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Crunching the numbers

Good morning! Last night Victoria was placed into lockdown until 11:59pm on 3 June, with "public health experts' prime concern [being] just how fast the B1.617.1 variant is moving".

These events will keep happening while inner city hotels are the primary method of quarantine. To show why, we crunched the numbers in the Analysis section below. TL;DR: even with the government's own generous assumptions, it doesn't look good.

Markets

Daily % change

AUD/USD

77.4

0.0%

10Y Bond

1.59

-2.4%

ASX200

7,095

0.0%

Brent (bbl)

69.4

0.9%

Gold (oz)

1,897

0.0%

Iron ore (t)

182.6

5.9%

Bitcoin

38,417

-0.7%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

Local markets were unperturbed by the Victoria lockdown, with the ASX200 (+0.034%) inching up ever so slightly. In the US, the S&P500 gained 0.12% following a slight improvement in jobless numbers (see below).

Broad-based rebound: According to the ABS, total new capital expenditure increased by 6.3% in the March quarter, with spending on equipment, plant and machinery soaring 9.1%. This time it wasn't all mining, either – the mining component rose just 4.1%, while non-mining jumped a large 7.1% (although there's the base effect wreaking havoc again, with much of the gain likely just a rebound from previous weakness).

US Jobless: There were 406,000 initial jobless claims in the US for the week ended 22 May, down from 444,000 the previous week and the fourth week in a row of falling claims. That's still well above the pre-COVID 'normal' churn but any improvement is welcome, all things considered.


Analysis

Crunching the numbers

Hotel quarantine failures don't appear to be state-specific.
Hotel quarantine failures don't appear to be state-specific.

ScoMo likes to claim that Australia's state-run hotel quarantine programme has been 99.99% effective. That sounds impressive but even if he's right, it's actually a disturbing number – it means for every 100 people arriving there's a 1% chance that hotel quarantine fails, with potentially catastrophic consequences. That might seem counter-intuitive (and it is), but hear us out.

The birthday paradox: Did you know that in a room of just 23 people, there's a 50% chance of at least two people having the same birthday? In a room of 75 people those odds increase to 99.9%. That's because of the compounding power of exponents – with 23 people there are 253 possible pairs, as:

(23*22)/2 = 253

So the chance of two people having the same birthday is then:

1-(364/365)^253 = 50%

Hotel quarantine: There are roughly 6,500 international arrivals into Australia every week (excluding Howard Springs) and each individual person represents its own 'roll of the dice', so to speak. Using ScoMo's success number of 99.99%, that means the chance of a hotel quarantine breach in a given week is:

1-0.9999^6500 = 47.8%

In other words, a 99.99% hotel quarantine effectiveness rate means we should expect some kind of failure about every two weeks.

Don't become Taiwan: Hotel quarantine has been mandatory since 28 March 2020, or about 60 weeks ago. Since then we've had 25 hotel quarantine breaches, or roughly one every two and a half weeks. Given that those failures have resulted in deaths and costly lockdowns – one lasting as long as five months in Victoria – there's a very good case to move away from hotel quarantine as soon as possible. Not doing so risks another several potentially lethal and economically destructive outbreaks (as we're now witnessing in Taiwan) before most of the promised Pfizer vaccine doses are even due to arrive in Australia.


The Wrap Up

  • Pfizer said early data suggest "our vaccine will continue to protect against these variants", including those that originated in South Africa and India.
  • The Hermit Nation (Australia) is one of the worst in the world in terms of sharing COVID-19 vaccination data – however, last night health minister Greg Hunt revealed that only 500,000 Australians are fully vaccinated and 74 aged care homes have not yet received any vaccinations.
  • China's playing asset price bubble whack-a-mole again: "In May alone, the government vowed to tackle speculation in metals, revived the idea of a property tax, oversaw hikes in mortgage rates in some cities, banned the mining of cryptocurrencies and played down calls within the central bank for a stronger yuan."
  • Victoria's proposed tax on electric vehicles passed both houses without amendment and will take effect from 1 July 2021. Victoria must be the only government in the world taxing electric vehicles? 🤔
  • Amazon will purchase MGM, the US movie studio that owns the James Bond franchise (along with plenty of other films and TV shows), for $US8.45 billion.
  • Qantas said it was "considering" offering retrospective rewards, such as "Qantas points, Qantas or Jetstar flight vouchers, or status credits for frequent flyers", to people who have been fully vaccinated with either Pfizer or AstraZeneca.
  • Hong Kong passed a bill that expands the number of legislators to 90 – with 40 of them 'elected' by a pro-Beijing committee – and just 20 elected directly by Hong Kong voters (down from 35). So much for "one country, two systems".

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