments and closing costs, which will simultaneously incentivize retirement savings and homeownership. Since most 401(K)s also come with some employer matching, the required down payment accumulation will be further accentuated.  

3. Introduce Million-dollar Home Sales Surtax -– Since the upscale and expensive homeowners would be a big beneficiary of the phase-out (followed by no property taxes), the million-dollar home sales must be subjected to additional progressive surtaxes. It must not be a one-size-fits-all blanket rate; instead, it must be progressive given the savings – for example, sale price $1M to $2M @2.00%, $2M to $3M @2.25%, $3M to $5M @2.50%, $5M to $10M @2.75%, $10M+ @3.00%, etc., etc. While eliminating property taxes will make the high-end housing market more liquid, the introduction of sales surtax (coupled with higher short-holding transfer taxes) will gradually de-incentivize gamers, stabilizing this volatile segment. 

4. Higher Transfer Taxes for Gamers and Flippers -– At the point of sale, shorter holding periods (say, up to 2 years) must carry much higher transfer taxes, so the traders and flippers are separated from the homeowners. It's a clear moral hazard case when primary homeowners and gamers are treated alike by the local assessors. While gamers are entitled to compete and buy, they must be treated as investors if they sell within the shorter window. Of course, certain consumer exceptions (e.g., job-related relocation, medical emergency, etc.) must be factored in as long as the use of home as primary residence could be proven. 

5. Higher Sales and Transfer Taxes on Income-producing SFRs –- In terms of sales and transfer taxes, single-family homes occupied as primary residences must be treated differently from investor purchases for conversion to rentals. At the point of sale, those investors must pay higher sales taxes (add-on sales surtax). During the last recession, many institutions bought and converted millions of single-family homes into rentals creating a whole new "SFR Rental" industry. Unlike people's primary residences, these are income-producing properties and must be treated as such. Even during the years of property tax phase-out, they must be treated as a sub-class of the multi-family and must pay higher sales, property, and transfer taxes than the primary residences.

Stay safe!

-Sid Som

homequant@gmail.com

Link to the Book

Coronavirus Pandemic – How are the US Veterans Cared for?

 

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Today is Veterans Day -- a day when America salutes its veterans. Since 2020 has been an unusual year with Covid-19 encircling our lives, it's good to determine if the US Dept. of Veterans Affairs (VA) -- the agency tasked with providing medical care and services of the veterans -- has risen to the occasion. 

Considering that the comparative stats are also available for the other three non-states, i.e., US Military, Federal Prison, and Navajo Nation, let's also loosely compare their services with the VA's.

Veterans Affairs: With the help of its 1,000+ medical facilities, the VA takes care of nearly nine million enrolled veterans each year. Since the VA owns and operates its facilities, it has been caring for its coronavirus victims. 

As of now, it has a total caseload of roughly 85K. To put things in proper perspective, its current caseload is more extensive than the caseloads of many mainland states, including CT (84.7K), ID (75.4K), NM (57.5K), ND (57.4K), SD (57.3K), and OR (52.8K). Though its active cases have come down to 9,147 (11%), it has been registering a high death rate of 5.00%, which is significantly higher than the national average of 2.31%. Likewise, its positivity rate of 9.30% is also much higher than the national average of 6.61%.

US Military: Given the US Military's very aggressive and proactive medical services, its death rate of 0.12% has been the lowest among all state and non-state entities. Again, it has a slightly higher caseload of 92K than the VA's and mainland states, as indicated before. Of course, its active caseload remains higher than the VA's but is in line with the national average. Though its testing credentials are unknown, it can safely be assumed that it's one of the highest in the world, leading to a higher active rate.  

Federal Prisons: The Federal Bureau of Prisons (BOP) has 138,954 federal inmates in BOP-managed institutions and an additional 11,518 in community-based facilities. Unfortunately, nearly 15% of the federal inmate population has already been infected. Though the death rate is still low, The positivity rate has been exorbitantly high. Therefore, absent better mitigation measures, the high infection rate may lead to more criticality and fatality.

Navajo Nation: It comprises roughly 357K population, located primarily in the country's southwestern part. Its caseload of nearly 13K is more extensive than the three mainland states: NH, ME, and VT. The fact that it has a high death and positivity rate, along with recently-surging death tolls, calls for more on-site testing and stricter mitigation restrictions. Its better access to treatment has lowered the active rate. 

So, here are some of the issues to ponder:

Despite having a dedicated agency for the veterans

1. Why is the death rate among veterans so high?

2. Why is the population testing rate only 10% (900K out of 9M)?

3. Why is the active rate only 11%, whereas it's 34% for the active duty and 36% for the nation as a whole? Isn't it conspicuously low?

It's about time that Medicare wraps around all veterans, taking control of the VA.

#MedicareForAllVeterans

Stay safe!

-Sid Som

homequant@gmail.com

Data Source: https://www.worldometers.info/coronavirus/

Post Pandemic, US States and Cities Need Better Plans to Reduce Income Inequality

According to Forbes, "In 1965, America's top 1% controlled about 10% of the nation's after-tax income. That number has now grown to over 15%. The average CEO-to-worker pay ratio had increased from 20-1 in 1965 to a whopping 312-1 in 2017. And middle-class real wage growth has been stagnant for decades."

Presidential candidates have also weighed in on the fast-growing income inequality in the US. Senator Bernie Sanders talked about "Tax on Extreme Wealth" with a proposal for an ultra-wealthy tax ranging between 2% and 8%. Andrew Yang, another presidential candidate, ran on implementing a universal basic income of $1,000/month for every American adult over the age of 18. 

Given this widening income gap between rich and poor and stagnant wages for the middle class, we need some serious socio-economic re-engineering. Here are some:

1. Implement Laureate Yunus' Microcredit Model to Create Economic Opportunities in Inner Cities –- Most inner cities in the US lack good economic opportunities resulting in poverty, often rampant poverty. Thousands of bright people are stuck in poverty in inner cities due to state and local governments' inability to create meaningful economic opportunities. One-size-fits-all economic model does not work there; instead, local governments should try Laureate Yunus' Microcredit Economic Model, thus financially empowering the local entrepreneurs (who "are too poor to qualify for traditional bank loans") to turn their neighborhoods around. Though this bottom-up economic model was developed for impoverished villages in third world countries, it has tremendous potential for our inner cities. 

  

2. Let the Private Sector Develop a Fair and Equitable Property Tax Assessment System –- Property tax is often the primary source of revenue for Cities and Towns. The poorly built or haphazard assessment systems tend to be highly regressive, thus heavily favoring the rich. Under such a biased system, the poor and middle-class homeowners subsidize the upscale and high-end properties. Therefore, the growing and prospering cities and towns around the country must consider outsourcing this crucial public task to the private sector or developing it in collaboration with the private sector, so it becomes truly fair and equitable. Ideally, the development and managing of this task must be entrusted to the private sector. An unfair system uproots seniors and minorities and often pushes the middle class off the cliff. 

3. Build more Long-term Care Facilities, not Jails and Prisons –-People committing the so-called "serious crimes" must be sent to high-security long-term care centers under the care of qualified psychologists and psychiatrists. The young and reinvented cities around the country should rethink and redefine crime and punishment from a moral high ground. The lack (perhaps the absence) of economic opportunities often forces poor people to commit petty offenses, resulting in additional jail terms. Instead of sending them to jails, they should be assigned to the local clergies, rabbis, and imams to perform community service. Similarly, in a civilized world, juvenile detention centers' building does not pass the muster of moral hazards. 

4. Make College Education Free for STEM Students – This country needs to emphasize science and technology education to maintain global championship. Government colleges must provide free STEM education to all qualified poor students. Students must compete and qualify for the available seats to get into the free STEM programs, ensuring the best and brightest acceptance. Students pursuing other essential disciplines like nursing, teaching, etc. must receive tuition subsidies as well. All other majors (e.g., business, humanities, etc.), irrespective of the students' financial needs, must pay full tuition, thereby forcing the otherwise needy to pursue vocational education in line with the market demand. 

  

5. Richest 1% Needs to Accept the Generational Reset – The wealthiest 1% now owns 50.1% of the world's wealth. Given this absurd concentration of wealth, we need this 1% to be self-convinced (like Mr. Warren Buffett) that they are just temporary custodians of their wealth. They must, therefore, come to terms with the generational reset, meaning, at the end of their lives, they must return a sizable portion, if not all, of their wealth to society, pulling tens of thousands out of abject poverty each year. In other words, the success or failure of this country is now mostly dependent on them. If they are honest and honorable enough to accept this harsh reality, the citizenry's advancement will gleefully continue; absent this, millions more will continue to drift away in utter poverty. 

Of course, the 99% must also learn to put the country's interest ahead of their own. So, the rich and poor alike must come to terms with the generational reset, voluntarily returning a big part, if not all, of overall wealth to society. 

-Sid Som

homequant@gmail.com

Coronavirus Pandemic – A Nightmarish Second Wave Torments France

The following scenario will summarize how France has reverted to a renewed nightmare, with a massive second wave.

On 5/27/20, France occupied the seventh position worldwide with 182,913 cases, rapidly falling to sixteenth on 6/28/20, gradually swinging back to eleventh on 9/27/20, and rocketing to fourth with 1.8M cases on 11/09/20. 

Despite effective treatment and testing advancements in recent months, the death toll has also climbed from 28,596 on 5/27 to 40,987 on 11/09.

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After the initial outbreak was brought under control in May, the daily cases nosedived in June but modestly resurfaced in July with 1,110 on average. However, the average cases rose to 3,724 in August, rapidly trending up to 9,417 in September, then sharply soaring to 25,938 in October, and almost doubling to 48,873 thus far in November. A nightmarish public health scenario indeed.

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France has also been rising rapidly on the chart in total death tolls, recently eclipsing Iran and Spain. The fact that France has lost over 12K lives between June and November is worrying. In terms of daily deaths, the July average was 21, falling to 15 in August, but reversing rapidly to 45 in September, escalating to 156 in October, and tripling to 467 thus far in November. This fast-rising death trend is ominous.

The regression between total cases and total deaths depicts a much smoother trend than the daily event, as the latter is more prone to adjustments and weekend reporting anomalies.  

The total regression graph (top) is quite telling. The overall relationship remained linear until the intersection of 1.5M cases and 37K deaths, past which the death toll has taken an exponential upswing, staying consistently above the linear trendline. Due to the exponential upswing at the outer end of the curve, the exponential trendline (not shown) returns a higher r-squared value of 0.988 than the linear trend's r-squared value of 0.978.  

Though the daily relationship is noisy, a linear trend is nonetheless in the offing.

(Click on the image to enlarge)

Despite France's escalating death tolls, its death rate remains in line with the worldwide average. Unfortunately, it lags behind other hard-hit European countries in testing credentials, resulting in a high positivity rate. The on-going second wave has also bumped up its active rate to an appalling 91%, potentially causing hospitalization issues all over again.  

Today, Pfizer has announced an awe-inspiring 90% efficacy rate on its Phase-3, so others (AstraZeneca, Glaxo, J & J, Moderna, and Merck) are not far behind. If the production goes smoothly, the mass delivery could start as early as Q2-2021. Meanwhile, France has to keep its fingers crossed for a safe winter.

Stay safe!

Data Sources: 

https://www.worldometers.info/coronavirus/

https://en.wikipedia.org/wiki/COVID-19_pandemic_in_France

-Sid Som

homequant@gmail.com