The Ireland Event
January 12, 2021·Politics

Daily reported new Covid cases, Ireland, through Jan. 7, 2021
I’ll start with the conclusion. I believe there is a non-trivial chance that the United States will experience a rolling series of “Ireland events” over the next 30-45 days, where the Covid effective reproductive number (Re not R0) reaches a value between 2.4 and 3.0 in states and regions where a) the more infectious UK-variant (or similar) Covid strain has been introduced, and b) Covid fatigue has led to deterioration in social distancing behaviors.
A single Ireland event is a disaster. A series of Ireland events on the scale of the United States is catastrophic. In the aggregate, I’d expect to see a doubling of new Covid cases/day from current levels (today’s 7-day average is 240k/day), peaking somewhere around 500,000 new daily cases before draconian economic shutdowns (more severe than anything we’ve seen to date) would occur in every impacted major metro area. Hospital systems across the country would be placed under enormous additional strain, leading to meaningfully higher case fatality ratios (CFRs) as medical care was rationed. Most critically, this new infection rate would far outpace our current vaccine distribution capacity and policy. Assuming that vaccines are preferentially administered to the elderly, aggregate infection fatality ratios (IFRs) should decrease, but the overall burden of severe outcomes (death, long-term health consequences) will shift to younger demographics.
Current US gov’t policy rejects the possibility of an Ireland event, largely because of what I believe is a politically-motivated “analysis” by the CDC that models more than 100 million Americans already possessing Covid antibodies, prior to any vaccination effort. Using data from flu monitoring programs in prior years, the CDC models project that 70 million Americans have already gotten sick with symptomatic Covid, but decided to just write it off as a bad cold and never got tested! I am not making this up. Obviously enough, if >30% of Americans are already effectively immunized against Covid because they’ve already gotten sick, then it’s very difficult to hit the Re numbers of 2.4 – 3.0 that Ireland is currently experiencing. I think this is nonsense, because NO ONE brushes off Covid symptoms the way they might have brushed off flu symptoms in the past. But this CDC model is why prominent Covid missionaries (to use an Epsilon Theory term) like Gottlieb and Fauci have said that they expect daily case numbers to decline from here on out, not accelerate, and this is why I think a potential Ireland event is NOT priced into any mainstream market expectations or political expectations for 2021.
Unfortunately, once it becomes apparent that an Ireland event is occurring, it’s too late to stop it.
In our human-scale, linear world, we experience exponential growth like this: nothing, nothing, nothing … case, case, case … cluster, cluster, cluster … BOOM! But by the time we start to really pay attention to an exponential growth process – typically at the cluster stage – the process is already too entrenched to stop it, absent incredibly harsh social measures like you see being reinstated (!) in China. No government in the West is prepared to even talk about these measures, much less implement them. So we’re always surprised by the BOOM. If an Ireland event occurs here, it will be no exception.
A full-blown Ireland event is driven by both the more virulent UK-strain AND a deterioration in social distancing behaviors. Either taken alone is bad enough. It’s the combination, though, that’s catastrophic. Irish health authorities estimate that their starting point for Covid Re was something between 1.1 and 1.4 (meaning that, on average, one person infected with the SARS-CoV-2 virus would pass it along to 1.1 – 1.4 new people). They blame deteriorating masking/social distancing for the majority of their “event” (say, a 0.9 – 1.1 increase in the Re number), and the UK-variant for the balance (say, a 0.5 – 0.7 increase in Re). This is very much in line with the latest research from Public Health England, which estimates that the UK-variant Covid virus is approximately 40% more infectious than the baseline virus. Notably, the UK-variant is, relatively speaking, significantly more infectious than the baseline virus for “close contacts” (not face-to-face, up to 2 meters apart) rather than “direct contacts”, meaning that the UK-variant virus is particularly successful at bridging the air gap between strangers or short-duration contacts in an indoor space. This is … ummm … troubling. As lax as we all have gotten with our mask wearing and our social distancing outside of the home, the UK-variant dramatically reduces the margin of error we have with mask wearing and social distancing outside of the home.
For the same reasons that we humans typically don’t recognize an exponential growth process prior to the cluster, cluster, cluster stage, we have an even harder time appreciating the impact of even a small increase in the effective reproduction rate of Covid. A 40% increase in Re has an enormous impact on how many people will be infected by Covid. For example, let’s assume that the current Re for the United States is something like 1.4 (I think it’s probably higher than that in areas like SoCal, and going up everywhere as Covid fatigue takes hold). With a 5-day infection cycle (assume you pass along the virus to 1.4 new people within 5 days of contracting the virus yourself, i.e. before you become symptomatic), a single Covid case will result in a grand total of 2,296 Covid infections over a 100-day period. Now let’s increase that Re by 40%, so that it’s not 1.4 but is 2.0 … now that single Covid case will result in more than 2 MILLION total Covid infections over a 100-day period.
This is the power of exponential growth.The numbers get silly … I mean, take that Re up to 3.0 (the high end of the current Ireland estimate), and a single Covid case will result in 5.2 BILLION total cases over a 100-day period, about 60% of the entire human population on the planet … and obviously our social behaviors around the disease would change dramatically well before we got to that point. But the real challenge of all this from a social behavior perspective is the nothing, nothing, nothing … case, case, case … cluster, cluster, cluster … BOOM! nature of any exponential growth process. That Re of 2.0 that results in 2 million total infections from a single Covid case over 100 days? On Day 30 there are only 127 total cases. Not noticeable at all. On Day 50 there are just over 2,000 total cases. Barely noticeable. Let’s say you’re an elected political leader. Are you really going to take the steps that are necessary to stop this process – like shutting down domestic travel to and from an infected area, like physically quarantining entire cities – over a few hundred cases? Not a chance. Even if you’re right … even if you prevent a catastrophic outcome through your actions on Day 30 or Day 50 … your voters will never know that you were right. They will only experience the lockdown pain, and they will never credit you for the catastrophe averted.
I think we’re already at Day 30 in a dozen states. I suspect we’re already at Day 50 in a few.
So look, maybe I’m wrong about all this. Maybe we’re already well along the path to herd immunity, and one-third of Americans currently have Covid antibodies through prior exposure or vaccination. Maybe we’ll all rediscover that old-time religion when it comes to mask wearing and social distancing outside of the home. Maybe governors and the new Administration will focus on containing the UK-variant through domestic travel restrictions. Maybe we’ll wake up tomorrow with a new urgency about vaccine distribution.
Maybe. But my spidey-sense is really tingling on this one.




Comments
Anyone buying the popular narrative that we’ll avoid hyperinflation? Another massive outbreak, and a large round of stimulus on top of that, seems inevitable. Also seems as though we’ve already reached hyperinflation when looking at assets like real estate. What am I missing here, and how can we protect the value of our holdings?
An “Ireland Event” outbreak, with draconian shutdowns, an unemployment shock and small business bankruptcies, would be massively deflationary.
Hi Ben,
Thanks for another fantastic and frightening analysis.
Writing from my smug position in Sydney I hope you’re wrong of course.
It’s worth considering the Australian and New Zealand perspective on shut-downs.
I grant that we have certain favourable conditions (being an island is one), but our leaders, nationally in NZ and state based here in OZ, have done exactly what you said the public would not accept, namely lockdowns over a few cases. Other state borders to New South Wales shut over Christmas when we had less than a hundred cases in total (all cases here come from overseas arrival quarantine lapses).Apart from inconvenienced holiday makers trying to cross borders, no one has really complained.
In Queensland, the state with one of the stricter border closure policies in 2020, the government was re-elected last year with an increased majority.
That the UK and US are only now demanding overseas arrivals be COVID free quite frankly seems insane to us
I don’t know if it’s more effective messaging, a compliant national character, whatever, the go hard go early policies adopted in this part of the world have worked spectacularly well, so far at least.
Good luck up there.
Rohan
Yes, the voters will forgive our politicians for locking down an entire city over a few cases… But guess what? In China where there is no worry about voter reaction, that is exactly what they are doing. They are being every bit as draconian over a few cases today as they were back in Wuhan in March. The Chinese know what they are dealing with; no need to spin it this way or that. They are just getting it done no matter what. As if we needed anything else to push us further behind China!
Maybe we have herd immunity… maybe not… Either way, God bless the front line workers, first responders and the medical professionals. My experience would lead me to understand that more tests = more positives. Most of the positives that I interact with have had a cold. Hope that is all there is to it, and prayers for those who’ve experienced much worse because I know that is true also. That is what is awful about CV19… both experiences are true. No Fear… Hold the Line… Lead from the Front.
Wish you had an “Edit” function here. My topic sentence is blown!
Meant to say voters in US will definitely NOT forgive politicians for any further lockdowns…
So Ben, what percent chance is “nontrivial”? Obviously, the crowd is positioned for the vaccine to save us, that we want have the exponential virus growth like a 1918 pandemic year. US dollar down and 10 year treasury down had gold and silver trading higher. US dollar down and 10 year treasury yield up has put a halt on gold and silver with real rates rising. Having puts on HYG going into spring last year was my single best trade, but that’s been neutered by the Fed. Gotta believe 10 year treasury yields would be cut in half by a deflationary event, would also take the air out of the banks. And ohhhhh those bitcoin bulls would just get crushed. The problem with any of those trades, what is the Fed’s response to an “Ireland event” and how quickly would they be pushed to the point of buying equities. I live in a suburb of Houston, Texas, just my anecdotal view, virus was rampant in July/August, but mostly controlled before cases started rising again in the last 30 days. I grew up in the small town of Meridian, Mississippi, parents and friends still live there. Virus has been steady there since July, just know that up whatsoever. My friend is an RN at the local hospital in Meridian, they have been on drive-by on/off for the last 45 days with only 2 hospitals in the small town. With the poverty rate in Mississippi and lack of resources, and Ireland event would be devastating. *** If any part of this comment crosses the line for Ben and Rusty’s lawyers, don’t hesitate to delete. I write these comments as much for myself, as anything else. What I’d really like is for everyone to tell me where I’m wrong?
Assessing the reaction function of retail odd lot call option buyers topped off with more stimulus checks (and hopes of even more) that know the Fed has their backs! There’s something I never thought I would be contemplating while trying to devise a set of trades for a potentially wrong-footed consensus. There are so many crowed, consensus trades. But I wonder if all that buy the dip retail money won’t just flow back into the stay at home stocks again as rates would collapse, they are perceived as less vulnerable to fundamental misses, and they are very long duration vehicles. Some parts of the market seem to be figuring out the path ahead- like REIT’s that haven’t overcome the first vaccine Monday opening print in mid-November. But, the balance of action seems to be driven by either cash that is put back in as every potential risk event passes or hedges are unwound.
If past is prologue credit stress has to be a driver for a break as it forces unwinds of carry trades, slows share repurchase, and pressures quant driven strategies. Forecasts of a 9% default rate in '21 have scared no one off of the Fed put in HYG. I would say shorts in the Russell 2000, where everyone is moving for the reopening trade will work again. And, so many investors are in that trade just for beta, there is no real market cap worth worrying about from an index perspective. But, it may take until after Valentine’s Day for all of the fund flow to finish getting over their skis there.
In my home state of Mississippi, Oct 1, 2020 started the MOM campaign. All my FB friends were buying T-shirts and using profile picture filters for MOM. That is “Mask Off Mississippi”. It was great until the hospitals starting filling up and people started dying.
Not exactly sure what either of you is trying to communicate here… maybe it was very late at night… However, maybe this will help you out…
https://artemiscm.docsend.com/view/taygkbn
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