Climbing the wall of worry

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By Ken Howard

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11 August 2020, 4:25 PM

In my last letter, I started by saying, “The economy is back …. Schools are opening, restaurants are opening and the foot traffic is back in the shopping centres.” I then went on to say, "the secret is testing, tracing and “containing”, not economic lockdown".

At the time, there were less than 400 active cases in Australia and the five day rolling average for new cases was around 12, with almost two-thirds of those being Australians returning home from overseas.

Local transmission appeared to be contained. The suppression strategy was working, and Australians were reclaiming their education and their careers and reconnecting with their friends and family. Indeed, it looked like retail was enjoying a “V” shaped recovery. 

Roll forward six weeks and Victoria is reporting around 500 new cases a day.

Almost all are locally acquired, and somewhat disturbingly, some 100 to 150 a day are from unknown sources. At some point in the last 6 weeks, the “containment” failed, the testing was late, and tracing became almost impossible in Victoria.

It would appear, that given Victoria’s current resources and capacity, that their attempt at the suppression strategy failed and they have had to impose onerous restrictions on the livelihoods and the quality of life, of millions of Victorians, in an effort to regain control. 

On the other-hand, NSW appears to have kept it under control. The five day rolling average is between 10 and 15 per day, with community transmission from an unknown source, somewhere between zero and 3 per day. While for the rest of Australia, there have been seven new cases in total over the last seven days and most have come from Victoria.

We all need to know what went wrong in Victoria; (a) because we are all part of the solution and (b) because we all carry the cost. A strict, six-week lock down will significantly reduce the spread of the coronavirus, but at what cost?

Politicians need to way-up; (a) The health benefits versus the health costs: physical, mental and emotional, of confining several million Australians to their home, for 23hrs a day, and (b) the health benefits versus the cost to the future quality of life for millions of Australians living in Victoria.

The unintended consequences of disrupting someone's education or career and depleting their personal resources, could very well exceed the billions in taxes all Australians will have to pay, to cover the financial support being provided to Australians caught by the Victorian lockdown.

Testing, testing, testing

The health benefits of staying on top of the coronavirus are real. In many of the World’s most advanced economies, with the most sophisticated medical systems, the mortality rate is close to 5%.

That is to say, 1 out of every 20 people who had contracted the corona virus have died.

Now it is entirely possible that this statistic is overstating the mortality rate (a) because there are potentially millions of people who have caught the virus and recovered and have never been tested and (b) some of the highest mortality rates were occurring at the very early stage of the outbreak, when little was known about the virus and medical systems were being overrun.

The health benefits of a lock down are real, but so are the costs. Which is why globally, billions are being spent researching, developing and inevitably producing, better diagnostics and therapeutics, and who knows, fingers crossed, maybe even a vaccine.

I have been reading about a POC (point of care) covid19 test kit which is able to provide a result within 15 minutes.

The testing may not be as accurate as other, more complicated, laboratory tests, but when it comes to testing, tracing and containment, it may prove to be a very valuable tool for keeping the spread of the virus "under control".

Equally close to 13 million people, who have tested positive to corona virus, have now recovered and physicians globally have had the opportunity to study multiple treatment regimes, which undoubtedly is leading to fewer fatalities, better recoveries and fewer side-effects.

On the vaccine front, the US currently has six potential candidates undergoing human trial and while it is far too early to claim any success, several of the candidates could complete their clinical trials this year and if all goes well, be widely available next year.

The point is, society is on a journey, and we are making progress. It is my guess, if Victoria had been reporting 500 coronavirus cases a day in March 2020, they would have been on their way to a New York style catastrophe and the rest of Australia wouldn’t have been far behind.

But fortunately, right now, Australia has the capacity to conduct over 100,000 tests a day, there is no shortage of PPE (personal protective equipment), and almost every business should have some form of Covidsafe plan. We have made progress.

We are all part of the first line of defence; social distancing, hand hygiene, wearing a mask etc. While testing, tracing and “containment” (i.e. isolation) should be the second line of defence. Leaving therapeutics, hospitalisation and ICU as the last line of defence.

Lockdown should only be considered if the first two "lines" have been breached and there is a real risk of the last line of defence being overrun.

Personally I am optimistic that Victoria may have seen the peak in new coronavirus cases last week, but if not, a strict lockdown will significantly slow community transmission and it will provide Australia with the opportunity to get on top of testing and tracing in Victoria.

The opportunity for a “V” shaped recovery may have passed, and with hindsight, maybe human nature made a "second-wave" an inevitability, but regardless, Australia is still in a very strong position.

Stockbrokers have a saying, "climbing the wall of worry", and it is my view that that is exactly what we are doing. Governments have responded, the health-system has responded and society is responding. It may take a year or two for the economy to fully recover, but the lessons from history are clear, we will recover.

If you have any questions about your portfolio or your strategy please call on 07-3334 4856.

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Ken Howard is a Private Client Adviser at Morgans. Ken's passion is in supporting and educating clients so they can attain and sustain financial independence.

If you would like to learn more about assessing your finances, you can contact Ken or your closest Morgans branch.

General Advice warning: This article is made without consideration of any specific client’s investment objectives, financial situation or needs. It is recommended that any persons who wish to act upon this report consult with their investment adviser before doing so. Morgans does not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions.