Email of the day on COVID-19 from Dr. David Brown
Comment of the Day

March 02 2020

Commentary by Eoin Treacy

Email of the day on COVID-19 from Dr. David Brown


It's been a huge advantage for me as an investor in recent weeks that I also understand viruses very well. At one time in my career I led a viral disease research centre with 320 scientists and support staff. That was BSL3 level containment (HIV, HCV, Influenza etc). BSL4 required for coronavirus is a different game altogether. It worries me that the outbreak of COVID-19 started in Wuhan and only 300 yards from the 1st BSL4 lab in China that opened only 2 years ago. What a coincidence!

I am now doing different research (on rare genetic diseases) through my startup company Healx Ltd. Three weeks ago, I gave a presentation to staff about the virus for their own safety and for continued operation of the company if an outbreak occurs here in Cambridge. They may have thought I was exaggerating at the time. Today, things have escalated even more rapidly than I expected back then. However, we have planned for home working, and stocked up on all necessary supplies in the company. We have done the same at home too, though my wife also thought I was going a bit too far! I hope she is right, but it's better to be prepared for the worst while hoping for the best. 

In many ways this might be a worst-case virus in that it infects others while carriers are showing no symptoms, and the cross-infection rate is relatively high. Moreover, the death rate, while still uncertain, may be 10 times higher than seasonal flu. No one has any immunity. Moreover, COVID-19 seems likely to become an annual event and it will take a while to get vaccines available globally, maybe several years. To complicate matters further, it is certainly mutating at a fast rate so the efficacy of vaccines will be in doubt. 

For over 70s like myself and Ann, it is a high risk. Ann had severe pneumonia and ARDS last September - November, caught while on vacation in Sicily at a 'luxury' villa! During those awful weeks there were 2 times I really thought she might die. You may remember I missed the LPO memorial to David Fuller because of her illness. It still hurts that I missed his commemoration.

Ann has recovered now, though she's still underweight, and she must be at higher risk from COVID-19 than most people. I think she is slowly catching up with my caution about travel and mixing with people. I have cancelled all business travel abroad, and I will not run the Cambridge half-marathon next Sunday with 10,000 people! I will run 13 miles alone through our countryside instead.

Some good news is that February was one of my best months ever for investing. My knowledge of viral diseases and what was likely to happen led me to go almost totally cash before the market falls, close to the market peak and after good gains for the month; and I also took out short positions last Monday as markets started to fall. I suspect we may get a bit of a bounce in coming days following Powell's words on Friday, but I will be staying in cash and looking for more shorting opportunities after that. Long-term US Treasuries also look a reasonable play in coming months. Overall though I am happy to keep most assets out of the market for a while, maybe for several months. Capital preservation is more important when there is so much uncertainty and markets are going wild.

Stay well Eoin.

Eoin Treacy's view

Thank you for this informative and cautionary email. Also, congratulations on taking your opportunities in the market. The threat from the coronavirus is concentrated among older individuals with the median mortality age in the region of 75. That is cause for anyone within 25 years of that number taking extraordinary measures to avoid infection and everyone else should also take precautions to avoid passing it along to the most at risk individuals. The number of people who have recovered from the virus continues to rise in China but a serious infection would knock someone out for what could potentially be months, assuming they survive.

For our part we have bought a year’s supply of rice and about six months supply of protein powder, dried & frozen fruit, oatmeal and a mountain of fine chocolate on the rationale that if there is cause for a quarantine there is no point being miserable. We have had surgical masks in the house for years, because of Mrs. Treacy’s jewellery making so that was not a concern.

The market right now is behaving as if the Chinese data of a peak in the growth of the infection is reliable. We are not yet at that point internationally. However, China’s outperformance at present is at least in part due to monetary and fiscal stimulus but also because the infection growth rate has possibly peaked. It is reasonable to expect we will see a similar reaction once the international growth rate peaks. At that point there is likely to be a plethora of value opportunities in the market on a relative and absolute basis. Arguably there are plenty around right now.

The big question the majority of investors are asking is whether the raft of support measures being prepped for release will be enough to forestall a recession. Generally, speaking it is usually when central banks panic and announce emergency cuts that the stock market takes fright and the yield curve spread surges higher. That is still an important measure to monitor for signs of how investors are absorbing the news of extraordinary assistance. Right now, it is relatively well contained.

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