RAOUL PAL: Welcome, everybody, to "Real Vision Access." We wanted to get out an urgent "Access" this week, because there is so much going on with the financial markets and the coronavirus and people's understanding of the whole situation. A good friend of mine, Emad, who I've known for several years now-- a long, long time. Emad wrote a really interesting email and has been thinking through this. I thought it was really good to tap into his expertise and brains on this. He's very well connected in the space.
So Emad's background is that he was a macro hedge fund manager. He's also been a strategist. He's an expert on the Middle East. He's an expert on many, many things. He advises governments, hedge funds, asset managers. And also, now he's doing something uniquely different. He's the CEO of Symmitree. Emad, do want to talk a bit about Symmitree? Because that kind of tees us up into why you kind of have been involved in the viral outbreaks and pandemics and the understanding of it.
EMAD MOSTAQUE: Yeah. Thanks, Raoul. It's a pleasure to come onboard. Thanks for having me, as always-- always a pleasure to see your smiling face. So I left the world of asset management to go and do Symmitree, which is a common smartphone architecture for that last mile-- for where the world is invisible-- where you have epidemics and poverty and other things-- so working at the Vatican, the UN, and other multilateral organizations just to simplify the whole process.
So a large part of what we've done is looking at pandemics and outbreaks and how we can really find the information and what information we need to stop it in its tracks. Over the last few weeks, engaging with these various groups, you know, it's been very interesting seeing the narrative formed at the highest levels, both in the open and behind closed doors, because there's always that balance there. But I think that, as you said, getting to the core of what really matters, there's real cause for concern-- not from a fear making perspective, but just from a rational perspective.
RAOUL PAL: So talk us through the two narratives first so we kind of have the understanding, which is the external narrative that we're being told, and the internal narrative, which is probably more about the realities and the projected fears. So talk to us about the official narrative first.
EMAD MOSTAQUE: So I think that-- I like to think of it in terms of there's two types of decision making. There's decision making under risk, which is what we do all day in the financial markets. You look at the charts behind you and you say, expected values, expected returns, et cetera. And we try and do that and we try to optimize for that. What I found going into the multilateral sector is that they really optimize for regrets-- for not losing their jobs or looking stupid. So the public narrative has been it's just another flu and it's not going to be that bad and relying on people--
RAOUL PAL: Was that a purposeful narrative, the flu narrative?
EMAD MOSTAQUE: It is a purposeful narrative, because the last thing you want-- and this is perfectly reasonable-- is any type of severe concern leading to a panic and a run. We've all seen what happens when that happens-- when the trust goes. So society is built on this foundation of multiple levels of trust. Behind the scenes, you have to prepare for the worst, because if something happens or you're not caught-- we've seen in China officials literally being brought out in public now and being forced to apologize, et cetera. They didn't prepare for the worst.
So there's kind of these two diametrically opposed things. And we see this all the time where you have that public narrative. The really interesting thing for me, though, is that while you have the World Health Organization saying yeah, don't bar flights and stuff like that, because they realize it doesn't do any good. At the same time, every single mainstream media has been saying the same thing. I don't think that's a deliberate conspiracy or anything like that, but, again, I think it's because at this stage, you haven't had enough data yet to reach a tipping point on the public side of things-- even if in private you've already reached that point of real concern by decision makers who are getting ready.
RAOUL PAL: So when they're getting ready, what are they thinking of? Because these are going to be the knock-on effects that we're going to see in the next month or two as things develop. What are they looking for in terms of the numbers with the viruses and the spread and what happens? And what are the outcomes that they're looking at-- the worst case scenario planning-- without going to the extreme tail, but you know, what we're more likely to see-- the kind of one or two standard deviation outcomes?
EMAD MOSTAQUE: So let's take an example of Hubei, right? On January 23rd, you had 250-odd cases. By two days ago, you had 13,000 cases-- so a 50 times increase in two weeks, and not enough beds in the ICU because of 20% severity rate to keep up with that. Because intensive care is great when there's not many people-- you know, it's kind of-- you assume a certain standard deviation.
But what happens when you suddenly need 2,000 people in a city who need respirators? So it's preparing for outcomes like that where you might have a spike when you see 50 to 100 cases that might become 200, like we have in Shanghai and Beijing now, that might become 13,000. There's things like lighting up mask supplies, because we've seen the shortage-- because where's the supply chain? China.
It's things like lining up antiretroviral drugs-- so getting in touch with the Gileads of the world and saying, do these drugs for HIV actually work with coronavirus? Can you accelerate it? How much do you need? We just need $100 million from the Gates Foundation to kick things off on independent, large scale initiatives like this.
RAOUL PAL: So I've been interesting-- I've been writing about what I think some of the effects are is that if you are a third country-- another country, not China-- so China's lockdown is immense. I mean, I've heard on the ground now people saying that if you came out of Hubei province, they've tracked you down wherever you are in China. And if they can, they've got you into quarantine. So they've been using hotel rooms in Shanghai and Beijing and all the big cities.
They said, right, you left Hubei these days, you need to be two weeks of incubation. I mean, they're shutting down everything. I mean, the number of flights that have been canceled-- I think it's 90,000 flights have now been canceled. I mean, the impact is much broader than the markets yet understand. I mean, this is a huge economic event. But let's take it forwards and look at some of the other countries where this is going too and what they're doing.
And we've seen Singapore has closed its schools until March. And we've seen that in many places, people are closing their borders with China. Where do you see the next risks within this in terms of nations? And how outsized is their response? Because I think any government is going to have to create an outsized response now to stop the fear mechanism that you talked about earlier from spreading. What do you think the likely next steps are here?
EMAD MOSTAQUE: Well, again, you know, I think this is the kind of bounded rationality thing whereby an outsized response is one thing. The other thing is what's just rational to protect your people. And you know, it's kind of like when there's a fire in the kitchen and it's a little fire, it's manageable, that's like a SARS outbreak. And maybe that was a pan fire. But then when the little flames and tenders go elsewhere and it leads to other fires or a bushfire, that's where you have to get really worried. And nobody wants to get to that stage.
So Singapore, for example, has a stepped threat mechanism that goes up to full quarantine already, because Singapore is wonderfully organized. And I think you've got 24 cases there. When you get to 100 or 500, they go, again, into lockdown. I don't think they've shut down schools yet. I think Beijing's just shut down their school system-- which, again, is a big economic thing, because can you imagine-- having to look after your kids for a month because they can't go to school? I mean, it would decrease productivity, but it might increase familial happiness-- at least for the first couple of weeks, right?
Because you can't take the risk. And this is the thing-- you have to find out on a local basis. If I'm a headmaster and I have a disease with an incubation period of two weeks that may or may not be asymptomatic, what am I going to do when there's the first case in the schools? I will shut down the whole school system. But then for me, a real question is, when does it reopen?
So you've had 90,000 flights canceled to China as Beijing and Shanghai go through 250 cases towards 1,000, 10,000. You can't do any more flights to China. So when you're in Singapore and the surrounding nations, you have to replicate the processes you have seen that seemed to work. So for example, in Hubei province, you'll see a sign of sort of a wave now, where the cases will start to slow down, A, because they're not recording them all, and B, because it is in shutdown. We've all seen the pictures.
You have to prepare for that, and that is something that people are preparing for. But the thing that really concerns me-- and, again, I hope all the data is overblown and the mortality rates aren't that high and things like that-- is when do you get enough data to turn around and say, I'm comfortable opening the schools. I'm comfortable opening the tube and the metro systems.
RAOUL PAL: And even factories. I mean, factories are closing as well.
EMAD MOSTAQUE: Factories are closing as well. Mike just said that they won't have their elements there. Airbus have said they've got 30 days of supply left. You know, Foxconn, all these supply chains-- you know, what is that data that means that they can reopen? And the thing is, I don't know. I don't think anyone knows, apart from literally kind of doing a Tesla today-- collapsing, you know, the disease case, or a cure, which is unlikely.
So I see one to two months of disruption as this gets replicated everywhere until they feel comfortable enough that economic damage versus the social damage, there's that balance there.
RAOUL PAL: And also, the one to two month is, like, an accepted truth now. But we don't know, because we don't know the virality rates elsewhere. And as we know, the incubation period is the problem here. So really, you don't know where you are. I mean, it's taken the Chinese, what, six weeks-- seven, eight weeks to know where the hell they are. So they've got some idea within Hubei province, but not yet across China. They're obviously clearly massively underreporting numbers. And that's fine. And I think that's accepted. But I'm not sure that we're going to be in a position for governments to even know they should be locking down for another month.
EMAD MOSTAQUE: Well, as I say, it's the known unknowns-- or the unknown unknowns that really cause issues. Because those two types of decision making-- decision making under uncertainty is minimizing for maximum regret. It is the precautionary principle-- better safe than sorry. Because if you have something that just spreads through a population and you've done nothing against it, you will lose the next election. And you will look bad. But then people will actually suffer and die.
We don't even know the exact mechanism action now. It's like there's been sequence, and we have the sequences, but exactly how does it work? What does it do? There have been discussions about it attaching to Ace2 receptors where Chinese individuals have more than-- Thai individuals have more than Bangladeshis, equations at the bottom.
SARS was very susceptible to temperature. So it died out in the summer. We just don't know what all the details of the coronavirus are or accurate numbers. So a lot of people now are excluding the Chinese example completely, and they're saying all that data, let's put it to the side. It's indicative only. And then they're aggregating all the data from outside of China, and they're looking very carefully at the death rate-- so the other elements there-- because they're far more likely to be accurate. And some of that is positive, like in Hong Kong, which is generally accurate with the data. You only have 24 cases so far. And you're like, why is that? We're not quite sure.
But others of it are far more worrying, like the Japanese returnees and the French returnees-- 20 of them being infected. That's an incredibly high rate and indicates massive virality. And you're one to two weeks away from anyone dying. And that, of course, is another issue with the official statistics. The fatalities that we have today are two weeks removed from the actual case diagnosis.
RAOUL PAL: And also the fatalities are only going to show the weakest people-- the oldest and the infirmed and the youngest-- because, I mean, if not, it's assuming that Ebola-style death rate is almost immediate. And it's not that case. We don't know whether you could be ill with it for six months. Because if you look at the cure rate or the recovery rate, it's still very low.
EMAD MOSTAQUE: Yeah.
RAOUL PAL: There's a bunch of people who have it who are in the middle of the pipeline who are either going to die or recover, and we don't know any of those numbers.
EMAD MOSTAQUE: I mean, that's the thing-- when you have individual asymptotes that then sum up, and then you have a death rate, which is just Hubei, because the people have kind of matured in the disease there, then obviously it's going to outstrip it. So a classic example is SARS. When you look at the SARS death rates during the sores outbreak, at the same point in the outbreak, they were 3%. And they ended up at 10% because the case numbers stabilized, and then, unfortunately, there is the catch up. But again, hopefully the Chinese have massively underreported the cases by 10 times so the mortality rate isn't that high.
RAOUL PAL: Again, they could be under-reporting the mortality rate too.
EMAD MOSTAQUE: We just don't know, do we? All we can say is it's not normal for a government to shut down a city of 11 million people and then do that six times. And in China right now, there are 10 cities with 200 cases, which in two weeks will likely have 10,000 cases. And I think 500 to 1,000 cases, if your government just rationally-- and, again, not trying to stoke fear, because you care for your citizens, you just have to be better safe than sorry.
RAOUL PAL: So if you had a hunch, what do you think the numbers are going to peak out at in China in terms of number of people's infected?
EMAD MOSTAQUE: If we look at the existing R-zeros and things like that, we're talking in the millions. Oh, god, you're probably talking at least 50 million to 100 million, and that's only because they're taking it very aggressively. Because you just have to look at how many people get the flu, and then extrapolate that out a bit. If you're at R-zero, which is the number of people infected, at four-- if you're down at two, it's still pretty high. If you're down lower, then that's even lower.
But this is, again, one of the things-- the narrative is this is just like a flu. In itself, it's actually quite concerning. A flu, in fact, kills half a million people a year and that's with vaccines and herd immunity. There is no vaccine and there's no herd immunity to this. So you're going to have a higher death toll. Look, a billion people, six billion people, it's worrying, but we just don't know. I just can't predict it. What I know is that the Chinese are actually taking a firm stance, because we've never seen anything like this.
Raoul, can you recall anything like this-- a full-scale lockdown of more than one city?
RAOUL PAL: Never in my life. I don't think even-- somebody asked a question about Spanish flu-- I don't think in Spanish flu, anybody was in a position to lockdown entire societies like this. So quarantining massive sections of large countries, I've never seen it.
EMAD MOSTAQUE: Well, I mean, we have had classical quarantines for smallpox and kind of plague and things like that where they literally just shut everyone up into a city and let whoever survived come out. But as you said, the targeted nature of the Chinese intervention, if you come from Hubei, we'll track you down from your purchases on the regime hard credits or whatever, and we'll lock you up.
I mean, they are doing whatever they can. But if this was just a normal thing, they would not do it to this degree. You and I both know that the Chinese don't mind breaking a few eggs to get to the great big social goal of growth. And we know what's going to happen with all these supply chains, as they are now shutting down. Growth numbers are going to go down like that. Teapot refineries are stopping. Sinopec has cut production runs by 15%. All these factories are closing.
They would only do that if they had no other choice. And that's not even because they think lots of people are going to die. It's because, again, they don't know, we don't know, nobody knows, but the data that we have is enough to be concerned. And the behavior is perfectly rational.
RAOUL PAL: And where are you concerned, that-- we'll come on to what the government bodies and other people think-- but where are you personally concerned? I'm concerned about India. I don't think India is possibly able to deal with anything like this. There was one reported case. I haven't heard if there's anymore. But that one really concerns me.
EMAD MOSTAQUE: Yes. So again, it depends on the kind of productivity.