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US Economy Risen by Easter?

26032020_blog

US Economy Risen by Easter?

Earlier this week US President Donald Trump started to raise hopes that restrictive measures being taken to slow the spread of the novel coronavirus would be lifted soon and the economy would be restarted by Easter. Short of a miracle, we can’t see this happening. In fact, there’s a good chance the US is even more closed then than it is now.

The US has been slow to test and slow to act, and that has made the coronavirus epidemic worse there than it needed to be. This means that measures will need to be tougher and left in place longer to avoid overburdening the hospital system and making the problem the worse.

Take a look at the chart below. It shows the emergence of coronavirus cases in the US, China and South Korea since the first case was discovered in each region. The US is furthest to the right, that’s because it took a long time to start testing. Without being able to identify who had the virus it was able to spread and now the growth in cases is quicker than in the two Asian nations. You can see the US curve is steeper.

The US curve is also pretty straight (on a log scale) showing that the growth rate has not yet begun to moderate. By contrast, China and South Korea bent their curves by taking aggressive measures like isolation, quarantining, and distancing which slowed the spread dramatically.

Annotation 2020-03-26 174508

Now the US needs to do the same. But its starting point is far worse and its fuse far shorter. The deep red horizontal line is the critical limiting factor – the point when the US hospital system becomes stressed because demand for critical care, or ICU, beds exceeds capacity. The estimated date is April 1, less than two weeks before Easter. We hope for all US residents that the curve bends hard below the red line and quickly. But almost the only way to achieve that is by enforcing tougher measures, not opening up the movement of people to restart the economy. That’s the unfortunate trade off that Trump may be underappreciating.

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Christopher is a Portfolio Manager for the Montaka funds and the Montgomery Global funds. He joined MGIM at establishment in 2015.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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8 Comments

  1. Hi

    What are your thoughts that on the following scenario
    1) The situation in NY and NJ becomes critical
    2) Everyone else in the US comes to senses and have drastic lockdown

    I personally do not believe it, but just entertaining what others might think.
    Thank you

    • Defining critical as stressed ICU wards, it seems highly likely that NY and NJ are heading that way. About half of the US is in lockdown now and I think most of the US could go that way. Indeed, our work shows it would be the best chance to “bend the curve”.

  2. I have the sense that this slow response by US authorities might not be the result of poor management but in a political sense is pragmatic.

    The US health system cannot deal with a sustained pandemic.

    Other nations like Australian or European countries provide health care as part of the social contract and hence this forces governments to take drastic public health measures as means of sustaining the health system. If the health system completely fails this reflects badly on the government of the day.

    The US, on the other hand, does not have this social obligation to provide health care. The wealthy might get treatment but that is about it.

    Though it might seem like governments, politicians and bureaucrats seem to be pursuing virtuous ends like saving lives their real ends are political – cynical I know but the truth is usually worse than ones most cynical interpretation.

    • Some under-performance from companies that are great businesses but sold off a bit more than the market. Likely due to nearer term revenue sensitivity to Coronavirus risks, notwithstanding great long term prospects. Some of these include Airbus and Floor&Decor.

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