The clash of the curves

After yesterday US congressional leaders agreed on a relief package for the US economy of historic proportions, another critical milestone has been passed. The fiscal and monetary firewalls that have been erected should be sufficient to allow the economy to hail from a sudden slowdown in activity. However, there is still a fundamental unknown to be solved before we can affirm that financial markets have reached a floor, which is the duration of the health crisis.

The contagion curve of the new pathogen is a live reminder of the power of exponential growth, like the history of rice and the board about the origin of chess. It cannot be said that governments were not aware of the risks; what happens is that mathematical models of viral replication are very sensitive to a couple of parameters, and most of their scientific advisers were counting on containment measures to be sufficient.

The virus has caught us by surprise by triggering critical bottlenecks in our healthcare infrastructure, as even the most forward-looking healthcare systems in the world, are currently at risk of being overwhelmed by a wave of patients in need of hospital treatment. This is the main reason that has forced governments around the world to pull the emergency brake, and implement confinement measures unthinkable a few weeks ago.

But the war is not over yet. Against the contagion curve we have a much more powerful tool, our collective learning curve. The measures initially put in place to combat the spread have not differed too much from those used in the Middle Ages; but no other living being learns as fast as we do. Just two weeks after the new virus was detected, Chinese scientists published its complete genomic sequence. One month after the “spike” that characteristically covers the virus was sequenced, the first clinical trials for a vaccine had already begun. And today, countless scientists are in a frantic race to find a treatment that can help flatten the contagion curve.

Beyond the therapeutic front, there is a great mobilization in the industry, where production facilities are being retooled to manufacture the medical equipment that is in short supply, from protective material to ventilators used in ICUs; and with this, progressively eliminate bottlenecks.

Finally, there is so much at stake, that we can still improve a lot in the way of tackling new infections, selectively isolating only people who are sick or at risk of contracting the disease. Great strides are being made in increasing the production of the Covid-19 tests, which, combined with the application of tracking software, as they are doing in China and Israel, will allow to relax restrictions on people’s movement and reduce economic damage.

Hidden in our caves these days, it is easy to fall into a gloomy vision of the future, in which during the rest of the year we will suffer intermittent quarantines, while the economy goes down the drain. But there are many reasons to be optimistic. Our society remains cohesive, showing moderation and discipline, as well as great displays of solidarity. And even despite initial hesitation, politicians and central banks are in their finest hour; another sign that we learn fast, since we do not want to repeat the mistakes made during the financial crisis.

Dr. Fernando de Frutos
Chief Investment Officer, Boreal Capital Management AG

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