Note: This thread is related to #Coronavirus #COVID19

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Raoul Pal @RaoulGMI Founder/CEO - Global Macro Investor and Real Vision Group, Business Cycle Economist, Investment Strategist, Economic Historian, Traveller and Rum Drinker.. Mar. 04, 2020 4 min read

I think there is a a weird narrative still in place about the corona virus being no worse than the flu. This is the WRONG argument. The key thing to remember is that these are INCREMENTAL deaths and we have a small window in which to prevent the potential magnitude of deaths 1/

COVID-19 "only' kills some 2% of the infected. We don't know the true number of infected or true deaths as they may not have presented at hospitals or have been measured. We can assume that we had a similar margin of error for the Spanish Flu. The Spanish flu killed 40 million

people in 2018 and is considered the worst pandemic in recent times. It infected 20% of the global population (lowest estimate) and has a death rate around 2% to 3%, according to the WHO. It also had an R0 of around 1.8. 

Thus the Spanish Flu and COVID are similar in death rates but COVID spreads faster, and even taking to account the advances in modern medical treatments the death rate is 2.3%. Even considering the WW1 effects of Spanish Flu, the death rate was relatively "low" too.

Therefore IF it were allowed to spread in the manner of the Spanish flu, it theoretically should infect a MUCH higher number of people (with a slightly lower death rate thus far), and here is the rub, with a larger global population size the outcomes get scary fast...

If 20% of the global population was infected over this season and next winter (same pattern as Spanish Flu), it would infect 1.4bn people and kill 240 million

Considering global travel increases, its R0 etc it has hard to see how, if unconstrained, it would not affect 20%.

Remember - these are 240m new INCREMENTAL deaths in addition to the Flu, Cancer, car accidents, war, malaria or whatever.

Its also affects older populations more i.e it would disproportionally affect countries with ageing demographics - the Developed World.

But the fight to contain it lies in the less developed world and the Southern Hemisphere winter, where it can continue to spread to create

a very powerful second wave of infection, already stressing highly stressed healthcare systems after the first wave, increasing mortality rates in due course (exactly what happened with the Spanish Flu).

This is why we need to do EVERYTHING right NOW that we can to stop it.

But let's assume that we manage to curtail it by 50% versus the Spanish Flu, then it still kills 120 million.

If we do an 80% better job, it still kills 48 million (same as WW1 or WW2)

Or 90% better, it still kills 24 million.

These are NEW INCREMENTAL deaths.

This can have the same effect as a world war.

This is why governments are FORCED to act.

This is why this may well be the largest economic event of our lifetimes, in order to save the largest number of 1 year deaths our lifetimes.

This is why the it's just the flu narrative is the wrong argument.

This is why it is a Black Swan.

This all sounds alarmist even having discounted the numbers by 90%.

Let's hope Im wrong by 99% and it "only" kills an incremental 2.4m people. The only way to do that is to pay a massive economic price shared by all - a global depression.

Again, let's assume Im an idiot and scaremonger...

Then you still "just" get a global recession larger than 2008. Not an airline or an insurance company will be solvent, nor will the global pension industry (even accounting for lowered retiree cohort size).


**Clarification: These are NOT forecasts. We could be saved by a miracle of seasonality, genetics or other unknown factors. But the economic impacts of the actions governments have to take in order to potentially avoid these fat-tail outcomes are real and deadly.

***Additional Clarification: The reason the virus is lowering its spread rate in China is because they took EXTREME measures to stop it, by sacrificing the economy with the largest demand shock and supply shock in modern Chinese history. That is what it takes.

***Additional Clarification: I think my numbers are wrong on the total deaths. I stupidly used the Wikipedia stats on Spanish Flu 27% of the world infected so 500m but 30 million deaths estimated. That backs out to a death rate of 6%, not 2% to 3% the the article later states but

current death rate has been rising by WHO by 50% to over 3% so my numbers are 50% too high. Still, the point is valid even with 5am bad numbers. Apologies for confusion but this is why I discount everything by 99% point is not a forecast but risks.

You can follow @RaoulGMI.


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