26 April 2020
Each Sunday, a friend organises a two-hour call for friends (many of whom are senior figures from finance, industry, and academia) to hear 10-15 experts talk about the COVID-19 crisis. This has now grown to more than 1,000 attendees, with a consistently all-star cast of speakers drawn from many different fields.
Tonight’s installment, the sixth in six weeks, covered wide ground, albeit largely focused on the US:
- A CEO of a major home builder talked about the surprising resilience of that industry
- A CEO of a major US oil company talked in detail about the dynamics from the producer’s point of view; contrary to what we’ve read in the media, shale producers are able to shut down and start up quickly and at low cost.
- We heard about the impact, and the outlook for, Major League Baseball and for summer camps.
- A former head of a major international, multilateral financial institutional talked about the very limited international response to support poorer countries compared to 2008-9.
- An expert on the pharmaceutical industry talked about how vaccine development is working, and why he’s both optimistic that we will get one or more vaccines over time, but sceptical that we will have one soon. Even having one early next year would require enormous luck.
- We also heard from a sociologist, a practicing doctor, a leading forensic pathologist, a statistician from the pharmaceutical industry.
As with past conversations, it was held under the Chatham House Rule, meaning I can share a summary of the content but not the names of the participants. I have removed obviously identifying details as well. As with each of these, the notes are as near-verbatim as I can make them, and almost real-time (apologies for typos).
In the summary below, note that questions listed at the start of each section were pre-submitted by organizer to the speakers; not all were answered. Questions inline were asked live. At the end is a Q&A; I was not able to identify the respondent in each case.
Topic: Homebuilders and the Pandemic
Bio: CEO of a large US home building company
1. Is construction continuing despite the shutdown?
2. Are subcontractors coming to work?
3. How is the supply chain for equipment and materials?
4. Are customers of homes who put down payments asking you to terminate the contracts?
5. I assume no new buyers have arrived to buy homes, so what do you think your industry’s path to recovery.
6. Do you think the very low mortgage rates will stimulate demand?
7. What happens when someone comes down with the virus who was working on the site?
- Home builders are building in 45/50 states because deemed an essential service.
- This company has > 1K houses being built right now.
- Construction continues essentially unchanged.
- We and other companies have new rules in place to ensure social distancing
- Most workers are coming to work; they are paid hourly or by task and need the paychecks. They’re happy that they can work.
- Supply chain is a “new adventure every day”. Had shortages and delays originally.
- Large manufacturers built up inventory in Q1. Not yet a problem but we worry about it.
- We’ve seen cancellations increasing, but not as much as feared. Highest and lowest price points hit the most.
- We have low cancellations from job loss; job loss is concentrated in low-wage jobs who don’t typically buy new homes
- Greatest rate of cancellations comes from the mortgage market where there is significant tightening of standards.
- New buyers? Yes, every day.
- Path to recovery? We started from a strong position, so there was a significant pre-sold backlog.
- Large builders have strong balance sheets and low leverage.
- We will see some declines in revenue.
- Path to recovery is consumer confidence, which requires that unemployment decline.
- Strangely, COVID has helped our industry. It messed up the used market where there is a severe shortage so pu
- Shelter in place meant that illegal to have open house, so used home sellers withdrew listings; shortage helped home builders
- People spending a lot of time in their residences and many will want to move.
- We think people will move back to the suburbs.
- Blizzards, shelter in place result in a mini-baby boom which helps home builders
- Mortgage rates do stimulate demand but they’ve been low for a long time. The main question is qualification for mortgages.
- What if someone gets the virus on a site? We usually only have one trade on site at a time, and people are being good about social distancing. If someone got sick we might not even hear about it from the subcontractor. Have heard of very few cases so far in our teams or our subcontractors.
- Q: The CARES act has a mortgage forebearance provision, and you say that that has scared lenders. What kinds of applicant is facing pressure?
- A: Through FHA, you could have gotten a loan with a 580; now that’s 620. Debt-to-income ratios have been reduced. Hitting first-time buyers and lowest-income buyers.
- Q: You mentioned that existing home sales are down; isn’t that a temporary phenomenon? Will home building have a problem after we reopen?
- A: Big question, People wanted to sell in spring, the traditional selling season, who have not been able to . But COVID won’t end overnight. The supply will come back over time. Eventually there will be a lot of sellers, but not a spike.
Topic: The energy market and the pandemic
Bio: Board member of an international information company; author of books on energy.
- What does this mean for the future of oil and the future of fracking?
- Is it true if we shut down a fracking well, the economics make it nearly impossible to reopen?
- Is the WTI contract broken and how would you fix it? Should we say it has some minimum value like $0?
- What are the political implications for lower oil prices on the regimes in Saudi Arabia, VZ, and Russia?
- What does the future of energy market look like? Has oil fallen in price enough to make alternative energy sources unattractive or not?
- What are the implications of cheap, readily available energy on how the world functions?
- Historically global oil demand has increased 1-2% a year, global depletion rates run approximately 5%. So global oil industry demand growth is really 6-7%. Big oil cap ex typically rises to meet this demand. However due to covid, global cap ex has been slashed to maintenance levels. What is the risk that the price of crude hockey sticks in 2021-2022? What is your prediction for the price of oil in the intermediate term?
- Today a CEO of a major oil company said to me that what has happend was not within anyone’s imagination of what wa spossible.
- Phase 1: shutdown of China. 6M out of 100M b/day disappeared of demand. Then the OPEC meeting in Vienna — thought this would hurt US shale
- Phase 2: now. We think world oil demand is down ⅓ , 30M b/day. Gasoline down more than down 97% in the US.
- US Senators no longer willing to fund Saudi Arabia
- Big exporters couldn’t sell oil
- Trump used his influence to get the 9M b/day cut in place. There will be other cuts and declines
- But that only addresses part of the problem.
- We’re running out of storage. Big problem. That’s what happened last week to someone who had to pay $40/b to get rid of their oil.
- 22 Tankers off the coast of Long Beach are full.
- Production will start shutting down.
- Then there will be a natural decline in the US, around 3M b/day. In Feb we were at 13.1M b/day, more than Russia and Saudia Arabia — a record. We will still be a major producer but it will be a decline.
- Future for US shale industry? Access to capital will be a big issue.
- Now it’s Russia + US + Saudia Arabia who are the big three; it’s not about OPEC vs non-OPEC anymore
- Q: 97% reduction in air travel. So there will be lots of jet fuel with no demand. Is that hard to store?
- A: Creates a problem because you’re producing a bunch of different products. These companies have to think about employees getting sick too. Refiners are cutting back on output.
Topic: The Oil Market
Bio: President of major oil company
- Given the massive decline in oil production, there is a glut and a demand for storage. WTI futures for May delivery traded as low as MINUS $40 per barrel. What do you think caused this negative spike? Is marginal storage unbelievably expensive? Does this mean that production needs to be curtailed immediately?
- Some experts have said that it is very expensive to shut down some fracking sites and too expensive to reopen, is this true and what does it mean? Will non-fracking sites be closed first?
- What are the implications for the short, medium, and long-term for US production?
- Is oil going to stay inexpensive for a long-time and what does this mean for oil substitutes?
- How is Hunt Oil going to take advantage of these market inefficiencies?
- Private company
- Negative WTI? Most oil and gas companies are paid on a 30-day average of monthly prices. So few companies actually had to pay $40/b. It goes into the average.
- People who were trading in future contracts lost out.
- Futures prices are set for delivery of oil at a specific location. When prices are very low, <$30, and you take it back to the wellhead, even the most profitable welljheads are only making a few $ per barrel. And then you have storage costs.
- People will have to decide whether to pay for storage or shut wells.
- Take a specific field that is a mature field where we have reduced production dramatically. We have some storage on site and can make it through May and then decide whether to sell or shut the well. Some we will shut in because not economic; most will operate at reduced capacity.
- Storage and curtailment — want to avoid making large generalisation and large policy decisions about across-the-board cuts. Producers will make individually rational discussions.
- Unconventional wells? Shutting them? They need help to produce (e.g., fracking); they don’t flow on their own. Mechanical pump or some other activity to cause it to continue to pump. Makes it easy and inexpensive to shut off and to turn back online. We do this all the time, on a daily basis.
- Q: We sometimes hear that it is expensive to restart? A: That’s not true. As a general rule, it’s more expensive to shut a conventional well since they’re large and they flow naturally on their own; risk of blowout because of pressure.
- Q: Natural gas prices are going up. They are a by-product of oil being produced.
- A: The idea is that there is so much natural gas that is a by-product of west texas production, but you still need demand. Don’t think the price will move that much.
Topic: The Pandemic and Major League Baseball
Bio: Senior executive at a MLB team in a hot state
1. Do you think you could have a baseball season without fans, played in AZ or Florida?
2. What would it take to reopen the ballparks and have fans in attendance?
3. Would you consider spacing out the seating?
4. The world is not a safe place and never can be, but we want to watch baseball and eat hot dogs, so what do you think will be an acceptable risk for our society?
5. Should we replace the umpire with a machine?
6. There is little league, high school ball, college ball, minor leagues and major league baseball Should there be different criteria for each to play? And why?
- Need better testing — more and better accuracy
- Governor will decide who can open
- Not optimistic. In June/July temperature is too high for day games. Few covered stadiums.
- A more likely plan is three central locations across the US, that would make start times work for TV.
- But more likely, teams play in home ballparks. Will happen without fans
- California is not moving quickly, they might have to play away.
- To reopen with fans? Would require serological tests to be better and easier to get to. We can’t put fans there unless we know they have tested positive and had some kind of an all-clear.
- Safety of players and support staff is critical.
- Don’t want a situation where the champion team is the luckiest team rather than the best team — in terms of which players can play.
- Replace umpire with machine? Mostly, yes — certainly automated strike zone. Still need an umpire for other reasons. The technology is getting more precise.
Topic: Summer Camp and the pandemic
Bio: Camp Director and Owner
- Why is camp more important than ever?
- Are kids going to go to camp this summer?
- How can we keep campers and counselors safe?
- Camps are >100 years old. Were a way to get kids out of unhealthy areas in poor urban areas, the polio scare too..
- We need a sense of returning to normalcy. Camp could be part of that.
- Also a place to heal. “Emotional restoration”
- Camps are also small businesses, an $18B industry that employs lots of people in rural areas.
- Will kids be able to go to camp this summer? Fluid situation.
- CDC doctors were working on schools, now working on camps. We will hear in the next week from them and from our governing body, a set of initial guidelines.
- Can we create a safe baseline, e.g., bring in staff 20 days ahead of time? Antibody testing? Testing kids as they arrive? Ability to isolate kids if necessary, send them home, etc?
Topic: Multilateral Institutions Response to the Pandemic
Bio: Former Chief Economist at major investment bank ; former senior executive at a major international financial institution
- Any progress on what the IMF plans to do to help out the emerging market economies?
- Do you think there is US political interest in helping out developing countries in this crisis, or do we want to spend the money closer to home?
- There are complaints by the administration that China has co-opted multilateral institutions like the WHO, do you expect similar complaints about the IMF and World Bank? What are these institutions doing to insulate themselves from the Chinese? Is there anything nefarious out there, is it a witch hunt, or do the Chinese and the Americans have different objectives for these multilateral institutions?
- We expanded the swap lines at the beginning of this crisis? If the President or leaders of the Republican congressional teams become aware of the unlimited exposure to the swap lines, will they be pulled or limited? How did these expanded swap lines get past the politicians? And do you think there is general public support for unlimited swap lines? What do you think happens if we expand the swap lines to a non-creditworthy nation?
- Contrast GFC actions to today. In 2008, $1T in new resources for the IMF and multilateral development banks. $250B SDR, special drawing rights, new funds to IMF membership and useful to low-income countries. New facility, flexible credit line, cautionary facility used right away by Mexico and Columbia, successfully. Zero-interest rate loans for poor countries.\
- This time around? No new regular resources for IMF or MDBs. Some pre-existing facilities were extended. The new facilities were very limited. The only new thing was that two pre-existing trust funds that subsidize borrowing from the IMF by poor countries — the 76 poorest countries. No actual new funds provided, just suggested that folks donate. The US is “considering it.”
- So nothing like the interest in helping out like what we say in 2008-9
- G20 ministers endorsed a debt service moratorium on debts to the IMF and other MDBs. Similar recommendation to private lenders.
- The US mainly helped via the Fed: Swaplines to 14 countries, “favored friends of the Fed.” Only the Fed board knows which countries are members and what the critera are. Emerging markets: Brazil, Korea, Singapore, Mexico (?).
- Most interesting is two things:
- G20 ministers pushed back meeting to 2023 the next IMF quota adjustment, previously agreed in 2010, was supposed to be done by 2012. Important because the US has the biggest quote followed by Japan and China. China doesn’t want to be 2 but they will become that next time.
- Largest single lender to low-income countries is China. China has always taken the position that this is a sovereign issue for them. Eg debt restructuring through the Paris club, which gives transparency and pari passu terms when restructuring is necessary. China is not a member of the Paris club, and their attitude is that they do it bilaterally and in secret.
Topic: Sociology and the Pandemic – Who is most at risk and what are the implications of people living alone and in isolation.
Bio: Professor of Sociology; author.
- What lessons from the Chicago heatwave can we apply to the Covid19 pandemic?
- There are always different subgroups that will have worst mortality, in the Chicago heatwave it was African American men living alone in SROs. I would suspect that this cohort is probably doing relatively poorly today. What can we do to help our most risky populations, or do you believe the dye had been cast and there is little public policy can do. This isn’t like asking the mayor to open up move theaters so that the men without air-conditioning wouldn’t die from heat exhaustion.
- In your book, you discuss the implications of more people choosing to live alone and not couple up. You describe the choice as both informed and for the better for those who make the choice. One potential surprise of the pandemic is that if we enter into a long-term shelter in place this might result in greater isolation for the solo population. How do you think that the pandemic is affecting the solo-crowd and have they adapted in other ways to deal with the crisis?
- In many extreme events, our failure to take early warnings seriously and rely on the best science to guide policy has hurt us. In the heatwave local leaders failed to react despite clear early warnings.
- Heat kills more people than all natural disasters combined.
- 1995 heat wave was a catastrophe.
- What killed people in the end in 1995 was social isolation.
- There was enough cool water and airconditioning. Lack of social connection and support killed people. Isolation meant people were overwhlemed and didn’t have support.
- Early in this crisis the WHO and other bodies told us that the way we needed to survive was social distancing. I think it’s a horrible idea.
- We need *physical distancing*. Social distancing implies hunkering down and turning our backs on others. We need social solidarity.
- Subgroups with vulnerability? African Americans, Latinos having terrible experience. High incidence and high mortality.
- Extreme events are important to sociologists–they are like particle accelerators.
- NY: hard-hit populations have difficulty sheltering in place, stocking up, finding private space. Crowded housing units where even if you can stay home others are going out and putting you at risk. Higher use of public transit, which is still very crowded in NY. Least likely to have access to routine health care. High rate of underlying conditions.
- Disparity between public and private hospitals.
Topic: How to keep running a doctor’s office for children despite a pandemic
Bio: Board certified in 5 fields including immunology; runs a doctor’s office.
- Why is your office safe? And why is this a model for other service businesses and other doctor offices?
- Implicit in your doctor’s office analysis reflects your belief in the value of masks, temperature taking, and good cleaning of surfaces. Why do you think these methods have real value and how much does it truly reduce the risk of infection.
- No office environment can be riskless, how should we evaluate what is the appropriate risk? Is a doctor’s office a more necessary place than say a hardware store or a school? And should be willing to take more risk in a doctor’s office because of the benefits to health that accrue to patients?
- There was a study of asymptomatic cases in a grocery store in NY that suggested that 20% of NYC residents have been exposed to the virus? What do you think of these sort of studies, and if so why do you think the number of asymptomatic cases is so high?
- Built large facility with >10K patients. Many fly in.
- Starting in first week of March, started putting out timeline of what would happen next.
- Developed SW to track the screening of each employee and patient.
- Changed physical environment of our physical facilities to reduce risk.
- Haven’t let go any employees.
- 100% patient retention. They are still flying in to keep their children’s appointments.
- Hope to be back at normal capacity next month.
- Think it is possible to remove COVID risk in the workplace.
- Asymptomatic cases in NY? Very common to see people shedding viruses on a regular basis. Need to patient large groups of individuals to know true shedding risks.
Topic: What can pathology teach us about Covid19?
Bio: Leading forensic pathologist in the US; prolific author
1. In 1918, the medical community did not understand what killed the Spanish Flu victims, and it was the pathologists who were able to provide an explanation.
2. What can pathologists teach us about Covid19 that might be helpful in either treatment or prevention?
3. What have you heard from the overseas pathologists, and is there a difference in the autopsy results in Wuhan vs. Italy vs. USA?
5. There are a lot of theories about how Covid19 is killing its victims, but can pathologists tell us what is precisely causing the death? Can pathologists detect or determine the mechanism of injury?
6. Why are Kidneys getting injured? And do we understand the process of why kidneys are damaged?
7. Are we treating the injury improperly as if it were ARDS with ventilators and if it is not ARDS what is it?
8. Can pathology point us into a different therapy or different mechanism of action for Covid19?
- Spanish Flu: pathologists, as today, study cases in autopsies. The techniques are largely the same.
- What can we learn? We apply gross + microscopic inspection, correlate it with clinical information, and put together the CPC. No difference in how this is pursued in other countries. Same process in China.
- How does COVID19 kill? It’s different. I have a lot of data on this. We are seeing changes that are different than with bacterial and viral pneumonias. We get a lot of cytokines, huge outpouring. They do damage because they result in damage cells accumulating in the alveolar sacs. This is where the O2/CO2 exchange is made; when the wall is damaged, it compromises things.
- We’re learning that the virus can attack organs directly — the kidneys, even the heart. One report of the eyes as well. Extremely contagious, and can damage various organs.
- Use of respirators helps in many cases, in others it does not.
- As the denominator increases, the mortality rate will be lower than predicted.
Topic: How can we make good estimates of the parameters of the epidemic?
Bio: Retired statistician from major pharma company; author.
- We are throwing the kitchen sink at the virus, how can we tease out what is working when we are using so many different combinations of treatments?
- Is the medical community keeping track of what treatments that we are using, and also aware of what morbidities the patients have?
- The hospitals are chaotic, can we be sure that record keeping is sufficient?
- Are we going to be using the law of large numbers and regressing the inputs?
- To what extent will the studies show treatments that have been proven helpful purely by anecdote?
- How will Bayesian priors play into observational studies as doctors will tend to move in the direction of what appears to be working?
- Cochran talks about using blocking, which he means that when two patients enter the hospital with similar general characteristics (age, morbidity, and extent of virus infection) you split the two and give them different treatments. The other concept is to use randomization for minor sources.
- How do we know if a given drug is helpful? Traditionally we run large-scale double-blind clinical trials. That takes a long time; and patients are dying now. Is there another standard?
- 1952, Willian Cochran faced a similar situation. Noticed that many families that moved from the slums to a new housing development were breaking up. There was a new measurement of “family cohesiveness” that they wanted to use; but they could not assign homes at random. Families that moved into new housing first would by definition be different than families who moved later — more aggressive etc. So developed the idea of an “observational study” where you don’t randomize in advance, just observe, and then try to create groups after the fact that differ only in outcomes but are the same in every other way. [CCN: this is like synthetic controls.] This has produced useful results in medical field and in others. Dedicated journal.
- Has been used to examine value in seat belts, for example.
- For COVID, we have one study which shows that more patients died when treated with chloroquine than those who were not; but they might differ in essential ways such as how sick they were.
- Q: Can you vary treatments to tease out covariance?
- A: You don’t intervene at all in Cochrane’s method. After the fact, you look at the characteristics of each patient. No random assignment. There is a Bayesian interpretation of this.
Topic: Survey of Progress in Vaccines for Covid19
Bio: Blogger on the pharma industry
- Which type of vaccine can get to market the fastest?
- Do you think, human trials will all be in developed countries, or do you think that experiments will be conducted in the developing world to cut corners, or has the developed world decided that the virus is dangerous enough to clear any reasonable vaccine for human trials?
- When would be the earliest we might have a workable vaccine with unknown side effects? And do you think we will allow vaccinations before we know the side effects?
- Do you think that the fastest to market vaccines can be mass produced in sufficient volume to help the most at risk patients and first responders?
- Do you see chaos around the fact that there will be small initial supplies of the vaccine? And will that cause an international incident if the country that is producing the vaccine will not share it with other countries before vaccinating all of its own citizens?
- Do you think we will have different vaccines for different groups of patients?
- How important is Bill Gates in the vaccine production process? How difficult is large scale production and does it make sense to follow 7 different vaccine paths to be precautionary, and do you think the large drug companies will end up producing their own vaccines without Gates’s help?
- Will the vaccine race be profitable for the manufacturers or will it be a charitable exercise, and is this fundamentally why vaccine production is suboptimal?
- Do you think that all the work on Covid19 will accelerate the research to have a universal flu vaccine? And do you think it will result in better vaccines for other corona-like viruses?
- We are trying every known vaccine technology simultaneously now; large number of studies. Hope a few will make it through.
- The mRNA might be the fastest but we don’t know if it works — no human vaccines yet developed this way.
- We’ll get through Phase 1 safety trials quickly and getting into at-risk populations.
- Earliest we can see even an emergency use authorization would be early next year. That would break every known speed record. That will only happen if everything works perfectly the first time, which it rarely does.
- That sort of vaccine would only have been roughly tested for safety. No time to do the multiple, wide-ranging vaccine tests that we usually do. That could take 4-8 years!
- Whatever comes out first will also be in short supply at first. We will have to plan for how we roll it out and to whom.
- Will it give enough immunity? Can we deliver it via manufacturing?
- Bill Gates is trying to fund a number of different types of manufacturing facilities, which is a great idea, particularly if we need to go to a different technology.
- Some larger producers may be able to handle it; they are ramping manufacturing.
- Don’t think anyone will make money on this. J&J has said they are doing it on a not-for-profit basis.
- This won’t help that much with flu or HIV — very different types of virus.
- Incentive is to find something that works to get the world back to normal.
- Could be more than one vaccine. Consider Polio where there were two vaccines, was unclear for some time which way to go.
- Expect high profile failures. Hard to predict.
- Optimistic that we will get something but don’t know when.