All posts by Peter

I’ve been brainstorming about what might happen with this year’s election. Here’s one of the more interesting (but not likely) scenarios that I’ve imagined:

Most parts of the US are experiencing their second or third wave of the pandemic. Two of the more heavily funded vaccine trials have just been declared to be failures. No US or European company expects to have a vaccine ready for FDA approval before December. Prediction markets say Trump’s chances of re-election have dropped to 20%.

China announces on October 27 that Sinopharm Group has a COVID-19 vaccine that meets China’s safety and effectiveness standards, and can deliver about 1 million doses by November 2.

China offers to allocate half of this initial batch of vaccines to the US, on the grounds that the US is a relatively needy country, and Donald Trump is currently a close friend of China.

Why, I hear you wonder, would China treat Trump as a friend?

China is strong enough that the government can afford to tolerate Trump’s annoying trade wars, and they maybe even see some benefit from reducing China’s somewhat excessive dependence on the US. It’s important to keep in mind that democracy is one of the larger threats to the Beijing regime (h/t scholars-stage). 2020 has proven to be a good year to mount a campaign to demonstrate that socialism with Chinese characteristics is superior to US-style democracy. I’ll leave as an exercise for my readers to figure out how many ways the idea of democracy could be discredited by a Trump re-election.

Why would a Chinese company be faster than US/European companies at producing a vaccine? My initial guess was differences in regulatory red tape would favor China, but my attempt to find evidence for such a pattern turned up nothing. My current guess is that differences between countries in who volunteers for a vaccine trial will have important effects on how quickly the control groups get infected. Trials in some countries may attract only people who are sufficiently risk-averse that the control groups are slower than expected at getting infected. Please don’t assume that I have any useful expertise here; I’m mostly just guessing.

I also wondered whether willingness to do human challenge trials would determine who verifies their vaccine first. I have vague intuitions that China is more likely than other countries to try that, but I haven’t found evidence to confirm those intuitions.

How would voters react to this scenario? My best guess is that the election would be surprisingly close, but Trump would still lose.

The stock market would rise due to the vaccine benefits. There would be no good way to infer the market’s opinion about the election until the results are announced. I’m still confused as to how this scenario should affect my investment strategies.

P.S. – China and Sinopharm aren’t willing to predict when they’ll able to submit the forms needed for FDA approval, and ask that the US consider the approval of China’s NMPA to be good enough evidence of the vaccine’s safety and effectiveness. How does the FDA react?

Stock markets have a long history of being abnormally risky in September and October. Out of 10 months in which the S&P500 ended at least 15% lower than when it started, 3 were in October. Out of 31 months in which it ended at least 10% lower, 12 were in September or October.

I used to guess that this was due to the onset of seasonal affective disorder. That explanation was a bit unsatisfying, because SAD seems likely to be predictable enough that the effects could be mostly smoothed out by smart investors.

After looking at the 1957 pandemic and its possible effect on the stock market, I wondered whether infectious diseases was a better explanation.

I did a crude analysis of the correlations between flu deaths and stock market changes. I didn’t manage to get as good a dataset as I’d hoped for, and ended up settling for the monthly US data for selected seasons (12 in the period 1941-1976) in table 1 of Trends in Recorded Influenza Mortality: United States, 1900–2004.

I looked at correlations between monthly increases in flu deaths per 100,000 people and the monthly change in the S&P500. I was able to find a large effect, but it disappeared when I left out the 1943-1944 season (which was by far the worst season in that time period, yet wasn’t labeled as a pandemic).

Either there’s no effect in that time period, I don’t have detailed enough data, or the effects precede deaths by enough that the death data aren’t helpful.

I was mostly thinking that diseases might have affected the market via effects on investors moods or liquidity preferences, so I wasn’t assuming there would be much discussion of the topic. The paper The Unprecedented Stock Market Reaction to COVID-19 investigated whether newspapers mentioned the topic, and concluded:

In the period before 24 February 2020 – spanning 120 years and more than 1,100 jumps – contemporary journalistic accounts attributed not a single daily stock market jump to infectious disease outbreaks or policy responses to such outbreaks. Perhaps surprisingly, even the Spanish Flu fails to register in next-day journalistic explanations for large daily stock market moves.

So, after a fair amount of research, I still don’t have good evidence about what’s causing the September / October volatility.

P.S. For some strange reason, January is an unusually safe month, with no declines of more than 9% in the S&P 500.

P.P.S. VIX futures are saying that the S&P500’s volatility around late October will be 3.6 points higher the average of August and December volatilities. That compares to an average of 0.86 points higher (and a maximum of 2.1) over the prior 11 years in which VIX futures have been available (all of these numbers come from prices near July 20 of the relevant year).

So the markets expect something unusual this October. Something more surprising than they expected during the prior two presidential election years. Does anyone know whether this risk is due to weather-related pandemic risk or due to political risk?

Book review: Lifespan: Why We Age – and Why We Don’t Have To, by David A. Sinclair.

A decade ago, the belief that aging could be cured was just barely starting to get attention from mainstream science, and the main arguments for a cure came from people with somewhat marginal formal credentials.

Now we have a book by an author who’s a co-chief editor of the scientific journal Aging. He’s the cofounder of 14 biotech companies (i.e. probably more than he’s had enough time to work for full time, so I’m guessing some companies are listing him as a cofounder more for prestige than for full-time work). He’s even respected enough by some supplement companies that they use his name, even after he sends them cease and desist letters.

I’m glad that Sinclair published a book that says aging can be cured, since there’s still a shortage of eminent scientists who are willing to take that position.

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Book review: Black Death at the Golden Gate: The Race to Save America from the Bubonic Plague, by David K. Randall.

Imagine a story about an epidemic that reached San Francisco, after devastating parts of China. A few cases are detected, there’s uncertainty about how long it’s been spreading undetected, and a small number of worried public health officials try to mobilize the city to stop an imminent explosion of disease. Nobody knows how fast it’s spreading, and experts only have weak guesses about the mechanism of transmission. News media and politicians react by trying to suppress those nasty rumors which threaten the city’s economy.

Sounds too familiar?

The story is about a bubonic plague outbreak that started in 1900. It happens shortly after the dawn of the Great Sanitary Awakening, when the germ theory of disease is fairly controversial. A few experts in the new-fangled field of bacteriology have advanced the radical new claim that rats have some sort of connection to the spread of the plague, and one has proposed that the connection involves fleas transmitting the infection through bites. But the evidence isn’t yet strong enough to widely displace the standard hypothesis that the disease is caused by filth.

There was a vaccine for the bubonic plague, which maybe helped a bit. It was only 50% effective, the benefits lasted about 6 months, and the side effects sound like cruel and unusual punishment. It was controversial and often resisted, much like the compulsory smallpox vaccinations of the time.

Yet the plague didn’t seem to know that it was supposed to grow at exponential rates. That left an eerie sense of mystery about how the plague could linger for years, with people continuing to disagree about whether it existed.

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New infections have been declining at an almost adequate pace (10% per week?) in most parts of the US, and probably the rest of the developed world.

The overall reported new cases look more discouraging, for two reasons.

One reason is the increase in testing. I estimate that two months ago, a bit less than 10% of new infections were being confirmed by tests, and I estimate that now it’s above 20%, maybe getting close to 25%. That means that if the new infection rate were unchanged, we’d be seeing a roughly 10% per week increase in reported cases.

Nearly all parts of the country have done a good deal better than that.

I estimate the change in new infections since the early April peak by multiplying the early April confirmed daily cases by 10 or 12, and the June ones by 4 or 5, and I get a current rate that’s about 1/4 to 1/3 of the peak.

The bad news is that there are some heavily populated areas for which the trend doesn’t look very good over the past few weeks. When the rate of new infections remains constant in some areas, but declines at exponential rates in others, the exponential declines stop affecting the total numbers before too long. E.g. much of California has suppressed the pandemic, but a few cities, such as Los Angeles and Oakland, are enough to keep the state’s total count of new infections steady.

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Long-term investors should stay away from most bonds for the foreseeable future.

Last summer, Colby Davis explained why portfolio managers might want to buy bonds that yield 2%. At the time, I was suspicious, but it felt premature to argue against it.

Since then, yields on 30-year government bonds have dropped to 1.44%. That means bond prices went up. His advice worked well as a hedge against pandemics.

Inflation expectations have dropped along with those yields.

30-year TIPS have an expected yield of -0.045%.

That implies expected CPI inflation of less than 1.5% over the next 30 years, and that, adjusted for inflation as measured by the CPI, investors who buy 30-year government bonds now should expect to lose wealth if they hold to maturity.

So why are investors buying bonds at these prices?

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In this post, I make some conjectures about U.S. economic growth over the next year or two.

Many people expect a depression, due to the current high unemployment numbers. But depressions aren’t caused by unemployment – that’s a symptom, with little predictive power.

The main cause of poor economic growth has been an inability to alter wages so that the supply of and demand for labor are in balance. That typically means deflation, or a large, unexpected decline in the inflation rate, combined with sticky wages.

So I’ll mostly focus on guessing whether we’ll have inflation or deflation.

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Elon Musk has gotten some well-deserved flack for predicting (in March) close to zero new infections in the U.S. by now.

Yet the focus on national or statewide infections has obscured a curious phenomenon: if he’d just predicted infections in Santa Clara county, he’d have been partly right – new cases peaked on April 10 at 83, were down to 23 on April 27, and appear to have dropped more since then (reporting may be incomplete for more recent days). (Santa Clara county roughly coincides with Silicon Valley; Tesla’s plants are a few miles from the Santa Clara county border, technically in Alameda county, but in most senses Tesla’s plants are part of Silicon Valley, which I’ll treat as a city, even though it’s more a city-less suburb).

Meanwhile, the statewide totals fail to show a trend of doing much more than stabilizing the rate of new cases. A good deal of that is due to Los Angeles.

What’s different between LA and Silicon Valley that would explain this difference?

It’s probably not much due to differences in government policy. California is using a mix of statewide rules and county rules, which makes it tricky to say whether there are policy differences. My impression is that most differences between county policies have relatively minor effects. I guessed that the most important difference would be in when they required facemasks use. Yet it looks like LA required facemasks on April 17, in synchrony with most of the bay area. But Santa Clara county differed by strongly urging, but not requiring, facemasks.

Maybe the reason that Santa Clara county didn’t create a formal facemask rule is that residents were sufficiently quick to adopt them that there was less need than in other counties? That fits my intuitions fairly well.

The LA area has been in the news for having crowded beaches. Outdoor activity in warm, sunny weather seems relatively low risk, but I doubt that the people on those beaches carefully evaluated the effects of ventilation, sun, and temperature on their risk, so it’s likely that the crowded beaches are at least a symptom of attitudes which cause the spread of infections.

I can see from Ohio that there are significant regional differences in people’s willingness to wear facemasks. I’m surprised that Ohio voters won’t put up with a rule to make them wear masks in order to enter stores. (Ohio’s Governor DeWine deserves much better constituents than he’s currently stuck with. Here in Berkeley, I get the impression that a majority decided that we needed to follow that rule before our government got around to announcing it).

Another relevant difference is that Silicon Valley workers switched to working from home more readily than most other places. This is likely a moderate factor, but I’d have expected a peak before April 10 if it explained more than half of Silicon Valley’s success.

Another influence might be blood types: type A blood creates higher risk of COVID-19, while type O lowers risk. Judging from the blood type differences between the U.S. and China, the large Chinese population in Silicon Valley ought to lower risk a bit.

LA’s apparently steady number of new cases can’t be very stable. People’s willingness to take precautions will decline at some point if herd immunity looks inevitable. Pushing in the other direction: increasing numbers of people will become immune, reducing the virus’ ability to spread. It seems almost impossible for these forces to balance out.

Robin Hanson sees a world polarized between regions that prevent infections and regions that get something like herd immunity. I expect that many regions, such as LA, will end up at various places in between, with maybe 10% of the population becoming immune. Since the people most likely get infected and to spread the virus will be over-represented in that fraction, it will put a sizable dent in R, enough to enable significant periods of suppression.

Robin expects that variance in R will be harmful. Zvi counters that variance is not bad, given sufficiently effective travel restrictions.

I mostly agree with Zvi here. The cost of restricting nearly all travel to commuting distance or less from home is much lower than the cost of the current drastic restrictions, so voters will typically demand a shift in that direction. My main concern is that these travel restrictions are getting lumped in with “lockdown measures” such as stay at home, and shut down “nonessential” businesses. That means that pressure to reopen activities that ought to be reopened could become pressure to remove most travel restrictions.

How many politicians will see beyond simple categories such as lockdowns versus reopening the economy, to pick and choose between the good and bad pieces of lockdowns? My impression is that at least half of the state and local politicians are on track to doing so, and have enough power to sidestep whatever problems exist at the federal level.

I sympathize with Musk’s desire to reopen Tesla plants, and it’s somewhat plausible that now is the right time for that. But I’m reluctant to side with him until he alters his tweets to be more narrowly targeted on specific, arguably safe, changes. I don’t want the world polarized between openers and closers.

I recently made a bet with Robin Hanson that US COVID-19 deaths will be less than 250,000 by Jan 1, 2022 (details hiding in these Facebook comments).

I gave a few hints here about my reasons for optimism (based on I’ll add some more thoughts here, but won’t try to fully explain my intuitions. Note that these are more carefully thought out than my reasoning at the time of the bet, and the evidence has been steadily improving between then and now.

First, a quick sanity check. Metaculus has been estimating about 2 million deaths from COVID-19 worldwide this year. It also predicts that diagnosed cases will decline each quarter from this quarter through at least Q4 2020, and stabilize in Q1 2021 at 1/10 the rate of the current quarter, suggesting that most deaths will occur this year.

U.S. population is roughly 4% of the world, suggesting a bit over 80k deaths if the U.S. is fairly average. The U.S. looks about a factor of 5 worse than average as measured by currently confirmed deaths, but a bit of that is due to a few countries doing a poorer job of confirming the deaths that happen (Iran?), and more importantly, the Metaculus forecasts likely anticipate that countries such as India, Brazil, and Indonesia will eventually have a much higher fraction of the world’s deaths than is the case now. So I’m fairly comfortable with betting that the U.S. will end up well within a factor of 3 of the world per capita average.

I was about 75% confident in late March that R0 had dropped below 1, and my confidence has been slowly increasing since then.

Note a contrary opinion here. It appears to produce results that are slightly pessimistic, due to assuming that testing effort hasn’t increased.

Yet even if it’s currently a little bit above 1, there’s still a fair amount of reason for hope.

Many people have been talking as if strict shelter-in-place rules (lockdowns) are the main tools for keeping R0 < 1. That’s a misleading half-truth. Something like those rules may have been critical last month for generating quick coordination around some drastic and urgent changes. But the best longer-term strategies are less drastic and more effective.

One obstacle to lowering R0 is that hospitals are a source of infection. I’m pretty sure that will be solved, on a lousy schedule that’s unconnected with the lockdowns.

Within-home transmission likely has a significant effect on R0. Lockdowns didn’t cause any immediate drop in that transmission, but that transmission drops a good deal as the fraction of people who have been staying at home for 2+ weeks rises, so R0 is likely declining now due to that effect.

Most buildings that are open to the public should soon require good masks for anyone to enter. It wasn’t feasible to include such a rule in the initial lockdown orders, but there’s a steady move toward following that rule.

I expect those 3 changes to reduce R0 at least 20%, and probably more, between late March and late April.

Robin is right to be concerned about the competence of institutions that we relied on to prevent the pandemic. Yet I see modest reasons for optimism that the U.S. will mostly use different institutions for test and trace: Google, Apple, LabCorp, etc., and they’re moderately competent. Also, most institutions are more competent at handling problems which they recall vividly than they are at handling problems which have been insignificant in the lifetimes of most executives.

We can be pretty sure based on China’s results that R0 < 1 is not a narrow target. Wuhan got R0 lower than the key threshold by a factor of something like two. They did that in roughly the worst weather conditions – most of the time, warmer (or occasionally colder) weather will modestly reduce R0. So we’ll be able to survive a fair amount of incompetence.

But there’s still plenty of uncertainty about whether next week’s R0 will be just barely acceptable, or comfortably below 1.

Deliberate Infection?

The challenges of adapting to the most likely scenarios took nearly all of my attention in March. So I had no remaining slack to adequately prepare for a scenario that looked unlikely to me, but which looked likely to Robin. For one thing, I ought to have evaluated the possibility that money will be significantly more valuable to me if Robin wins the bet than if he loses.

It is certainly possible to imagine circumstances where deliberate coronavirus infection is quite valuable. But it looks rather low value in the scenario I think we’re in.

I don’t have much hope of getting a sensible program of deliberate infection in a society that couldn’t even stockpile facemasks in February.

I also see only a small chance that talking about deliberate infection now will help in a future pandemic. I expect this to be humanity’s last major natural pandemic (note: I’m too lazy today to evaluate the relevance of bioterrorist risks). I don’t know exactly how we’ll deal with future pandemics, but the current crisis is likely to speed up some approaches that could prevent a future virus from becoming a crisis. Some conjectures about what might be possible within a decade:

  • Better approaches to vaccination, such that vaccines could become widely available within a week of identifying the virus.
  • Medical tricorders that are as ubiquitous as phones, and which can be quickly updated to detect any new virus.

Still, I do think deliberate infection should be tried in a few places, in case the situation is as desperate as Robin believes. I’ll suggest Australia as a top choice. It has weather-related reasons for worrying that the peak will come in a few months. It has substantial tuberculosis vaccination, which may reduce the death rate among infected people by a large margin (see Correlation between universal BCG vaccination policy and reduced morbidity and mortality for COVID-19: an epidemiological study).

Note that tuberculosis vaccination looks a good deal more promising than deliberate infection, so it should be getting more attention.

Other odds and ends

Some of the concerns about a lasting economic slowdown are due to expectations that the restaurant industry will be shut down for years. I expect many other businesses to reopen within months with strict requirements that everyone wear masks, but it’s rather hard to eat while wearing a mask. So I see a large uncertainty about which year the restaurant business will return to normal. Yet I also don’t see people who used to rely on restaurants putting up with cooking at home for long. I see plenty of room for improvement in providing restaurant-like food to the home.

Current apps for delivery from restaurants seem like clumsy attempts to tack on a service as an afterthought. There’s plenty of room to redesign food preparation around home delivery, in ways that more efficiently and conveniently handle more of the volume that restaurants were handling before.

We have significant unemployment among restaurant workers, combined with food being hard to acquire for reasons which often boil down to labor shortages (combined with rules against price gouging). That’s not the kind of disruption that causes a lasting depression. The widespread opposition to price gouging is slowing down the adjustments a bit, but even so, it shouldn’t be long before the unemployed food service workers manage to become redeployed in whatever roles are appropriate to this year’s food preparation and delivery needs.

Finally, what should we think about this news: SuperCom Ships Coronavirus Quarantine Compliance Technology for Immediate Pilot?