Random Thoughts – After the Crisis, Opportunity

After the Crisis, Opportunity

The pandemic has created the opportunity for an economic and social reset. The question is whether politicians will grasp it. Are we too focused on repairing yesterday’s world rather than building tomorrow? The biggest danger is being short on effective action. The risk is not on the left or the right —  it’s inaction.


The Pandemic

Covid-19 has changed the trajectory of three big forces that are shaping the modern world. Globalization took a hit. The digital revolution has been radically accelerated. And the geopolitical rivalry between America and China has intensified.


The pandemic has compressed years’ worth of transformation into months, bringing with it a dramatic shake-up in how people live, what they buy and where they work. Fortunately the Internet we have is just good enough to make it happen. It’s not perfect, it’s not great, but just good enough to make it work. I don’t think we could have handled it as well five or ten years ago. With everyone on Zoom and Netflix at the same time, the whole world would have broken.

China

The Sino-American rivalry will continue. I don’t think Biden is in a rush to removed the tariffs imposed by the previous administration. The United-States and the world is suspicious of China. Despite for all its “vaccine diplomacy”, China inspire fear and suspicion. That means once again America will have disproportionate ability to shape the post-pandemic world. The world is splitting in two parts. One American led, the other Chinese dominated. The digital world and supply chain is designed by these two countries.
How should the US approach China? First, through diplomacy. The US need to strike a bargain with Europe (+Canada and Oceania) and form a new global alliance, binding Asian democracies into the Western coalition to counter China. Second, the U.S. and China need to send their top three diplomats on an island and workout a deal.

What’s next?

All these predictions about what the world would like post-Covid, as usual, is all nonsense. It’s just filler material. Nobody really knows. Some say we will return, eventually, to what we were before. Others say no way, we are not going back into offices and stores. But the truth will be somewhere in between. 

Vaccine

The good news: We will have many more vaccines in the next six months to complement the successful candidate from Pfizer-BioNTech. That is the testament to the power of scientific collaboration. Vaccines used to take 10-20 years to create, but today there are more than 320 projects, including dozens in advanced clinical trials. As teams attack the virus from different angles the work yield considerable advances in vaccine research.

The bad news: The distribution is an absolute mess. We can’t get it to people. For a world that desperately needs to be vaccinated, looking into this is a frustration trigger. 

I don’t pretend to know all the answers but I can point in the right direction: Israel. From the start they administered over 150,000 shots a day, multiple more than any other countries on earth. Let’s take what they do right and apply it.

A big difference is in their approach and attitude. Israel is in a constant war state. Their government in collaboration with the military are drilled in getting things done. Because they are surrounded by people that wants them dead for the last 70 years, they have a constant war mentality mindset. We should adapt a similar approach. Getting things done. Let’s make vaccination a giant national effort project. Let’s pool our resources in getting this done. Vaccinate day and night, weekends, including Valentine’s day, like thousand of lives depend on that effort. Our economy will come back and so are jobs. It can’t be worse than how it’s done now.
Covid-19 will not disappear but it will start to fade in the background. I’m optimistic that we will get through. Most likely a muddle through. That means getting through many obstacles but we will get there. 

Stock Market

The biggest question I get is: Are we in a bubble? Well actually no ask me anymore, they just tell me we are one. There are a lot of evidences that is pointing to bubble activity (SPACs, GME, Bitcoin, Robinhoodies, Tesla, real estate etc…) So sure they are certain sectors that are absolutely mad crazy. If a 20-30-40% correction happened tomorrow I wouldn’t be surprised. Anything could trigger that. Nobody is saying it’s a good idea to buy GameStop at $150 a share.
But overall, you could argue that we are not in a bubble. Sure stocks and assets are not cheap but some stuff looks reasonable. Look at it this way. Interest rates are almost at zero. Real interest rates are negative. Central banks have indicated they are not going anywhere anytime soon. There is no where else to put your money. And on the top of that, you have the world governments going full gun blazing on the money printing press. There is so much money in the system and more is coming. It’s pointing one way: up.

Inflation

Will inflation start to kick in?

We have been lucky not to have a lot of inflation in the last thirty years (~2% official numbers). With all the money printing you would expect higher inflation and eventually higher interest rates. Anyway that’s the conventional textbook thinking. But we have been printing money for a long time without having signification inflation. Commodity prices are on the rise as the table above demonstrate. 
It seems that inflation via excess money creation is coming our way. It doesn’t mean it will, but there are credible reasons to believe it will. Will it go up long term? Or is this just a short-term bump?

The best paper and book I’ve read on inflation and prices is not from an economist, but from two historians, Paul Schmelzing and David Hackett Fisher. Paul Schmelzing looked at eight centuries of interest rate in his paper: Eight centuries of global real interest rates, R-G, and the ‘suprasecular’ decline, 1311–2018 and David Hackett Fisher with his book The Great Wave: Price Revolutions and the Rhythm of History Their work puts the present day in a historical perspective encompassing many centuries.
We normally look at the demand side, but there is a supply side too. Events, like war, famine, and epidemics destroy capital and led to inflation. Human capital is the most important. Now we have a pandemic but we also have mass money flooding the system. We are currently writing the book on how this will work out. Maybe understanding the past can teach us to avoid disaster. 

Bitcoin and Cryptocurrencies

Bitcoin is becoming more accepted. Bitcoin is not the most technology sound currency, but it’s the one most people believe in. A lot of professional investors have changed their tunes on Bitcoin and cryptos in the last couple of years. It’s becoming more widely accepted. I took a crypto deep dive during the 2017 bubble. I get it. It’s not simple but there’s something there but we are not there yet. The technology/infrastructure/legal framework to support crypto currencies as mainstream currencies is not there yet. I think in the future there will be higher crypto currency penetration in the economy. I guess we are all waiting for that “killer” app to force adaption. Nobody knows where it will come from or which currency will win (doesn’t have to be just one). My prediction: Cryptocurrency adoption through mass teenagers on some kind of wallet app with a closed system (where the app keeps the money instead of sending it to the bank) where they can cryptocurrency among themselves outside the banking system.. The catalyst could be a game like Fortnite where all the kids hangout and want to trade stuff.


My Crypto Fail Story

I got into crypto trading during the 2017 bubble. I was fascinated by the space and to really learn about cryptos you really need to get your hands dirty. So I opened an account (complicated back then) and invested speculated a little bit of money just to see what would happen. 


I opened an account with Coinbase at first. It was the most accessible in Canada but it had drawbacks. Fees were expensive and you didn’t have access to most cryptos. There was Bitcoin and another one back then. I’m sure it’s different now. I made a little bit of money with Bitcoin and then transferred to an exchange called QuadrigaCX. It was highly recommended in Canada. Fees were lower, better relations with bank, and access to many different type of cryptos. I sold Bitcoin and bought some Ethereum and triple my money in a month. And that’s the last good part of that story because it all south from here.

I eventually got bored and moved on to other stuff. Then the bubble burst and I lost 75% of my value. Mistake #1: when you are up in gambling take you gains. Mistake #2: because my Ethereum were basically worthless at the time I didn’t care much and left them on the exchange instead of having it on a drive. The exchange, QuadrigaCX, bankrupted and the founder allegedly die in India. He used the company/money/crypto as a personal expense vehicle and was living it up. His wife says that everything was on his laptop and she doesn’t have the password. And without a key you don’t have access to the cryptos. The whole story is very controversial and is still under investigation.


The kick a guy when he’s down part: Ethereum is about 10x when where I bough it and I can’t have them. Coinbase is still around and filing for an IPO soon.
Anyway if somebody sees the QuadrigaCX founder please let me know, I would like a chat.

Super Bowl LV

Is this going to be the greatest Super Bowl ever? The expectations are going to be high. As Super Bowl matchups go, it doesn’t get much better than Tom Brady vs. Patrick Mahomes. The GOAT vs the Kid. One is 43 and the other is 25 years old. That’s a 18 year gap. That’s like 6 average NFL career. It’s also weird that the Patriots are not there. 
I’m going with the Chiefs. The line is 3 points and Chiefs are favorite. The over/under is 56.5.

Tom Brady

This is Tom Brady’s 10th Super Bowl appearance and this time on a different team at 43 years old. Just writing that was weird. The guy still competes at the highest level. It seems like he’s getting better. How is the even possible? I mean aren’t you tired of getting sacked by monsters? He should be broken. 

NHL

Hockey is back and Canada has its own division, the North. Montreal Canadiens will grab the top spot. 


Cheers,

Brian

The Big Shift: The Future of Renewable Energy

Covid-19 is the current global crisis taking center stage and we will prevail. However there is another global crisis that has been decades in the making and that is climate change. Climate change is one of the world’s biggest, if not the biggest problem that we are facing. And it’s coming real soon to a theater near you. Climate change is hard to quantify and with so many variables it’s quasi impossible to predict any events. However we don’t need another study to remind us the “once in a century fire” is now the “once a multiple times a year fire”. The “fire season” is now a permanent part of the calendar. Climate change impacts everything. From the food we have on our plate every day, the air we breathe, our quality of life, and our national security. It’s a generational challenge with no quick fix.

On a more positive note we are closer to responding effectively to it. This post is about the notion that the oil era is winding down and that renewable energy would soak up the bulk of the entire energy industry’s investment dollars. The trend to move away from fossil fuels is real. And it’s renewable energy that’s taking shares of the pie. The global shift to renewable energy is a big step in the fight against climate change. Renewables are a form of “disruption” and I apologized for using a word that has been so overused.

Producing clean energy is not a novel topic. Thanks to innovation we are at a turning point. The technology has improved and cost has fallen. Innovation solves problems. Economics is central. Great innovations see their cost decline over time, creating real demand. The cost to produce renewable energy has fallen dramatically in recent years, to the point where it has become attractive next to fossil-fuel generating assets, particularly coal and oil. According to Lazard, the costs of solar panels and batteries have dropped by more than 89% in the past decade. Solar is substantially cheaper than it was even five years ago. The wind and solar power in Arizona that Fortis generates now costs less than 3 U.S. cents per kilowatt hour.

Continue reading “The Big Shift: The Future of Renewable Energy”

Low Interest Rates and Risk Taking

There’s an issue with loose lending standards. There seems to be a pattern. Excessive borrowing and risk taking is encouraged. Then something somewhere blows up and everybody flees and the Federal Reserve has to step in and bail out that market. It happened in the 90s, the 2000s, and now with the pandemic. And yet the lesson doesn’t seem to be learned. We are on the same path as before. The current low interest environment pushes investor towards more risk taking. The main question is how do you restrict the amount of excessive risk-taking occurring at the same time? Is it possible? If yes how would you even do that.

Podcast: Discussing TikTok And Social Media

Here’s my latest podcast on The Intelligent Investing Podcast with Eric Schleien where we discuss Tik Tok among other things (Apple and Microsoft etc…). I tried Tik Tok in August just to get a better understanding of the app and it’s phenomena. I was really impressed with the quality of the app and AI recommendations. I have since deleted the app because the content is not appealing to me. But I understand how sticky it is and how losing an hour of your life feels like 5 minutes.

The podcast was recorded a couple weeks ago. A lot of developments has happened since. Tik Tok and Oracle now have a deal in place and it’s not clear if the government will approve it. The matter will be played out after the elections. A judge ruled Tik Tok won’t be blocked in the US, for now.

You can listen to it here:

Podbean

iOS

Android

If you prefer video:

SA Interview: Value Investing With Brian Langis

I got the privileged to be interviewed on Seeking Alpha. I believe the article is behind a pay wall at the moment unless you pay $200/month. Should be free after a week I think. It’s a long one, 19 pages. Enjoy!

Here’s a preview:


(Exclusive) SA Interview: Value Investing With Brian Langis

Summary

  • Brian Langis is a Chartered Business Valuator (CBV), investor, and manages Cape May Capital, a private investment company.
  • The first question he wants to answer in the research process, the value in seeing what the credit markets have to say before investing in the equity and the importance of thinking like a business owner are topics discussed.
  • Brian Langis shares long ideas on Intertape Polymer Group, Brookfield Asset Management, Brookfield Property Partners, Alimentation Couche-Tard and Jungfraubahn Holding.

Feature interview

Brian Langis is a Chartered Business Valuator (CBV), investor, and manages Cape May Capital, a private investment company. You can follow him on his blog at BrianLangis.com and on Twitter. We discussed how to evaluate a company’s culture, how to gain an edge from “on the ground” research and what “quality shareholders” are (and why companies need them).

Seeking Alpha: Walk us through your investment decision making process. What area of the market do you focus on and what strategies do you employ?

Brian Langis: First I want to answer the question “will it be around in the next twelve months?” In other words, does the company have a solid balance sheet? Does it have enough cash to pay its bills? To fulfill their obligations? To keep the lights on? To grow? To return money to investors? It’s a snapshot, akin to a quick blood test to prevent pitfalls. It also saves you time. It doesn’t matter how convincing the story is, cash is blood. Happiness is positive cash flow. A bad investing experience when I was a teenager left some scars in my brain. Basically the company was sexy, the product was better than anything on the market, and the CEO was smooth. But the company ran out of cash and creditors took over. If I repeat that mistake again I didn’t learn anything. People are attracted to investing for potential lucrative short-term returns. For me I can’t play that game. I don’t know what is going up today or next month. If you want to do this a long time, you need to survive, and you survive by avoiding losses. We see it today with the pandemic. It reinforces lessons we already knew. Liquidity and survival remains paramount.

Once I get a handle on a company, I look for four main things:

1. Is the company profitable? Do they generate strong free cash flow (FCF)? Good return on capital (ROC)?

2. Is it run by an honest talented management? Is management and shareholder interest aligned?

3. What are the re-investment opportunities? This is the capital allocation portion. What do they do with their cash? Are they a disciplined allocator?

4. Valuation. Can I buy it at a fair price?

You will notice that the first 3 points of the process are intermingling. It’s hard to have one without the others. A solid management team with a disciplined capital allocation process usually leads to excess FCF generation and great returns. Now the main question is can I buy it at a fair price? How much am I willing to pay for it? It’s a highly subjective exercise. It’s the “art” part in valuation. I know price and value and they are two different concepts. In order to know what action to take, you have to look at the asset’s price relative to its value. Assets are only attractive if they are priced right.

You can read the rest here.

Delisting China Stocks?

I’m been trying to make sense of the U.S.-China escalating tension. I believe we are in a cold war. It’s been brewing in the dark for years, each player placing their pieces, trying to get optimal positioning once it breaks out. The cold war is being fought on many front. There’s a trade war, a tech war, an economic war, a covid war, a political system war, and there’s the Hong Kong issue (and Taiwan). Washington is considering a range of sanctions against Chinese officials and firms as punishment for Beijing’s crackdown on Hong Kong. The world is being forced to choose between the U.S. or China, just like the world had to choose between the Soviet Union or America. The list of issues is long. Often, for an successful oversea company trying to growth, going to the NYSE or Nasdaq would make sense. 

I’m trying to assess the U.S. threat to delist Chinese stocks. Are they dumb crazy? Is it just politics? Or does it make sense?

  • Over the years, American investors have been pumping billions of dollars into Chinese firms listed in the U.S., from giants like Alibaba (BABA) and Baidu (BIDU). Investors have been able to profit from the explosion of e-commerce in China, even though the likes of Facebook and Amazon.com Inc. are largely shut out of China.
  • Recent admissions of accounting fraud at Luckin Coffee have prompted heightened scrutiny of U.S.-listed Chinese companies.
  • There’s a threat to evict some 170 Chinese companies listed in the U.S.
  • The move is more than just political. China, uniquely among major world economies, bars the U.S. Public Company Accounting Oversight Board (PCAOB), from monitoring corporate audits, considering that a national-security risk. Chinese audits are done on a completely different basis.
  • The Senate passed a bill giving all Chinese companies three years to let the PCAOB in, or be kicked out of U.S. markets. It will likely clear the House.
  • Rumblings about China companies not playing by the same rules have been around for years. The bill will force Chinese companies to abide by the same accounting rules as U.S. companies listed on the NYSE and Nasdaq.
  • The bill will also require public companies in the U.S. to disclose whether they are owned or controlled by a foreign government, including China’s communist government.
  • China declares states secrets in not allowing full transparency of corporate books, especially those with heavy state involvement.
  • Why close the books? Probably what they find won’t be pretty. Opening corporate records could reveal embarrassing links between the nation’s leaders and valuable share packets. Stuff that they don’t want to come out.
  • The question now is whether we will see Chinese companies give in to the new rules or relocate outside the U.S.
  • Two of China’s most valuable U.S.-listed companies, NetEase (NTES) and JD.com (JD) are pushing ahead with multibillion-dollar share sales in Hong Kong.
  • Chinese stock can thrive without a primary U.S. listing, look at Tencent. If you have a good company, you will likely find capital.
  • Despite the issues with Chinese companies, attracting capital is one of the U.S.’s major force. It’s very important that they keep that advantage. I bet London and Singapore is looking for take advantage of the dispute.
  • The U.S. instead should have policies to attract listings and capital. One idea is hiring high quality annually-inspected US audit firms.
  • Companies with good oversights and financial control would probably trade at a premium. Investors prefer companies that have oversight.
  • It’s important for any company to play by the rule. I don’t think the idea of crippling Chinese capitalism by denying it a listing will work. It’s probably good domestic political firework, but it won’t amount to much. It will probably hurt the country by pushing companies to look elsewhere.
  • Despite the issues, the U.S. and China should work out their problems. It’s what’s best for everyone’s interest. They need each other. They depend on each other.
  • China should play by the same rules as everyone. The U.S. should go back to the principles of what made them great.
  • Get each country’s top three negotiators and send them on an island to work it out behind doors.

Thanks for reading and have a good weekend,

Brian

Insights on Oil

oil-gifIt’s not breaking news that the energy sector has been a disaster zone this year, as the coronavirus pandemic has decimated global oil demand. There’s an assumption that anyone looking to invest in energy stocks, and oil stocks in particular, is an idiot, and that assumption appears pretty reasonable—if you’re looking in the rear-view mirror. There’s might be better days ahead for the industry. But “when” is the key question. There’s an old saying in the oil industry: The cure to low prices is low prices. I expect more carnage in the short-term before it gets better. Companies will be destroyed. There will be survivors that come out on the other side looking stronger. Their shares are pretty attractive right now. But who will survive?  Energy is essential. Although demand is down right now, the world is going to need more energy in the future. Low-cost energy will help to boost the global economy.

But it’s my opinion and I have no money on it, no skin in the game. The sector is too insane for me. It’s driven by too many large actors with non-economic motives (e.g. Saudi-Arabia). Anyway I’ve been reading a lot news of the sector and here are a few insights I picked up. Sometimes in carnage there’s glimmers of hope.

  • I can’t think of an industry in recent time where even though things could get worse, they got really bad. Predicting a massive drop in oil prices, sure. Predicting negative oil prices? That’s a job losing proposition. Investors in oil have been suffering for a long time.
  • The market is efficient at pricing in risk. Oil prices have collapsed twice in the past six years. That would tell investors there is a greater likelihood of that happening again. If you’re an operator, this means you might require a higher return than in the past because the risk is greater. If you’re an investor, you require a higher rate of return before you’re willing to invest. Thus, when demand comes back and oil prices recover, the commodity price might be a little higher than it otherwise would have been, depending on how high you need it to be to get that marginal barrel produced.
  • The world is still highly reliant on hydrocarbons. Renewable-energy sources are growing, but long-term demand for oil and natural gas is growing faster in percentage terms.
  • The May futures contract for WTI crude turned negative in April (-$37 a barrel), as demand plummeted and storage capacity ran out. That seemed to be an unusual set of circumstances with open futures contracts and perhaps some unsophisticated investors who got stuck. The lesson: Don’t hold financial contracts that you can’t honor as expiration approaches. With limited-to-no storage capacity available at the delivery point for the WTI oil-futures contract on May 19 (Cushing), so holders of financial contracts will need to sell prior to expiration. If open interest remains high as we approach expiration, then negative oil prices are possible again.
  • Negative oil prices were an anomaly—a function of a timing mismatch between the pace of demand reduction and that of supply reduction.
  • You need to break down the oil industry in two players: Producers and refiners. In between you have the pipeline, storage, and the infrastructure (mid-streamers). In normal times, good news for producers would tend to be bad or neutral for refiners, because refiners have to buy from the producers.
  • The hope is that the oil market rebalances and every part of the industry improves — oil and gas producers make more money selling crude, refiners sell more gasoline, and pipelines see more activity.
  • Refiners have been cutting back on processing crude because there are too few buyers. No one is driving as people stay at home to stop the virus, and gasoline is normally the number one use of crude in the U.S.
  • U.S. oil prices have jumped 99% in just the past week, an incredible performance that has made energy a top performing sector after months of under performance. Investors bet that companies in the beaten-down sector can come back from a historic rout in the first quarter. Even with the latest surge in stock prices, it should be noted that nearly all energy stocks are down by double-digit percentages for the year. Crude is up for two reasons:
    1. One is that investors now expect demand to return for major products like gasoline and diesel as countries start loosening lockdown orders imposed to stop the spread of the coronavirus.
    2. That oil companies have gotten more serious about reducing supply. U.S. oil production has already declined by almost 1 million barrels a day since it peaked in March, according to Rystad Energy.
  • The Texas and the U.S. responds to market prices, not government or OPEC. Earnings releases from U.S. oil companies show they’re prepared to make dramatic cuts.
  • The idea of the Russia-Saudi Arabia price war is to drive U.S. producers out of business. It might work to a certain degree. That playbook employed in 2014 with limited success. Now S-A is trying again with a weaker hand. You might end up with zombie companies like in 2014, where U.S. producers pump just enough to cover interests on the loan.
  • Mass bankruptcies look unlikely, at least in the short term. And if riskier companies can hold out until oil prices rebound, they are likely to be in a position to produce better cash flow next year. Oil futures a year out are projecting West Texas Intermediate crude at $33.
  • For companies to produce oil profitably, Brent needs to trade around $50 a barrel. Back in December, with the Brent at $60, companies with the right structure could thrive and  cover their dividends fully. Oil companies were buying back stock with excess cash flow. They could compete with the S&P 500 on a cash-flow-yield basis. Today the math doesn’t work at current prices.
  • I was surprised to learn that energy stocks now account for a measly 3% of the S&P 500 index, thanks to a terrible decade and massive technology companies. It’s much higher than that in Canada. I know it was at least a third of the index at one point but I don’t know if it’s still that high now.
  • Most oil and gas producers, including the majors, will lose money in 2020 or barely eke out a profit, and most of those still paying dividends will have to borrow to cover the cost.
  • They key for oil companies is reducing production, slashing costs, and conserving cash. These steps are likely to pay off in higher oil and gas prices over the next two years—and stronger operations and balance sheets for the industry’s survivors.
  • Royal Dutch Shell Plc. (RDS-A, RDS-B) cut their dividend for the first time since WWII, to 16 cents a quarter from 47 cents for a 66% cut. For a company that seems to want to be around for a long time, it’s the prudent move. Most companies, including Exxon, BP, and Chevron should cut but won’t. Instead they are delaying capital expenditure. You can only do that for so long before it bites you in the butt.
  • Take Exxon for example. Analysts think that Exxon will generate $2 billion of negative free cash flow this year, with a $15 billion dividend commitment. The company recently issued $18 billion of debt, which could cover this shortfall, but one could definitely question how long it makes sense to do so.
  • I think Shell is the most anti-oil oil producer. Shell is thinking about the long-term transition away from fossil fuels. Shell leads big oil in the race to invest in clean energy. Shell has this “Sky” scenario plan that highlights the transition toward a clean energy world by 2070. It’s much later than the U.N. 2050 plan and is probably more realistic. 
  • Everybody talks about the negative impact on U.S. producers. That Russia and Saudi Arabia are trying to drive them out of business and that Saudi Arabia wants to regain the crown of world’s largest producer. But there are other major global impacts that won’t go unnoticed. Low prices will hurt or destroy many countries dependent on oil. This can’t be good for enemies of the U.S. that are not under their political and/or military control, such as Venezuela and Iran (also Saudi-Arabia’s rival/enemy). This can’t be good for Russia also but I think they have enough foreign reserves to withstand the storm in the short term.
  • OPEC++++ agreed to cut production by nearly 10 million barrels a day, starting this month, to help to rebalance the market. I’m very skeptical it will work. First the math doesn’t work. For the near term, it’s too little, too late. The cuts agreed to are starting from a base level in October 2018, when OPEC was producing at a higher level, so the effective cut is more like 7.1 million barrels. Balance and supply is out of whack by way more than 10m a day. Second, if you look who the countries who signed the deal, how many of these countries can you trust? OPEC alone has had time keeping their members from cheating. The whole thing almost fell apart because of Mexico. This is not an easy agreement to implement. Here’s an headline: Iraq faces problems cutting 1 mln bpd of crude output -sources

Here’s an interesting take to wrap up things:

Image

Bringing a Sledgehammer & Scalpel to a Fight

Part 1

Social isolation is playing defense. It’s a tool and it’s very effective. It’s the equivalent of taking a sledge hammer to a fight. It buys off time. The curve is starting to flatten in Italy and other parts of the world that have adopted social distancing measures. You can’t get infected if the virus doesn’t know where you are. But there is a problem. Social isolation is half of the battle. A battle has to be fought on multiple fronts. If you don’t know who has the virus, you can’t see where it is and where it isn’t. If you can’t see where it is, you don’t know how to fight it, except by shutting everything down and telling people to stay away from each other. In addition to a sledge hammer we now you need a scalpel. We need to get surgical. Testing in an outbreak gives you data. The data provides two functions. One is to diagnose those who are sick. The other is surveillance: to see where the virus may be lurking, especially in cases where symptoms are mild or don’t manifest at all.

Before we have a vaccine and a victory parade, we need massive testing. The key forward in this battle is testing, testing, and testing. We need to be aggressive on that front. That’s how we will know how wide spread the virus is. Test positive: Hide for fourteen days. Test negative: Go to work. The countries that have tested the most people are also the countries with a better handle on the virus. Why? Because they have data. South Korea and Singapore have been exemplar in their response. Italy is the “what not to do” example and the U.S. is providing serious competition for the title. In Italy the pandemic has turned into a disaster. Italy has only twice as many cases as Germany but almost 50 times the deaths. The Germans have tested huge numbers of people and the Italians have tested only people with serious symptoms. That is, some vast numbers of Italians has had the virus but were never tested, either because their symptoms never sent them running to the hospital or they never even knew they had it. In a matter of weeks (from February 21 to March 30), Italy went from the discovery of the first official Covid-19 case to 11,591 deaths. Within this very short time period, the country has been hit by nothing short of a tsunami of unprecedented force, punctuated by an incessant stream of deaths. This is the world’s biggest crisis since World War II.

We need mass testing for both the affected and the asymptomatic. Social distancing slows the disease to manageable level. That way we ensure hospitals have the equipment and resources they need. We’re going to need other kinds of testing, too, like serology — testing of people’s blood. That way, we can figure out who has already had the disease and is now immune and can safely return to be in contact with others in society. When that happens, we can move to a more sustainable mitigation strategy. Any sustainable strategy against Covid-19 has to balance public health and economics. It will need to be done in phases.  You can’t just turn on the economic faucet to full and nuke the health care system. Low risk and younger people will be able return to work. Gradually allow “nonessential” businesses to reopen (prioritize reopening in industries compatible with physical distancing first).

With aggressive wide spread testing we can start to go back to our normal lives, or a new normal, while savings lives. It’s not the case that everything could go back to normal. A new normal includes some level of social distancing measure in place with tracking and isolating cases.  No more handshakes and kisses. That’s over for a while.

Stay safe and thank you for reading,

Brian

Uncle Sam Wants You Home

Over the next couple days, I will publish a few posts on the current Covid-19 crisis. The first post is where I highlight some positive developments that deserve to see the light of day to keeps things in perspective.

Uncle Sam Wants You Home

At the time of this writing I’ve been ordered to shelter inside my home with my family because I’m fighting an invisible enemy called Covid-19. You too have been drafted in this war to stay home. Except for essential workers (which should be renamed brave workers), the most heroic thing I can do is stay home and watch TV. That’s how we are saving lives. Despite being in isolation for the last seventeen days, we are in this fight together, but not physically together, to prevent from killing each other. In theory, if everybody respected the rules for thirty days, the virus would be dead and we could declare victory. But that would be too easy. Yogi Berra said that “In theory there is no difference between theory and practice. In practice there is”. So practically speaking, the reason we are home is to slow down the spread of the novel coronavirus to avoid a public health care crisis.

Behavior has changed. You can tell just on walking down the street. A new etiquette manual is being rewritten as we go. People are keeping their physical distance. People are also making more of an effort with each other than I’d ever seen. Strangers are saying hello to each other. We now all have something in common. We all are in quarantine! And we talk about being stuck at home. I see people helping each other, especially the most vulnerable. I have a lot older neighbors that can’t go out in public and can’t believe the response they get from their neighbors willing to offer help. It’s fascinating how hard times bring people together.

The purpose of this post is to highlight some positive developments, current events, and a way forward.

I believe we will get out of this crisis sooner than later. I believe we will get out of this stronger. We are planting the seeds to combat the next epidemic. The world and the U.S. will never let this happen again. The world will adjust their response for the next crisis. They will treat this like a war. They need to be able to mobilize thousands of people and resources next time a threat is detected. We will be ready for Covid-20.

The Good News

We are flooded everyday with negatives news. It’s raining gold for the media industry. We can’t turn it off and the media is not turning off the tap. Covid-19 is a very sticky business for the media. Covid-19 is not only a lung killer, it goes after our brains. It activates a part of our brain call fear. Fear is more contagious than the virus itself. Fear is a powerful emotion that makes us act irrational. It makes human hoard toilet paper.

I want to shine some light on certain developments that might not see the light of day:

  • People are united in friendship and solidarity. People are coming together. We are in this together.
  • Not exactly grounded in hard science at the moment, but based on what we have seen warm weather might slow down the virus. It seems the droplet don’t travel as well in humidity. It will help us catch a break to get ready for the 2nd wave in the fall.
  • I’m optimistic that we will find a medical solution sooner than expected. The global medical research community might prove surprisingly resourceful. Everybody is focusing on this. From the medical community, companies from every sector, governments, and freelancers are pouring resources and time into solving this.
  • We were reminded of the importance of washing our hands. The soap goes after the fat shell around the virus and kills it. It’s very effective.
  • Because of the lack of testing, it was possible that a huge number of people have it now, or have had it, without really knowing it. There’s hidden community spread. The positive is that we are building some herd immunity. The means the virus will eventually slow it spreads because of the lack of targets. A screening at a Dutch hospital reveals surprising prevalence among hospital staff. Some 1,353 hospital staff were tested for the coronavirus. Of those, 86, or 6.4%, were positive. Barely half had a fever, and the majority reported working while they were mildly ill.
  • An F1 team, Mercedes, with the University of London, is building a new breathing aid. If trials go well for, it may be available in a week’s time.
  • Abbott has developed a 5-minute coronavirus test. It’s FDA approved under the Emergency Use Authorization. Abbott said in a statement that it plans to begin distributing the test next week and will ramp up manufacturing to 50,000 tests per day.
  • Bosch developed a test that gives you result in 2.5 hrs. What’s more, it allows a single sample to be tested not just for COVID-19 but also for nine other respiratory diseases, including influenza A and B, simultaneously.
  • A consortium of manufacturing companies is working to build ventilators.
  • The U.K. is sending coronavirus antibody tests to homes.
  • Oil prices are at a 17-year low. But it doesn’t matter because nobody is buying it.
  • I read their are about 35 companies and institutions racing to create a vaccine.
  • The first clinical trial for coronavirus vaccine began last week in the U.S. on 45 people.
  • People do recover. Around the world, many are recovering from the infection. Often this is thanks to the hard work of medical staff and the people who support them.
  • The environment is taking a break.

Even though we might not feel like it, we are heading in the right direction. Social distancing works. Better testing tools are coming. Everyday we are making progress. It will take time but we will win and come out of this stronger and better.

Thank you for reading,

Brian Langis

Win-Win: Idea for Reducing Cell Phone Bill

*Update: I wrote this two weeks ago. This morning the Liberals gave the big 3 wireless providers two years to cut prices by 25%. If they don’t comply the government will look into further increasing competition (hint: foreign companies).

During the last electoral campaign, Prime Minister Justin Trudeau made a promise to reduce cell phone bills by 25%. According to the Liberals this would save a family of four about $1000 per year on average. Part of the plan is to bring more competition to the table via mobile virtual network operators (MVNO). With the CRTC hearings underway, Canada’s Big Three, Bell, Telus, and Rogers are showing resistance. Telus said they would cut 5K jobs and $1 billion in spending if CRTC approves MVNO. The head of Rogers says it may have to cut back $3 billion on planned investment in technology networks, including 5G, this year if it doesn’t like the government’s new rules.

It’s safe to say that most mobile consumer wouldn’t mind the government shaking down big telecoms to lower bills but there’s a probably a long term cost, where Canada falls behind in innovation and technology. Telecoms provides critical infrastructure to the economy. It should be in the nation’s interest to have the best network. A lack of investment in the space could outweigh lower cell phone bills over time. The main question is how do we get lower bills and higher investments to fuel innovation?

Part of the answer is grant 5G spectrum for free or at a low cost in exchange for lower bills. Spectrum is the airwaves used to carry mobile phone and other electromagnetic signals. Spectrum is essential for companies to be able to grow, to provide data to consumers, to connect consumers. It’s what makes a smartphone smart. So this is a very valuable resource and how we deploy that resource will enable the ability for companies to invest and grow going forward.

The Canadian government is expected to auction wireless spectrum in 2020 and 2021, which could be a significant expense for wireless network operators. 5G is the next generation of wireless that is supposed to be better and faster. 5G will be fundamental in ushering our economy into the next generation (autonomous cars, smart cities, smart factories, IoT etc…) 5G will have a major impact on the next stage in the development of the digital economy.

For government, the spectrum auction is an opportunity to raise a lot of money. But do how to strike a balance between raising billions from a sector already straining to reduce costs while stimulating investment in the rapid deployment of 5G services. If the spectrum is too expensive, it becomes a way of taxing the industry instead of helping new technologies. It’s possible that high spectrum costs have a knock-on effect for consumer prices, which would reverse what the Liberals want to achieve.

This idea is not new. China has granted spectrum licenses to the country’s telecoms networks in rather than selling them off. It’s part of China’s attempts to win the 5G race and to have a national rollout of 5G. This is an opportunity for Canada to become a leader instead of playing catch up.

There’s a win for everyone. The Liberals fulfills an electoral promise. The consumer gets a lower bill. And the telecoms invest in infrastructure and innovation to provide access to the next wave of technology.

I understand it’s attractive for the government to auction off licences for potentially billions on an industry largely built on thin air. Instead of chasing quick money, I recommend playing the long game. We should approach this space with a large ambitious vision. Let’s think big here. Let’s be the model that other countries want to emulate.

Thank you for reading,

Brian