MARCH 2020 / NO. 2

Don’t take everything on face value

“Exponential models assume that people with corona will continue to infect others at a steady rate. It’s not the case” , Michael Levitt, Nobel prize winner in 2013
Michael Levitt forecasted the slowing down of the spread of corona in February in China, giving hope to those affected by the lockdown. February 1 the Province of Hubei had 1.800 new cases a day. February 6 the number reached 4.700 new cases a day. February 7 the number of new infections started to drop linearly and did not stop. The reason for the slowdown is due to the fact that ‘exponential models’ assume that people with the virus will continue to infect others at a steady rate. In the early phase of Covid-19 the rate was 2.2 people a day on average.
If you consider your own social innercircle, you basically meet the same people every day. You meet new people on public transportation but after some time most passengers will either be infected or be immune. The more you adhere, the more you can keep infection in check. So, under these circumstances a carrier will only infect 1,5 people every three days and the rate will keep going down.

Diamond Princess was the worst-case

You remember this cruise ship which had the optimal conditions for the virus to be passed among those aboard. The population density aboard was huge. In addition the ship had a central air-conditioning and heating system as well as communal breakfast and dining rooms. Those are extremely comfortable conditions for the virus and still only 20% were infected. It’s good that governments take preventative measures. “The more severe the defensive measures are taken, the more they will buy time to prepare for needed treatment and develop a vaccine”, according to Michael Levitt.

Financial markets

Probably you remember Mario Draghi, former CEO of the ECB, European Central Bank, and his famous quote “Whatever it takes” to secure the Euro. Since a couple of months Christine Lagarde is his successor as CEO of the ECB. Unfortunately she made two crucial mistakes in the current new global crisis:
1. The task of the ECB is not to close the interest gaps between the weak and strong EU countries. This is called “the spread” and is a kind of ‘pre-indicator’ of the future of the Euro. Mrs. Lagarde refused to close the gaps of the spread.
2. The day before the ECB meeting on March 12 2020 Mrs. Lagarde warned for a new crisis in case countries don’t act fast and decisive.
At the moment Christine Lagarde announced her decisions on March 12 2020 the stock markets reacted extremely negative. The financial markets were not ‘amused’. March 12 2020 became a leading position on the historic list of “stock market crashes”. Reaction of Christine Lagarde: “Oh dear, I made a mistake”.
However, March 18 2020, the ECB will continue to buy debts across the EU up to Euro 870 billion to manage the spread and to fight the Covid-19 Global Crisis. It’s called the Pandemic Emergency Purchase Programme. We fill face another deep global recession but the priority of all of us is to take care of ourselves, our families, and our friends in these extremely difficult times.

The Chinese stock markets are immune during Corona

It’s remarkable to see the downturns at the stock markets during the period February 19 – March 13 2020. Dow Jones -21%, Nasdaq -20%, S&P 500 -20%, CAC40 France -34%, DAX Germany -33%, Stoxx Europe 600 -31%, AEX Netherlands -31%, FTSE UK -28%, Nikkei Japan -26%. In China: Hang Seng -13%, CS1300 -4% and Shanghai Composite -3%. The sector with the highest loss are the airlines: minus 30% to 50% versus the three leading Chinese airlines with just minus 5%. Another example of the way the Chinese government supports Chinese corporations.

“The accident with the Space Shuttle, 9/11 and other huge events can be predicted and prevented. We filter and interpret information to meet our own expectations. We underestimate it has happened ever before and we can’t imagine this. We are afraid to have a different view than others” , Professor Max H. Bazerman, HBS, in his book Predictable Surprises

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