What nobody’s talking about…yet
Our analysis of the COVID-19 data indicates that as testing increases so do confirmed cases. This may seem obvious once articulated but the reality is that in February the United States – a country of 340 million people – was conducting a total of 92 tests per day!
Italy is just waking up to what happens when testing commences late and starts to scale up. Unsurprisingly the experience is very different to South Korea.
South Korea began testing early and have already conducted more than 230,000 tests. Those tests returned positive results in 3.6 per cent of cases. And of those 7,513 positive results, 96 per cent have been isolated, 3.3 per cent have been discharged and 0.72 per cent have died.
Contrast this with Italy, who were late to testing, and locked down their country well after Coronavirus had spread. As testing ramps up, so do the number of cases discovered. And of course, the markets are shocked. But they shouldn’t be. The more a country tests, the more positive cases they find. And when testing ramps up late, the discoveries are “shocking”.
Back on March 10, Italy conducted 6,935 tests, which uncovered 529 positives cases. As I write this however Italy had doubled its daily testing rate (12,393 tests on 11 March) and surprise, surprise the results are terrible, 2,076 new positive cases and deaths jump by more than 200 to 827.
In contrast to South Korea, cumulatively, Italy has conducted 73,154 tests. Those tests returned positive results in 14.5 per cent of cases. And of those 10,590 positive results, only 35 per cent have been home isolated, 65 per cent hospitalised, 9.9 per cent have been discharged and 7.8 per cent have died.
Italy’s health system must be at breaking point. Hospitalisation volumes are up 16 per cent in a day. That’s up 951 people to 6,866, but the rate of hospitalisation actually fell, meaning they are now maxed out with no more room at the Inn.
Tim Kelley posted a blog earlier today showing the number of beds per capita for a variety of countries which reveals many, including Australia, may not have enough beds to cope with the caseloads they are about to experience. As an aside, Australia has fewer beds per 1000 head of population than Greece, Poland, Slovakia and Russia!
Returning to South Korea and Italy’s contrasting experience, it’s easy to see on which side the US will fall. Having conducted an average of only 92 tests per day through February (in a country of 340 million people), we are currently almost certain the US will be shocked by the number of positive cases it discovers as testing ramps up.
Cumulatively the US has only conducted 11,078 tests (8,554 yesterday), which have uncovered 938 positive cases. That’s a detection rate of 8.46 per cent, which contrasts disturbingly with the 3.82 per cent detection rate of just two days ago. As we expect, the more tests that are conducted – well after the virus has spread through the population – the vastly higher will be the number of confirmed cases. Of the 938 cases detected, 29 people (3.1 per cent) have died. This number will rise significantly too because, like Australia, the US has an inadequate number of beds available.
How does the market respond to a sharp rise in published infection rates and deaths?
We still believe the market has not correlated Italy’s experience with late testing, nor has it correlated the forthcoming US experience with Italy’s experience. In other words, the shock for US investors may still be ahead. Our cash balances are high, we are tracking the data daily and importantly we believe we have been tracking data others haven’t considered important. As its under everyone’s noses, they will catch on soon – that the US is about to ramp up its testing and those tests will uncover large surges in positive cases.
Perhaps one caveat to consider of course is, as these numbers deteriorate terribly, the US President Donald Trump finds a way to cease publishing the data under the guise of wanting to avoid panic. In an information vacuum however anything can happen, and when it comes to Trump, always bet on self-interest.
While we have seen few if any researchers linking late testing with rapid surges in confirmed cases, the data is available readily. As more catch on, we think enthusiasm will dissipate and some very serious value could emerge.
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