"When the facts change, I change my mind.” This is a famous quote from John Maynard Keynes, which is followed by the sardonic question, “What do you do, sir?” Very wise and, of course, very witty. It’s not, however, necessarily useful.
How do you know when the facts change? At what point does a trend turn? This is the problem any data analyst faces, and it isn’t an easy one. You are always making a bet here. The decision metric—at least my decision metric—has been to call for the most likely outcome, while staying alert for signs it is not happening.
A Look at the Facts
That process is what has driven my analysis of the pandemic here in the U.S. so far. My base assumption has been that we knew what to do to manage the virus, we would eventually do it, and it would work. That assumption was verified with the end of the first wave and then the second wave, as different parts of the country faced the virus and adapted. As the third wave proceeds, it is becoming clear that the facts have changed from the prior two waves. I will go into the numbers tomorrow, in the usual weekly update. But, briefly, what we are seeing is that this wave looks different from the prior two in three ways.
1) The weather. It was unproven whether colder weather and more indoor time would drive more infections. Now that seems to be the case. The facts are different now.
2) Containment measures. While containment measures are now widely known and proven to work, more and more people are ignoring them. This is partially due to politics but also due to simple fatigue. Everyone is tired and overwhelmed, and it is easy to slack off on precautions. I am guilty of this as well, although I try to guard against it. Once again, the facts are different now than they were in the previous two waves.
3) Case growth. Third, and as a consequence of the first two, case growth is much more widespread than before, creating new problems and making it harder to both control and treat the pandemic. Urban areas, the epicenter of previous waves, are easier to monitor and contain the virus, but we are still seeing a resurgence. Rural areas, where the virus is now most prevalent, have fewer treatment and management options. Because of this, case growth is now approaching prior peaks from July and rising at a faster rate every week. This will be harder to contain than prior waves, which raises the risks. Another factor driving this conclusion is that active cases are now rising again, as the new cases exceed the recovery rate. Again, the facts are different now.
Notably, this change has been ongoing for several weeks now, is supported by multiple factors, and is now significant enough to have real effects at a national level. With all three of these tests passed—of timing, of breadth, and of significance—it looks like the facts really have changed. The prior positive trend is no longer in place.
A Time to Refocus
Now this does not mean that it’s time to panic. Instead, we just need to refocus on doing what has been proven to work and on being cautious until it does. Case growth and risks are rising, especially in a number of states, but are still not where they were in July. We can take control of this again. It is just going to be harder and take longer than in the prior two waves. Medical risks are going to be more of everyone’s life again, and that will affect everyone.
It will certainly affect us as investors as well. Here, the likely result of this is that where the economy and markets had, in prior months, largely looked to be past the effects of the pandemic, we can expect the medical risks may take center stage again at some point. They are now showing up in the headlines, and we can expect markets to take note as well.
The Real Lesson
This is the lesson of the third wave. Much of the recent positive news may be at risk, and this is a change from where we have been in recent months. We need to change how we are thinking as well.