The Canary in the Coal Mine
When I was a child we learned about coal miners taking canaries with them when they went down into the coal mines. It seems odd but, the canary would die at lower levels of poisonous gas than the miners. If the canary died, it was time to get out.
In the late 20th century, investment professionals used the analogy of the canary in the coal mine to indicate a leading indicator of financial troubles with companies. If bond spreads start increasing, that can be the “canary in the coal mine” indicating a potential trend to a bear market.
For the past several months, we have focused on the number of COVID-19 cases. That seemed to be the canary in the coal mine. When the curve of increasing cases flattened out, that would indicate we could begin cautiously resuming normal activities after about two weeks because that is the known incubation period of the virus. The curve never quite flattened out, we aggressively trended towards normal activities, the curve spiked, hospitalizations spiked, ICU utilization spiked and mortality spiked.
But the canary in the coal mine has changed. We don’t hear about cases as much, it seems like we are more focused on mortality, or best case hospitalizations. The problem with using mortality as an indicator is that it’s like waiting until one of your fellow miners collapses due to carbon monoxide, it’s too late. Death will occur perhaps months after infection, if deaths have a serious spike, people have often been in the ICU for quite some time, if the ICUs are overwhelmed, they will steal normal beds to increase capacity, there will be fewer normal beds but there will be additional demand from COVID-19.
We see this beginning to happen in Houston. We need to go back to paying attention to the canary.
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