Omicron may be our best hope of taming the pandemic

Almost a year before Omicron appeared, Paul Ewald, an evolutionary biologist, predicted that the COVID virus would evolve in the direction of a highly contagious but less deadly variant.

Omicron is certainly proving more contagious than earlier variants.

Omicron Spread

Source: Bloomberg

But the hospitalization rate — for those above 30 years of age at least — is far lower than the earlier Delta variant.

Omicron Hospitalization Rate

Source: Bloomberg

The higher rate of hospitalizations among children under 9 may not be as concerning as it first seems:

Professor Mignon McCulloch, who is the Chairperson of the SA Paediatric Association, has urged people not to panic during her appearance on CapeTalk. Around 20% of new admissions for COVID-19 in Tshwane have been in children aged nine or under, whereas similar spikes have not been seen in any other age groups.

However, it doesn’t mean that Omicron is more dangerous, or even more deadly for children. According to McCulloch, it’s very likely that the children admitted to hospital are actually there for reasons other than the virus – and it is ‘coincidental’ that they have also tested positive for COVID-19 when checked by hospital staff. (The South African)

Evolutionary path

Earlier, researchers at the University of Exeter found that the most virulent variants of a pathogen may transmit the fastest, but tend to lose out in evolutionary terms to less virulent strains:

Pathogens have a single evolutionary goal – to produce more of themselves. “Virulence will evolve towards a level that optimizes their ability to transmit,” Dr Bonneaud said.

If the pathogen meets resistance to transmission — in the form of a recovered and immune or vaccinated host, or social distancing — then highly virulent forms die out with their host, and natural selection favors less virulent forms.

If there is no such resistance, the pathogen can kill its existing host at no evolutionary cost and will remain highly virulent…..

Paul Ewald, at the University of Louisville in Kentucky, said humanity had drawn a short straw with Sars-CoV-2 because it was both highly virulent and highly transmissible when it emerged.

Over time it is likely to reduce its virulence – in fact, that may already be happening, as reflected in falling mortality rates.

“I would expect it to evolve to a virulence that is very much like [seasonal] influenza,” Prof Ewald said in November last year.

“And containment measures, properly implemented, should accelerate that process.” (The Guardian)

Host mobility

Paul Ewald’s research focuses on the dependence of disease organisms on the mobility of their host for transmission. A patient (host) who is bed-ridden or dies is less likely to transmit the infection — unless the disease has another means of spreading other than personal contact/close proximity. A host with mild symptoms is far more likely to move around in the community and spread the disease.

If a disease organism is very dependent on healthy hosts moving around [and] contacting susceptible hosts, then we expect natural selection to favor extreme mildness in those disease organisms. If, however, the disease organism is not dependent on host mobility — for example, if the disease organism is transmitted by mosquito, or contaminated water, or because it’s durable in the external environment — then we expect that natural selection will favor high levels of harmfulness in those disease organisms…..

When we look at the population of disease organisms in any given area, we see both mild and harmful strains….. all we need to do is tip the competitive balance in favor of those mild strains.

We can look at the experience in South America and Central America as a kind of a natural experiment that allows us to evaluate these ideas. In 1991, cholera came into Peru and then quickly, within a couple of years, spread all throughout South and Central America. Some countries had clean water supplies, and other countries had contaminated water supplies. What we find is that when the organism invaded countries with clean water supplies, the organism dropped in its harmfulness.

In contrast, the organisms that invaded countries with poor water supplies — countries like Ecuador — evolved increased harmfulness over time. They’ve actually become more toxigenic. (Paul Ewald: Infectious Disease and the Evolution of Virulence)


We can use evolution to encourage diseases to evolve into milder forms that are not as harmful and also create resistance to more virulent strains. Use of vaccines, handwashing, masks and social distancing help to restrict more virulent forms of the virus and encourage milder versions like Omicron to take over, developing herd immunity.

Opening up populations to a pandemic — in the misguided hope of creating herd immunity — are likely to have the opposite effect. Unhindered transmission would encourage evolution of more virulent strains, with far higher hospitalization and death rates.


Hat tip to Macrobusiness for the images

New COVID variant upsets markets

JOHANNESBURG — A new coronavirus variant has been detected in South Africa that scientists say is a concern because of its high number of mutations and rapid spread among young people, Health Minister Joe Phaahla announced Thursday.

South Africa has seen a dramatic rise in new infections, Phaahla said at an online press briefing.

“Over the last four or five days, there has been more of an exponential rise,” he said, adding that the new variant appears to be driving the spike in cases. (NBC)

Concern is focused on the rapid spread of new cases and the variant’s high number of mutations which could make the virus resistant to current vaccines.

The new COVID-19 variant, called B.1.1.529, has a very unusual constellation of mutations, which are worrying because they could help it evade the body’s immune response and make it more transmissible, scientists have said. South African scientists have detected more than 30 mutations to the spike protein, the part of the virus that helps to create an entry point for the coronavirus to infect human cells…..In comparison, the Beta and Delta variant respectively have three and two mutations. (Al Jazeera)

The UK suspended flights from 6 African countries on Thursday. (

The S&P 500 fell 2.3% on Friday, while declining peaks on the daily Trend Index warn of a correction.

S&P 500


There is a high level of uncertainty as scientists do not yet know how lethal — and how resistant to vaccines — the new strain is. Investors are being cautious and reducing risk. Expect a correction to test primary support but no bear market unless worst fears are realized.

Tech heavyweights pause for breath

Good progress has been made combating the pandemic but daily COVID cases seem to be struggling to break through a floor between 50 and 60 thousand. The vaccine roll-out is ahead of schedule but people need to stop listening to idiots like Rand Paul — who went to the Senate gym while infected — and listen to the Chief Medical Adviser whose advice is to wear a mask.

Daily US COVID Cases

Stocks have paused after the recent run up in Treasury yields. When both stocks and bonds are being sold, there is nowhere to hide.

The Nasdaq 100 is testing support at 12000. At this stage the correction looks mild, with declining Trend Index remaining above zero, but breach of 12000 would signal a test of the Sep 2020 low.

Nasdaq 100

The S&P 500 is performing better but Volatility troughs above 1.0% still warn of elevated risk.

S&P 500 & Twiggs Volatility 21-Day

The big five tech stocks are a mixed bag. Alphabet (GOOGL) and Facebook (FB) show strength. Microsft (MSFT) looks stable, while Mazon (AMZN) and Apple (AAPL) are trending lower.


When leaders no longer lead normally signals the final stage of a bull market. The chart below shows the Russell 2000 small caps ETF (IWM) clearly outperforming the large cap Nasdaq (QQQ) and S&P 500 (IVV) indices with all the tech heavyweights.



The steeper yield curve benefits banks, who profit from the wider net interest margin. Major banks have climbed 60% to 80% over the past six months, with Goldman Sachs (GS) leading and Bank of America (BAC) the laggard.

Major Banks

Consumer durables sectors are, again, a mixed bag. Household Goods (HG) is flat, Apparel Retail (RA) is climbing steadily, while Automobiles (AU) is down sharply — mainly because of Tesla (TSLA).

Consumer Durables

Though light vehicle sales were down a million units in February.

Light Vehicle Sales

And heavy truck sales were down 4,000 units compared to January.

Heavy Truck Sales

Prospects for the tire industry are improving. Goodyear (GT) retraced to test its new support level after breaking out above its high from late 2019. Respect would confirm another advance.

Goodyear Tyre Co. (GT)


The recovery is going to be a long hard slog with frequent setbacks. Banks are doing nicely but stocks generally are over-priced and ripe for a major adjustment. There are signs that this is the final stage of the bull market and market risk is elevated.

The bond market revolt

The rise in Treasury yields accelerated over the past week, with 10-year Treasuries closing at 1.54% on Thursday and 10-year TIPS at -0.60.

10-Year TIPS & Treasury Yields

A sharp fall in daily new COVID-19 cases has fueled optimism about a rapid re-opening of the US economy.

USA: Daily New COVID-19 Cases

As well as fears of higher inflation.

10-Year Breakeven Inflation Rate

What the sell-off means

Investors are selling Treasuries at a faster rate than the Fed (and banks) are buying, out of fear of accelerating capital losses. Fixed coupons have been badly affected, with iShares 20Year+ Treasury Bond ETF (TLT) showing a loss of 13% over the past 6 months. But even inflation-protected bonds have lost value in anticipation of higher real interest rates, with PIMCO’s 15 Year+ TIPS Bond ETF (LTPZ) falling more than 6%.

20 Year+ Treasury Bond ETF (TLT) & 15 Year+ TIPS Bond ETF

The Fed response

The Fed is likely to respond by weighting purchases towards longer maturities. The 10-year Treasury yield has already started to anticipate this, falling to 1.39% by Friday’s close.

10-Year Treasury Yields

Source: CNBC

The result is a 16 bps fall in the real 10-year yield, to -0.76% on Friday (1.39-2.15).


Fed purchases are expected to suppress long-term Treasury yields over the next few months, with inflation breakeven rates continuing their upward trend, while real yields remain negative.

S&P 500: Leaders no longer leading

Daily new cases of COVID-19 continue to spike upwards, warning of further shutdowns as medical facilities are overrun.

USA: Daily COVID-19 cases


The latest labor report disappointed, especially as the November survey came before the latest round of layoffs after states imposed tighter restrictions.

Payroll growth flattened, leaving total payroll down 5.99% compared to November last year.

Payrolls Annual Change

Hours worked are slightly more encouraging, down 4.68% on an annual basis, compared to -2.9% change in real GDP.

Real GDP & Hours Worked


Encouraging news on the vaccine front but “when you hear the cavalry is coming to your rescue, you don’t stop shooting. You redouble your efforts.” (Dr Anthony Fauci)

Now This News


Progress in manufacturing vaccines that will soon be widely available has buoyed stocks despite the dismal economic outlook. The S&P 500 made new highs, assisted by hopes of further stimulus and ultra-low interest rates. The large megaphone pattern is a poor indicator of future direction but does flag unusual volatility.

S&P 500 SPDR (SPY)

Growth in the big five technology stocks has slowed in recent months, with only Alphabet (GOOGL) breaking above its September high. Too early to tell, but failure of market leaders to make new highs is typical of the late stages of a bull market.



Vaccines should succeed in flattening the third wave and suppressing future outbreaks but are unlikely to succeed in restoring the economy to normalcy.

Federal debt is at a record 123% of GDP and growing. Further stimulus is required to support the still-fragile recovery.

The Fed will continue to expand its balance sheet to support Treasury issuance.

Ultra-low interest rates are likely to stay for a number of years.

If massive federal debt, QE and ultra-low interest rates does not cause a spike in inflation, that will encourage authorities to push the envelope even further (we fear this would have disastrous consequences).

Unemployment is expected to remain high and GDP growth likely to remain low.

Zombie corporations and commercial real estate with unsustainable debt levels will continue to be a drag on economic growth.

Growth stocks are expected to remain overpriced relative to current and future earnings.

Time to get on with the serious business of beating COVID-19

Conservative news channel Fox News have called the election in favor of Joe Biden.

FoxNews: 2020 election

Trump and a few die-hard supporters insist that they will mount a legal challenge to overturn the election result. Here is a quick assessment of his chances by Neal Katyal, professor of National Security Law at Georgetown University and former US Acting Solicitor General (2010-2011):

Neal Katyal

There were 128,412 new COVID-19 cases on Saturday, November 7, bringing the total number of Americans infected to just under 10 million.

Daily New COVID-19 Cases reach 128,412

This has the potential to overload the health care system and shut down the economy. We need to ignore the sideshow and focus on what can be done to stop this. Before it’s too late.

Quote for the Week

Crisis does not change who you are.
Crisis reveals who you are.
~ Jakub Janda

Still counting…….and still rising!

Three days have passed since the election and there is still no clear result.

Fox Election Results

There are currently five states still in play: Alaska, Georgia, Nevada, North Carolina, and Pennsylvania. With 270 electoral votes needed to win, Biden needs 6 more electoral votes — any one of the last four (GA, NV, NC or PA) would do it.  If conservative Fox News call the result in favor of Joe Biden, we will know it is all over for Donald Trump.

There are wild claims of missing ballots and vote rigging aimed at destroying credibility of the election result, plus conspiracy theories and fake videos alleging election fraud circulating on social media. We saw similar videos circulated after the 2014 Scottish independence referendum. Some were so amateurish as to be laughable — with looped video run in reverse in an attempt to portray an election official as counting the same ballot over and over again, complete with a voice-over with a heavy Russian accent — but some are now likely to be far more professional. Social media companies will need to crack down on organized disinformation campaigns.

Requests for recounts are fair enough in a hotly-contested race but are unlikely to change the outcome. Allegations of election fraud are far more malicious, especially when made in the mass media rather than in court. In the end, any such allegations will need to be tested in a court of law which will act as the final arbiter.

Still Rising!

The election is distracting us from an even more serious threat to the country: daily cases of COVID-19 in the US reached a new record high of 121,888. Failure to curb the current rate of transmission threatens to overwhelm the health care system and bring the economy to a standstill.

Covid19: New US Cases

The last thing we need is to neglect the COVID-19 campaign while the election arm-wrestle descends into an all-in brawl.

Moderna Inc (MRNA)

Stock: Moderna Inc
Exchange: Nasdaq Symbol: MRNA
Date: 25-Mar-20 Latest price: $27.13
Market Cap: $8.98 bn Fair Value: Uncertain
Forward P/E:       – Payback Period Uncertain
Financial Y/E: 31-Dec-20 Rating: BUY (above 30)
Sector: Healthcare Industry: Biotechnology
Investment Theme: LT Growth Structural Trends: Medical Technology

Moderna is at the forefront in developing a vaccine for the coronavirus COVID-19. Development work done on SARS and MERS vaccines has given the company a lead on competitors, with government approval to fast-track trial of the vaccine on humans.


It is difficult to determine a fair value for Moderna — vaccines the company is working on are still in the development phase — but there is massive upside if development is successful. We rate MRNA as a BUY if it closes above 30.00.

We suggest a weighting of 1% of portfolio value because of the uncertainty.

Technical Analysis

Moderna (MRNA) was listed late 2018 and is testing resistance at its previous high of 30.00. Momentum is rising but declining Trend Index warns of strong resistance. A close above 30.00, or Trend Index recovering above zero, would be a buy signal.

Twiggs Trend Index & Twiggs Momentum (13-week)

Company Profile

Moderna is a clinical stage biotechnology company, based in Cambridge, Massachusetts, focused on the discovery and development of messenger RNA (mRNA) therapeutics and vaccines.

Messenger RNA plays a fundamental role in human biology, transferring the instructions stored in DNA to make the proteins required in every living cell. Moderna’s approach is to use mRNA medicines to instruct a patient’s own cells to produce proteins that could prevent, treat, or cure disease.

The firm uses mRNA to develop therapeutics and vaccines for infectious diseases, immuno-oncology, rare diseases, autoimmune and cardiovascular diseases.

Coronavirus COVID-19

Moderna is at the forefront in developing a vaccine for the coronavirus COVID-19. Michael Diamond, a viral immunologist at the Washington University School of Medicine in St. Louis, Missouri, and on Moderna’s scientific advisory board, says the company has obtained FDA permission to commence phase 1 trials on human volunteers:

A vaccine represents the best long-term defense against the virus, known as SARS-Cov-2, and could help thwart future outbreaks. But even if one is found to be safe and successful at preventing infection, public health experts say it will take at least a year to become widely available. While that seems like a long time, it’s actually extremely fast for vaccine development.

Just weeks after China shared the genetic sequence of the coronavirus in January, Moderna announced that it would ship its experimental vaccine to the U.S. government for testing. Last week, a handful of volunteers in Seattle became the first to receive that vaccine……

A total of 45 healthy adults ages 18 to 55 years are expected to receive the investigational vaccine over the next six weeks. Known as a Phase I trial, this initial human study will test the safety of the vaccine as well as its ability to produce an immune response at three different doses. An effective vaccine must be able to create an immune response in the body that imitates an infection but doesn’t make a person sick.

Moderna manufactured the vaccine quickly, skipping lab experiments to determine how well it prevents infection in animals. Typically, scientists must test vaccines on animals before moving to human subjects, but the U.S. Food and Drug Administration has given Moderna permission to instead conduct animal tests in parallel with the human safety trial.

Dr. Nathan Erdmann, an infectious disease physician at the University of Alabama at Birmingham, says the decision is warranted amid a public health crisis. “Fortunately, we had a head start on this…..Because of our experience with SARS and MERS, there’s been work toward developing ways of having an immune response to a coronavirus vaccine for some time.”

….The viruses that cause SARS, or severe acute respiratory syndrome, and MERS, or Middle East respiratory syndrome, are also coronaviruses. Previous outbreaks of these diseases provided scientists with a starting point for making a coronavirus vaccine so quickly. Moderna was already working with researchers at the National Institute of Allergy and Infectious Diseases on an experimental MERS vaccine.

Coronaviruses are sphere-shaped, with protein spikes protruding from their surface. These spikes lock onto human cells, allowing the virus to get inside and infect them. The vaccine that Moderna is developing consists of a short segment of genetic material, called messenger RNA, that provides instructions for a human cell to make a harmless version of the spike protein. The RNA is packaged into nanoparticles to be delivered as a vaccine. (Unlike some other vaccines, this one does not contain part of the actual pathogen.)

Once in the body, the vaccine is meant to spur cells into producing some of the harmless spike proteins. If it succeeds, the immune system will recognize the spikes as foreign and unleash antibodies to attack them. These antibodies will continue to live in the body and would prevent infection if a person is exposed to the virus in the future.

…..There is no vaccine on the market today that uses this approach. So far, this type of vaccine — known as an RNA vaccine — has only been tested on people in small safety trials. Scientists don’t actually know how effective it is in people. In previous experiments on animals, RNA vaccines produced antibody levels “in the same ballpark” as other types of vaccines, says Diamond.

RNA vaccines have some advantages compared to current vaccines. “They can be developed and deployed very rapidly,” says Diamond, [who] worked with the company on an RNA vaccine for Zika virus. The process is much faster than other methods of making vaccines. Moderna was able to manufacture and ship the vaccine to the NIH for testing in a matter of weeks.

“Even generating the flu vaccine takes months and months, and we know exactly what we’re working with year to year,” says Erdmann.

This type of vaccine could also be fairly inexpensive to manufacture because RNA is cheap to produce in the lab. Plus, some scientists think the risk for serious side effects is low because the body makes the protein itself. But because these vaccines haven’t been tested widely in people, their side effects aren’t well understood.

Even if Moderna does not win the race to produce a COVID-19 vaccine, the appeal of vaccines that do not contain part of the actual pathogen could go a long way towards overcoming anti-vaxxer safety concerns surrounding vaccines.

Financial Position

Moderna spends close to $500 million a year on research and development and has accumulated losses of $1.5 billion against contributed share capital of $2.7 billion.

With cash balances of $1.1 billion and trade liabilities of $140 million, the company has roughly a two-year window to start generating revenue or else raise further capital.


Staff of The Patient Investor may directly or indirectly own shares in the above company.

The Fed has no vaccine for COVID-19

The World Health Organization has not yet declared the COVID-19 coronavirus a global pandemic but investors are not waiting.

Spooked by the rapid explosion of cases outside of China — South Korea now has 2,931 confirmed cases and Italy 889; — and dire warnings from health professionals, investors are fleeing to safety.

The CDC on February 21st announced:

“We are not seeing community spread here in the United States, yet. But it is very possible, even likely, that it may eventually happen.

…..This new virus represents a tremendous public health threat. We don’t yet have a vaccine ….nor do we have a medicine to treat it specifically.

…..We are now taking, and will continue to take, unprecedented aggressive actions to reduce the impact of this virus.”

China claims to have the disease under control, reporting a sharp decline in new cases. But they have zero credibility after the massive suppression of information, frequent revision of statistics, and rapid disappearance of anyone who contradicts the official CCP line.

This report from Trivium China shows how CCP temporizing allowed the virus to spread:

China’s National Health Commission website published minutes from a meeting the NHC held with its provincial branches on January 14:

  • “The epidemic prevention and control situation has undergone important changes, and the spread of the epidemic may increase significantly, especially with the arrival of the Spring Festival……
  • [We must] implement the most stringent measures, control the epidemic locally, and do our best to avoid the spread of the epidemic in Wuhan.”
  • But the NHC didn’t give any public warning about the virus before January 20.

Severity of the disease should also not be underestimated. Of 43,940 active cases, 18% are listed as serious or critical, while 7% of 39,439 closed cases have died. The growing number of relapses, after the patient initially recovered, is also concerning.

China is going to find it difficult to restore business as usual with the constant threat of another outbreak. Activity remains well below normal levels.

China coal consumption

Official PMI figures point to a “brutal contraction” for China. February Manufacturing PMI plunged to 35.7, while Services were even lower at 29.6.

China PMI

It is difficult to estimate the economic impact of COVID-19 on the global economy. Profs. Warwick McKibbin and David Levine take a stab:

The novel coronavirus COVID-19 may become a footnote in history – a disaster narrowly averted. It could also become a global pandemic similar to some of the worst pandemics of the twentieth century. For example, assume the COVID-19 is as easy to spread and as dangerous as the 1957 Asian flu. Based on the epidemiological estimates of mortality and morbidity rates from that experience, our best estimate from a 2006 study on pandemics was that such a virus might kill more than 14 million people and shrink global GDP by more than $500 billion. These estimates are far higher than the costs were in 1957 because our world is increasingly connected and urban. Preliminary results currently being updated in 2020 suggest even higher numbers for worse case COVID-19…..[Brookings]

This is not a problem that the Fed can handle.

No doubt they will cut interest rates. Short-term Treasury yields (gray) are already falling in anticipation of another rate cut (green).

Effective Fed Funds Rate (EFFR), Interest on Excess Reserves (IOER), and 3-Month Treasury Yield

When consumers are scared, rate cuts will not restore normal consumption patterns. This is both a demand and a supply shock. A virus outbreak would cause consumers to drastically curtail demand: use of public transport, holiday travel, business travel, hotel occupancy, visits to restaurants, shopping malls, sporting events and other public venues. Fast food consumption and discretionary shopping would be especially hard hit.

But supply is also likely to contract due to interruptions to supply chains and shipping logistics, slowing manufacturing output.

Donald Trump may call this a “hoax” but I don’t see him taking any hospital tours, to review preparations. If the virus does spread as anticipated, he is unlikely to win re-election.