Month: April 2020

Thanks to an article in the Financial Times this past weekend, I stumbled upon some research conducted by Daniel Kahneman and Alan Krueger published in 2006 in the Journal of Economics Perspectives. Kahneman received the Nobel Memorial Prize in Economics in 2002 for his decades of work in the field colloquially referred as ‘behavioral economics’. Anyway, Kahneman et al in the aforementioned study asked 909 working women in Texas about their emotional experiences during an average working day. The top 5 activities that provided the most positive effect for the respondents were intimate relations (I presume they meant sexual relations), socializing after work, relaxing, dinner and lunch. During the government imposed lockdown in South Africa I guess we could still enjoy four of those five activities, and also assuming that we and our partners are still communicating. The bottom five activities were morning commute, working, evening commute, childcare and housework. Oops, that’s trade off in the lockdown – no commuting but lot’s of childcare and housework for many.

Post the coronavirus, whenever that may be, our daily activities and patterns will definitely change. Personally, I foresee more online interactions (meetings, education and training and online purchases). I also look forward to tons of more exercise and outdoor activities. And perhaps a glass of chilled chardonnay if the government lifts this prohibition, which is treating its citizens as adolescents.

Moving from morbidity (the rate of disease in a population) to mortality, I did some research yesterday. According to Statistics South Africa (StatsSA), South Africa recorded 446,554 deaths in 2017 and the leading causes of death were:

Non-natural deaths include those from traffic accidents, homicide, suicide and other fatal injuries. That’s astonishing, particularly compared to statistics in first world nations such as the USA. PS. 18,837 people passed away in 2017 in South Africa due to influenza and pneumonia.

According to Dr. Bhattacharya, a professor of medicine at Stanford University with a Phd in economics, COVID-19 is highly infectious but is only likely to kill 1 or 2 persons per 1,000 of infected victims. Check out the youtube video of an interview of Dr. Bhattacharya posted on 17 April 2020 (https://youtube.be/k7v2F3usNVA), it provides fascinating insights into COVID-19. If I recall, it is a 42 minute video clip but hey, we are in lockdown and we may be running out of decent things to watch on Netflix and DSTV. In short, the takeouts from the interview with Dr. Bhattacharya include:

• The virus is more widespread than we think
• The mortality rate is unlikely to be anywhere near the WHO’s initial estimates of 3.4% and is more likely to be in the range of 0.1% to 0.2% of people who become infected, effectively meaning that this a bad strain of flu and people will die from it but not in numbers that is being bandied about in the press
• Eradication of the virus is unlikely until an effective vaccine is developed, probably years away
• It is unknown whether recovered victims can be re-infected, unlikely but not proven yet (which means the herd immunity argument falls flat until it is proven that we can develop immunity against COVID-19)
• Lockdowns are effective but only to allow healthcare facilities time to prepare to care for patients needing treatment.

So some good and some bad according to Dr. Bhattacharya. I think very encouraging actually.

Getting back to the morbid stats in South Africa. The causes of deaths amongst 15 to 44 year olds in South Africa in 2017 is highly distressing.

The percentage of deaths in this age category due to non-natural causes is highly disturbing. Also, the number of people dying due to TB and HIV related causes is tragic.

Crossing the ocean to the USA, the number of deaths there in 2017 was 2.8 million people out of a total population of 325 odd million. That means approximately 0.87% of the USA population passed on in 2017, which is higher in South Africa (0.78%). However, the average age of death and cause of death in RSA are profoundly different to the States. The main causes of death in the USA were heart disease (23%), cancer (21%), and accidents and suicides (8%).

There has been much talk in the press about the impact of lockdowns on the global economy. There has been much speculation about the extent of GDP contraction. We don’t know yet but it could get very ugly. The number of unemployed people in the USA at the end of 2017 was 5.7 million according to the U.S. Bureau of Labor Statistics. That number increased to 7.1 million people by March 2020. In the past 4 weeks, 22 million US citizens have applied for unemployment benefits. That is unprecedented. I pray that the RSA government, our business and community leaders are ready for the challenges that the COVID-19 virus and the lockdown will have on our already high unemployment levels and the economy in general.

We are living in unprecedented times. It is day 19 of the lockdown in South Africa with hopefully only another 16 days to go. We are not sure what will happen thereafter but I have been impressed with Professor Salim Abdool Karim, chairperson of the Ministerial Advisory Committee on COVID-19. He appears calm, honest and highly competent. Unlike some hacks on WhatsApp groups and social media, who spread fake news and fear as fast as Trump can tweet. It is absolutely ridiculous to read investment banking  professionals proffer about the coronavirus as if they are experts in a highly specialized field of medicine. Even esteemed scientists such as Dr Tim Noakes is getting into trouble by mouthing off about stuff in which he is not an expert. The quality of journalism has also rapidly declined in recent weeks. I read a lot including Business Day, Financial Mail, Daily Maverick, Daily Friend and the Financial Times. I often find myself stopping reading a quarter of the way into articles these days. Perhaps it’s reading fatigue or perhaps it is the robots who have replaced some of the journalists.

I hope for a kickstart to the economy sooner rather than later as I fear for the long-term economic consequences of a prolonged lockdown. I fear for outbreaks of social unrest as people get hungry and frustrated. The ‘securocrats’ are not helping either by banning the sale of tobacco and alcohol. History teaches us that in the long-term, prohibition is a very bad idea! Ricardo Hausmann, the esteemed Harvard economist has referred to the moral dilemma of a 10% chance of dying from the virus versus a 100% chance of dying of hunger. That’s a bit dramatic but I get the point.

I follow stock markets closely for both professional purposes and to liven up debates in the classroom. Over the Easter weekend, I downloaded stock market data from the USA and South Africa and got busy with an Excel model – refer attached S&P500 and JSE ALSI data (2007 – April 2020) should you be interested in the market gyrations. I decided to focus on the JSE all share and S&P 500 indices over the period 2007 to 9 April 2020. The start date of 2007 was chosen because of my morbid fascination of pre-Zuma and post Zuma eras. Bit like BC (before COVID-19) and AC (after the coronavirus). The chart below tells an interesting story…

The stock market correction in late 2008, after the banking alchemists’ greed overtook their moral compasses, is evident. What is interesting is the red lines in March/April 2020. The extent of market reaction seems more severe than in 2008/2009 and that’s before knowing what the real impact that COVID-19 will have on global supply chains and trade in general. Many are speculating (those are the articles that I quickly glance over) but that is a pointless exercise except for those hard working executives running proper businesses.

I then extracted the 10 worst trading days on the JSE and S&P 500 (the index mimicking the 500 largest listed companies in the USA). In South Africa, the top 10 worst days were equally divided between the global financial crisis of 2008 and the current corona mayhem. The 12th of March 2020 (the date the World Health Organization declared COVID-19 a pandemic) was the largest decline in the ALSI over the past 14 years. Sadly, the JSE is down 17.8% year-to-date in 2020 or 75.5% in the case of Sasol (ouch, eina, bliksem). I checked some other noteworthy dates:

10-year government bond yields in South Africa appear disconnected to stock market movements, reacting more to local political events. The long-term bonds declined by 10.7% on 10 December 2015 after the infamous sacking of finance minister Nene. The yields declined 9.3% on 21 January 2020, presumably after that Bruce Whitfield interview at Davos? Unfortunately for you and me, government bond yields have deteriorated by around 18% in 2020 in response to the pandemic. The Reserve Bank keeps lowering domestic interest rates (thank you) but international investors make up their own minds.

The largest daily declines in the S&P 500 index over the past 14 years are set out in the table below.

It is carnage out there on stock markets. If you are currently invested in equity markets, do not listen to the noise. Your financial advisor is probably confused and rattled too. Like the COVID-19 virus, we are in for the long haul. Stay safe, wear face masks, practice social distancing and abide by the lockdown rules (even if you disagree with some of them). All the best from BeechieB.