Regeneron – Has Trump found a cure for Covid?

I have followed Trump’s Covid case very closely and it has been very confusing as the timeline of symptoms and treatment has not matched up to what we know about the progression of this virus. I am left thinking that the main difference between the particular case of Trump and others was his use of Regeneron. He claims it is a cure, I’m thinking it may have made him worse.

Timeline

  • Tuesday Sep 29th – We see Trump debate for 90 minutes. I see no signs of any symptoms.
  • Thursday Oct 1st – He tests positive. The only symptoms are reports of fatigue on the Wednesday and Thursday, but clearly not severe as he attended a fundraiser without major incident.
  • Friday am Oct 2nd – Trump personally requests and takes “Regeneron”, supplied by his golf buddy from the company Trump has held shares in. This is an experimental drug not approved by the FDA, but he gets emergency clearance to take it and Dr Conley agrees to administer it. His doctor then reports that his only symptom is mild fatigue.
  • Friday evening Oct 2nd – Trump has a rapid drop in his oxygen levels and takes a helicopter to hospital. Scans show signs of lung damage (i.e. pneumonia) and he is seen by a team of world class pulmonary experts. He is treated with remdesivir and notably the strong steroid dexamethasone.
  • Over next week – only very sketchy and misleading medical reports. From his videos we can see indications of pneumonia with a cough and shortage of breath. However he does appear to be improving and so the reason for the lack of transparency is not obvious.
  • Oct 13th Trump appears much improved, reportedly testing negative for Covid.

Is this a normal timeline?

It really isn’t. The onset of mild symptoms and rapid recovery would imply that he had a mild case of Covid, which is the most common outcome, even for people of his age and weight.

The hospital admission, lung damage and use of dexamethasone prescribed by highly regarded experts in their field can only mean that he was genuinely very ill and in real physical stress. For this to have been caused by Covid, it would imply a much more serious case – but in a Covid case these more serious symptoms typically occur 7 days after the onset of symptoms because they are caused by the overstimulation of the immune system going into overdrive. Further, if it had been caused by Covid, then it would not make sense that he could be released from hospital after only 3 days.

The evidence of serious illness is certainly clear, but the timeline is not consistent with it being caused by Covid.

How to reconcile this inconsistency?

Trump’s explanation that Regeneron cured him fits his view of himself as a genius who can treat himself better than anyone. He asked for this specific drug just as he asked for Hydroxychloroquine earlier this year, which Dr Conley also agreed to administer to him. But the timeline is exactly the wrong way round. He took the Regeneron before the emergence of the lung damage and drop in oxygen levels so it is hard to see it as the cure.

A common theory is that Trump had Covid for a week before he admitted to having it, and so the emergence of the overactive immune response is still the correct timeline. This does not reconcile with his rapid recovery unless we combine the theory that he had been sick for week with the theory that the Regeneron helped shorten his illness. This does not explain why he had no visible symptoms all week, whilst having a severe case of Covid which was about to get much worse.

I am left wondering if it was the Regeneron that caused the problems. In this hypothesis, Trump has a mild case of Covid but takes a massive dose (8g) of monoclonal antibodies which strongly stimulate his immune response. This overstimulation might have lead to pneumonia which is then treated by dexamethasone, after which he is recovering well. Trump does not want to admit that he caused the problems which would explain why he did not allow his doctors to give details on his condition.

Perhaps his Covid case was always mild and so it would have gone away without much intervention.

Breaking news

Eli Lilly has a very similar drug to Regeneron. Their trial has been paused due to safety concerns.

https://edition.cnn.com/2020/10/13/health/eli-lilly-pauses-trial-monoclonal-antibody-coronavirus/index.html

Would I take Regeneron?

I do not want to make a judgement from such sketchy information on a new drug. I would prefer to wait until clinical trials are completed and then we can see if it works or not.

Has the US stock market disconnected from the real economy? Part 4

In my previous three posts, I examined the pricing fundamentals of the US stock market. In this post I will look at possible explanations for the pricing.

  1. Don’t fight the Fed

The argument here is that the Fed is active in monetary policy to offset the negative effects of the recession. In the recessions of 2001 and 2008, interest rates were around 6% and could be slashed giving a huge boost to the economy. In addition, in 2008, the Fed began its expansion of its balance sheet and continued it with QE in 2010.

In the recession of 2020, the Fed’s tools are more limited but it is fair to say they are using them as aggressively as they can and have managed to get long term interest rates to fall despite the vast surge in government debt issuance. The question remains of why the Fed will be so much more effective now than in previous recessions as the forecasts and pricing suggest.

The argument that yields have fallen and so the yield on all assets should follow is decent and intuitive but doesn’t explain why pricing is so much more optimistic than in previous recessions. In the other recessions of 2001 and 2008, we also saw sharp falls in interest rates but the impact of the drop in growth and thus earnings vastly overwhelmed this. The argument to justify the current situation would have to be rather different, that earnings will not drop very much (unlike previous recessions) and that Fed intervention will be huge and long-lasting, despite a rapid recovery of the economy.

It is true that Fed intervention this time around is truly monumental, the increase in the size of their balance sheet is over $3trn in the past quarter alone. If you can remember as far back as the Global Financial Crisis, the increase of $1trn in the balance sheet was seen by many as dangerous and would inevitably lead to hyperinflation. It may indeed be true that this huge intervention has flowed through to other asset markets, driving this stock market rally, but I do not expect the rise to be permanent. I do not expect the Fed to keep buying $3trn a quarter in financial assets to support the markets, particularly if the analysts are correct in expecting profits to immediately bounce back.

  1. Private investors

This is an argument I find rather appealing. Fiscal transfers from the US government, in response to Covid, have been massive but poorly targeted. For example, the PPP (Payroll Protection Programme) came in the form of forgivable loans which did not have to be fully spent on payroll. Much of $500bn PPP has been in effect gifts to affluent people who do not need it to support spending.

Overall transfers from the government have been over $1trn, whilst spending has fallen by nearly $400bn. This leaves a lot of extra cash sitting in the bank accounts of affluent people and since they are not spending it, they are investing it. I would suggest in equities and putting that much money into the US market in a short time is going to have a large impact on the price.

Looking more closely at the typical small investor in the US, there has been a recent move to choosing their own stocks. They will tend to pick stocks they have heard of, that has been rising rapidly, that is sexy. They buy tech stocks like Amazon, Apple, Google, and Facebook. They even buy Tesla because Elon Musk is so often in the headlines and he makes it sound like a tech stock.

This is a classic bubble environment. A rapid influx of new money causes a spike in prices, whether it is art, vintage cars, fine wines, or stock markets. Tesla is now worth more than all the other car manufacturers in the world combined while producing less than 1% of the cars. It takes a lot of effort to find a fundamental rationale for that.

Has the US stock market disconnected from the real economy? Part 3

In the last two posts, I examined the fundamental basis for earnings of the US stock market. In this post, I will look at pricing and to what extent the market is discounting any of the risks highlighted.

Given that we have been looking at earnings already, all we need to get to the index price is to multiply by the Price-Earnings (PE) ratio from the chart below.

It is clear from the chart that PE ratios have been rising as confidence in the durability of profit growth has cemented. The current pricing levels are such, that even if earnings do return to record levels in late 2021, we would still have a PE ratio at the highs of the last decade.

This suggests that far from pricing any risk that NIPA data might be correct, or that the earnings drop might resemble previous recessions, the market is currently fully pricing a return to record profitability and excellent growth in profitability to continue from there.

I would rate stock market optimism as extremely high.

Has the US stock market disconnected from the real economy? Part 2

In the previous post, I examined the relationship between the economy and corporate earnings and showed that we should be sceptical about the numbers reported by companies as “earnings”. Profits, as measured by the national accounts data, not only suggest profits might be 30% lower than companies represent them to be but that they have also been declining for the past few years, rather than ever rising to record highs in the earnings series.

In this post, I will leave aside scepticism on historic reported earnings, and instead examine the impact of the recession on earnings and what we should make of current earnings forecasts. The chart below shows GAAP earnings as a percentage of sales, including the current forecasts to 2021.

Looking at the last two recessions, we see what we would normally expect. Profits and profitability hit hard, taking about 4 years to return to the levels before the recession. The depth of these earnings recessions corresponds to the depth of the economic recessions, with 2008 being much deeper than the recession of 2001.

If we look at the current recession, the market professionals who forecast earnings and the economy are expecting a completely different outcome. Despite this economic recession being far deeper than that of 2008, in fact the deepest since the Great Depression of a century ago, earnings are not expected to fall far. In addition, they are not just expected to quickly recover to the historic average of around 8%, but back up record high levels of profitability of over 10% before the end of 2021.

Have US companies disconnected from the real economy?

The chart above suggests that the drop in profits so far is entirely consistent with what we would expect in a recession. However the forecasts for profits to return to previous highs within 2 years do not tie up with examining previous recessions. These suggest a much longer recovery of 4 years but also that the current fall in profits may not be over.