After looking at the rampant growth of the COVID-19 virus in hard-hit Italy, Spain, and other European countries, we feel more convinced than ever that the U.S. is heading towards an inevitable nationwide lockdown.
Cases are rising, hospital beds are filling up and the national healthcare system looks to be only weeks away from reaching capacity.
The U.S. can choose to become Italy or South Korea, but officials are quickly running out of time to decide.
We’ve put together this deep dive into the rapidly evolving Coronavirus situation to help investors and the public prepare for what is likely to come next.
The Healthcare System is the Big Risk
Though letting the virus run rampant, killing the weak, old, and sick would be the best option from an economic point of view, it could end up backfiring if it led to the meltdown of our healthcare system as we know it.
The U.S. offers arguably the highest quality healthcare in the world, but quality matters little if the hospitals are too full to treat the patients.
Looking at the number of hospital beds in the U.S. there are about three per 1,000 people, on par with most developed countries.
Hospital Beds Per Thousand People
Source: https://data.worldbank.org/indicator/SH.MED.BEDS.ZS?end=2015&start=2015&view=bar https://en.wikipedia.org/wiki/List_of_countries_by_hospital_beds
The threat the U.S. healthcare system faces from the Coronavirus epidemic is that it won’t take a huge number of cases for hospitals to start filling up.
In Italy, a country with 4,000-5,000 new cases a day for a population of 60 million, hospitals are already running out of equipment and doctors are having to treat some patients in the hallways.
Italy should serve as a warning sign to other developed countries.
The system starts to show cracks even sooner than a simple hospital bed per capita metric implies.
Italy’s healthcare system is being stressed at only 1 infection per 1,000 people over the last month even though this is less than the reported 3 beds per 1,000 available.
Hospital Capacity vs Current Monthly Infections
Source: https://www.worldometers.info/coronavirus/, World Health Organization
If we use Italy’s current situation as the point of no return for the U.S. healthcare system we can back into how many infections our own hospitals can likely handle in a month.
At a rate of 1 monthly infection per 1,000 Americans, we estimate the U.S system can handle no more than 335,000 new infections every 30 days.
Though 335,000 sounds like a large number, the exponential spread of the virus will see infection rates rapidly approach that number.
| Monthly Infections (Capacity) | Monthly Infections (Current) | |
| China | 1,550,944 | 97,928 |
| USA | 335,077 | 46,388 |
| South Korea | 212,527 | 5,584 |
| Italy | 65,248 | 65,248 |
| UK | 58,126 | 8,664 |
| Australia | 32,900 | 1,808 |
| Canada | 31,932 | 1,880 |
Source: World Bank, Wikipedia, Grizzle Estimates
The U.S. Government Has Three Choices to Stop This Virus
Will Trump’s Legacy be a South Korean Response, an Italian response or something in between?
Option 1: Let the Infection Run its Course Naturally
This option will have the least economic impact, but the psychological and humanitarian toll makes this an impossible option.
As a country, we would basically be saying let the strong survive and the weak can fend for themselves.
Not to mention the number of infected Americans needing hospital care would completely overwhelm the medical system.
Hospital on Track to Hit Capacity in Only Two Weeks
Source: https://www.worldometers.info/coronavirus/ , https://www.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6 , Grizzle Estimates
Option 2: Test Test Test, and Separate the Sick from the Healthy
America could easily follow the lead of South Korea, one of a small number of countries that stopped the virus’s spread before it ran out of control.
The way South Korea did this was through a massive drive to test and isolate.
If you tested positive for the virus while on your way to work or out to get groceries, the authorities would ask you to join all the others with positive tests in what were effectively quarantine zones.
No going home to infect the healthy members of your family, the sick were kept separated from the healthy until they recovered, a key policy decision to stem the spread.
South Korea basically enacted the same measures as China, but the population went along willingly for the greater good.
This strategy would never happen in America, the land of the free.
Separating families, willingly or not will never be politically palatable in a country that prides itself on individual freedoms.
Scratch option 2.
Option 3: Weeks Long Nationwide Quarantine
This leaves option 3, a multi-week nationwide quarantine as the only real option.
Though economically painful, politicians can justify this choice by saying it is the shortest path to stopping the spread of the virus.
The government sends out checks to make up for the lost wages and the American people are back to work, virus free in 2-3 weeks.
We all know it will never be that clean or easy, but a full quarantine is the only viable option we have at this point.
With the infection rate accelerating rapidly, it looks like the government has only days to take action before the healthcare system starts to buckle under a flood of new hospitalizations.
The longer we wait to all go out, the harder it will be for social distancing alone to stem the tide.
The U.S. looks like it may have already passed the tipping point.
Source: https://www.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6
Option 3 is Not Good News for the Stock Market
At this point, investors already know the next few months will be rough, but what they don’t look to be pricing in is an economy at a complete standstill.
The longer Americans wait to take action, the more weeks must be spent at home to “flatten the curve”.
There will be knock-on effects from millions of workers laid off, even if temporary, and if government stimulus can’t keep small businesses afloat in the interim, the economy may struggle to recover as quickly as the market currently expects.
Whether we’ve reached the bottom or are just getting started will all depend on the length and severity of the coming great American standstill.
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