If US intelligence officers get their hands on information about a catastrophic imminent terrorist attack with unknown origins that will kill 250,000 Americans within the United States if unchecked, what should the president of this country do?
Right now, there are thousands of unsuspected bio-terrorists armed with a deadly virus that kills one out of every 200 infected people around the world and some of those bio-terrorists already managed to infiltrate our borders and wreck havoc on American lives and economy.
We need to close our borders to all international traffic immediately to stop the spread of this deadly virus in its tracks.
Here are the facts about this deadly virus so far:
1. The most potent characteristic of the virus is that it goes in stealth mode in 1.2% of the infected people (see footnote 1). That means 1 out of every 100 infected people shows NO signs at all of the infection. These people, themselves, don’t even know that they are infected and spread the virus to other people.
Applying border controls where we screen people for symptoms such as cough and fever WILL NOT STOP these bio-terrorists infiltrating our borders. This is why we see infections spreading in Italy, Korea, and Iran at the moment. We don’t even know who brought the virus into these three countries. What we know is that other bio-terrorists who SHOW NO SYMPTOMS are currently spreading this virus in other European and Asian countries.
(The percent of infected people that show no signs of an infection is very likely much higher than the 1.2% figure calculated by China’s CDC. Chinese health officials didn’t have enough test kits to administer tests on everybody. A person is given the new coronavirus test only if he/she showed severe signs of an infection. After this person is tested positive, then this person’s family and maybe a few friends were screened for new coronavirus and that’s when China’s CDC was able to identify infected people who showed NO signs at all.)
2. Another extremely potent characteristic of the virus is that 4 out of 5 infected people will have MILD symptoms. You may think that this is good news. It isn’t. This ensures that most bio-terrorists will go undetected and infect dozens of people if we do NOTHING to isolate healthy people from infected people who show NO signs of an infection or display only MILD symptoms. Then, the each newly infected person will go on and infect dozens of other healthy people, and within a few weeks there would be nothing we can do to contain the situation.
That’s why we need to close our borders to all international traffic immediately and start isolating ourselves from other people.
3. The fatality rate of this virus is 500 time higher than the regular seasonal flu. The fatality rate of this virus is estimated at above 2% within the Wuhan region. The fatality rate is also estimated at 13.6% within Iran. We believe Chinese and Iranian officials are better at reporting the number of deaths than reporting the number of infections. We believe they are severely undercounting the number of infections in Iran and the Wuhan region. These aren’t trustworthy countries when it comes to data that have large implications in terms of social unrest.
Outside of Iran and China the country with the largest number of infections is Korea. Korean authorities reported 1595 infections and 12 deaths as of this morning. This means the fatality rate in Korea is 0.75% (12 divided by 1595). However, if you recall that at least 1.2% of infected people show no signs and 4 out of 5 people display mild symptoms. So, we are certain that even the Koreans are undercounting the number of infections.
So, we believe that the actual fatality rate of this virus is at most 0.75%; it is probably closer to 0.5% or less. In the rest of this article we will use 0.5% as our fatality rate. This means 1 out of every 200 infected people WILL DIE because of the new coronavirus.
The last time we had a pandemic was in 2009. Around fifty million Americans were infected within the first 12 months. If we ignore this new coronavirus and do NOTHING to contain it, it will potentially kill 250,000 Americans.
4. There are more than 2700 deaths in China so far. Since 1 out of every 200 infected people die, we can estimate that currently there are more than 540,000 people within China who are infected with the new coronavirus. Chinese officials reported less than 80,000 cases so far. That means there are 460,000 infected people within China who aren’t identified yet. Chinese officials may be aware of this, but not reporting it in order not to cause a public unrest. That’s probably why China is taking very drastic measures to contain the virus and isolate healthy people.
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5. Iran reported a total of 26 deaths (they just reported 7 more deaths while I was writing this article). This means there are around 5200 Iranians who actually carry this new coronavirus, yet Iranians identified less than 200 infected people. This also means that there were hundreds of infected people about a couple of weeks ago in Iran who were freely roaming the country and travelling to other countries and spreading the virus.
One implication of this is that we will see coronavirus show up in other Middle Eastern countries without any connection to previously known cases in the next couple of weeks.
6. Italy reported a total of 12 deaths (the same number of deaths as Korea), yet they were able to identify only 400 infections. We estimate that there are 2400 infected people in Italy, so there are 2000 Italian bio-terrorists unknowingly exposing other healthy Italians and Europeans to the new coronavirus and spreading it throughout Europe.
We will see coronavirus infections popping up in other European countries without any connection to any of the previously known cases in the next couple of weeks.
Last night CDC reported the first coronavirus infection without any connection to any of the previously knows cases in California. This person didn’t travel outside of the US. This means another person infected this person and is in the process of infecting other people. Those other infected people are either infecting new people or will start infecting new people in the next few days. We have NO idea who these people are and they are already in California. And these people might already be travelling to other US states.
Again, we need to close our borders to all international traffic immediately and start isolating ourselves from other people. If we take these steps, we will significantly slow down the spread of this virus and save thousands of lives until we come up with a vaccine.
Here is the good news. We won’t ignore the spread of this virus and let 250,000 Americans die. As this virus spreads and we discover large clusters of infections, we will close schools and businesses to put on a good show. Basically, we will close the barn door after the horse bolted out. But better late than never. In 2009 we had 50 million infections of the swine flu virus. This time we will potentially have 500 thousand to 5 million infections depending on how drastically we react. This means we will see 2500 to 25,000 Americans die because of the new coronavirus.
The US economy was growing at a 2% rate before the coronavirus. As the number of infections in this country shoot up, we will close schools, restaurant, and businesses. Two thirds of the US economy is consumption. China’s auto-sales plunged 18.7% in January. The figure will be much higher in February. We will see double digit declines in several categories of consumption in United States. If our analysis is accurate, we should see the US economy to contract in Q2.
The new coronavirus seems to spread in hot and humid countries as well. This means infections may not disappear during summer months and US consumer may cut back on travel, restaurants, and retail shopping during the summer. Every year we receive 80 million international visitors. This number will also decline significantly during the summer months as travelers in other countries will also refrain from traveling and exposing themselves to the virus. This means US economy will also contract in Q3 and we will be in a recession before the US elections.
Major US stock indices decline by at least 20% during a recession. That’s not it though.
Donald Trump will probably lose the election if thousands of Americans die because of a virus that could have been prevented if we had shut down our borders a month ago, and lose their jobs because of a recession. A liberal president will probably lead to modest to large tax increases for the corporations. If corporate tax rate increases to 28%, we will immediately see another 10% decline in US companies.
So, if our analysis about the new coronavirus is correct, we could see 20-30% declines in the stock market by the end of 2020.
If the fatality rate of the virus is 0.5%, there are 600K bio-terrorists who are spreading the virus at the moment. If we are overestimating it by 100% and actual fatality rate is 0.25%, the number of bio-terrorists is closer to 1.2 million and we’d have no chance of containing the virus.
Every day 200,000 people travel internationally to the United States. The number of infected people is exponentially increasing in Europe and Middle East. We aren’t accepting any travelers from China and that’s why we were able to slow down the spread of the coronavirus so far. However, before it is too late (it may already be too late), we should close our borders to travelers from all other countries so that we don’t let new bio-terrorists into our countries. International tourism is only 2.9% of our economy. We can sacrifice international tourism revenues so that we can save the rest of our economy. Otherwise we may have to shut down our economy for weeks like the Chinese do now.
The easiest way to get some protection for investors is shorting S&P 500 ETFs, Russell 2000 ETFs, or certain sector ETFs. On the long side long-term bonds should deliver small gains in the next 6 months.
Footnote 1: This is based on a study done by Chinese Centers for Disease Control and Prevention (CCDC) that was published more than a week ago analyzing the outcomes of 72,314 infected people.
Disclosure: I have long positions in an S&P 500 ETF, and long positions in S&P 500 ETF put options. This article is originally published at Insider Monkey.