Professional investors can review published thought leadership and market updates from the Argonaut Investment Team.

‘The free will of cavemen, herd immunity and the value of contrarian truth’

Let me take you back to the Stone Age. When the sun rose our Neanderthal ancestor would awake and make a crucial decision of his own free will: he would weigh up whether it was safe to leave his modest limestone cave and venture out into a wilderness that contained dangerous predators, like bears, hyenas and sabre toothed tigers, all of which posed a serious public health risk. Remaining in the cave would always be safer, but the caveman needed to hunt and gather, otherwise he would eventually run out of food and wood. Then he and his family would perish anyway. It was a pre-historic daily dilemma that will be familiar to readers today: the trade-off which has always existed between public health and economic well-being.

We have been told to respect expert medical opinion, but epidemiologists do not agree. There is a wide range of opinion and potential public health outcomes. According to research from scientists at Oxford University, the virus may have already infected up to half of the UK population1. This would imply that few infected people develop any symptoms at all, and even fewer require hospitalisation. This contrasts with a much deadlier model forecasted by Imperial College2 - which for fear of a much higher serious symptom rate overwhelming the NHS - prompted the UK government to switch policy to lock down the population3, after previously believing that the healthy population would develop a “herd immunity”. The esteemed infectious disease expert Dr Anthony Fauci just announced that as many as 200,000 Americans might die of the virus, but days earlier also wrote in the New England Journal of Medicine that, assuming that there are a large number of infected people displaying no symptoms, “the overall clinical consequences of Covid-19 may ultimately be more akin to those of a severe seasonal influenza”4.

The author of the apocalyptic Imperial model, Neil Ferguson, recently denied revising his model5 with far less drastic assumptions behind hospitalisation and death, but nonetheless has now quietly dropped his previous conclusion that there would be at least 250,000, and perhaps 500,000 UK deaths, suggesting that the NHS can cope with the more probable 20,000 fatalities6. The suspicion remains that the expert understanding of the virus is a work in progress which demands more widespread testing of the population. Shutting down debate or dissent when we are all so highly impacted by the economic and public health ramifications, on the assumption that our understanding of the science (or indeed any science) is complete and settled, is insulting and patronising. The only certainty here is that government policy will, with the benefit of hindsight, prove either to be an initial under-reaction with terrible public health consequences, or conversely, a drastic subsequent over-reaction that has extracted a horrific economic toll.

We now learn that our Prime Minister Boris Johnson has contracted the virus. Although I wish Boris a speedy recovery, news of his infection may in fact be good news. The same is true for His Royal Highness Prince Charles. Either the coronavirus is a disease which is more easily caught by prominent people or, more likely, those same people are a cohort of the population more likely to have access to testing resource. The higher the infection rate among the rich and famous, the more likely that the Oxford, rather than the Imperial predictions, are correct. This highlights the need for accurate and extensive testing results from population samples which are non-biased, rather than those already filled with people demonstrating symptoms.

Testing data from Iceland, currently arguably offers the highest quality daily non-biased statistical sample7. For the last two weeks local genetics company deCODE, now a subsidiary of Amgen, has offered free mass testing with the aim of collecting data on one third of the population8. A higher proportion of the Icelandic population (4.2%) than any other country has currently been tested, with 1,020 confirmed infections (6.5% of those sampled), no significant age or gender bias, but only 25 hospitalised (2.4% of those infected) and just 2 deaths (8% of those hospitalised). A simple linear extrapolation would imply an end Icelandic death toll of just 48 out of a total Icelandic population of 364,260. Dr Alma Moeller, who oversees the country’s health service, believes that the epidemic will peak in mid-April and will require only 20 intensive care beds with ventilators at any one time9.

The early Icelandic data would appear to support the “herd immunity” hypothesis. According to its chief epidemiologist, Thorolfur Guonason, “about half of those who tested positive are non-symptomatic”10. Similar data showing a high rate of infection amongst populations showing no symptoms was also found in the first Italian towns affected, whilst a study using Chinese data published in the Science magazine11 found that in around 80% of infections there were no or only mild symptoms. Sensationalists might initially conclude that higher rates of infection amongst the population than initially thought alarming. Rational opinion might conclude the opposite: that the virus in relatively harmless in all but a very small proportion of the population.

Most commentators, but particularly those with an illiberal bent, assume that China’s slow return to economic normalisation was a direct result of its draconian lock-down measures rather than it simply being more advanced in the alternative theory we explore. If the disease in Europe and the US is already further through the “herd immunity” process than previously thought – which we will not know until we have widespread testing (or in the absence of this we simply extrapolate the more advanced Icelandic data) – the hospitalisation and the death rate will be much lower than previously suggested. This would be good not bad news. If confirmed, we should then immediately be free to make the decision that our Neanderthal ancestor took every day, to venture forth into the wilderness to hunt and gather.

This is of course all speculation, irresponsible, some might say, but we must keep an open mind: more widespread testing could show we are much closer to the public health scare peak and therefore the resumption of normal economic activity. Moreover, recently announced fiscal and monetary stimulus, particularly in the US, has stabilised markets and increased longer term investor confidence. Whenever economic activity resumes, the recovery will undoubtedly be very robust, perhaps even leading to an inflationary boom in the same calendar year as a deflationary bust. The risk reward in the stock market has now shifted: it is now too late to adopt the brace position; over the coming weeks we will re-position for the bear (and bat) to be beaten back. We should be sceptical of expert medical opinion and remember that the stock market rewards contrarian truths.

Barry Norris
Argonaut Capital
March 2020





“If one assumes that the number of asymptomatic or minimally symptomatic cases is several times as high as the number of reported cases, the case fatality rate may be considerably less than 1%. This suggests that the overall clinical consequences of Covid-19 may ultimately be more akin to those of a severe seasonal influenza (which has a case fatality rate of approximately 0.1%) or a pandemic influenza (similar to those in 1957 and 1968) rather than a disease similar to SARS or MERS, which have had case fatality rates of 9 to 10% and 36%, respectively.2