• Here’s a new word for your lexicon: “Contact tracing”
  • This is an exciting step toward a general-purpose quantum computer
  • A 5G acquisition that I hated to see happen

Dear Reader,

When I analyze a company’s product or service, I always look through the lens of incentives. What is the monetary incentive of purchasing the product or service?

Does it save 80% in costs? Does it make the user three times more efficient? If the improvements or savings are only 10–20%, I move on quickly.

Adopting a new product or service can be a hassle, so if the incentives are not large enough, people won’t decide to change.

Over the last couple of weeks, I began hearing rumors about health care facilities being incentivized to report more COVID-19 deaths than existed. The rumor was that the U.S. government would pay them more the more deaths they attributed to COVID-19.

It made my stomach turn, and I dismissed it at first. But then, after a couple of nights, I couldn’t stop thinking about incentives again.

So my team and I got busy figuring out what was going on. What I’m going to outline below will probably disturb many readers. But we are not reporters. We are not journalists. We are analysts. We don’t have an ax to grind.

Our motivation, just as when we analyze a company or an industry, is to determine what is going on behind the scenes. What are the real drivers? That’s how I have an edge and consistently beat the markets and the best hedge funds.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is allocating $130 billion in relief to the medical facilities and systems around the country. That’s a lot of money.

And the Department of Health and Human Services has stated that the aid “will focus on providers in areas particularly impacted by the COVID-19 outbreak.”

But we already know that many health care facilities around the country are operating at 50% capacity or less. Hospitals in the New York City area are one of the exceptions. But some health care professionals are being sent home early because there is nothing to do.

This led me to find the specific guidance that the U.S. Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), and the National Vital Statistics System (NVSS) provided.

The group issued guidance for how to determine a COVID-19 death in a document called “Guidance for Certifying Deaths Due to Coronavirus Disease 2019 (COVID-19).”

And the guidance reads, “In cases where a definite diagnosis of COVID-19 cannot be made, but it is suspected or likely (e.g., the circumstances are compelling within a reasonable degree of certainty), it is acceptable to report COVID-19 on a death certificate as ‘probable’ or ‘presumed.’”

The guidance indicates that a test, while highly recommended, is not required for a COVID-19 label if there is a “reasonable degree of certainty.”

In short, no definitive proof is required to claim that COVID-19 caused a death. Patients simply need to have symptoms similar to COVID-19. But the data gets so much more interesting…

The NVSS issued an alert in early April noting that “deaths due to COVID-19 may be misclassified as pneumonia or influenza deaths in the absence of positive test results” and that “increases in pneumonia or influenza deaths may be an indicator of excess COVID-19-related mortality.”

If we believe what we read in the press, combined with the guidance from the HHS/CDC/NVSS, we might think that pneumonia deaths are rising rapidly under the circumstances. But precisely the opposite has been happening. Let’s look at the chart below:

Wow… The data for the 2019–2020 season (the dark-blue line) shows that from the first week of February, the number of pneumonia deaths began a rapid decline.

As we can see from the data since 2013, the start of this pneumonia season was very similar to the previous seasons. The pattern of pneumonia deaths is remarkably consistent year after year.

What’s going on here? Was there suddenly a cure for pneumonia?

No, there wasn’t. It seems likely that pneumonia deaths are being reclassified as COVID-19 deaths… possibly in hopes of receiving a larger amount of aid from the CARES Act.

Since week four of this year, there are now 7,158 fewer cases of pneumonia than the average number of cases for the last seven years.

The U.S. now has 23,134 deaths “classified” as COVID-19 now. If we account for the 7,158 reclassified cases of pneumonia to COVID-19, the actual number of COVID-19 deaths probably is more like 15,976.

Now, I hate to assume the worst. Maybe there is another explanation. Perhaps health care professionals are being pressured to be overly aggressive when reporting COVID-19 deaths. After all, no hospital wants to be the one that mislabeled a COVID-19 fatality.

But we know now that COVID-19 deaths are likely inflated. This begs another question. How many deaths from chronic lung disease, cardiovascular disease, influenza, lung cancer, AIDS, or other conditions with similar symptoms to COVID-19 are being reclassified as COVID-19 deaths?

That said, let’s turn to today’s insights…

Google and Apple just partnered up on COVID-19 “contact tracing”…

As if the above information wasn’t disturbing enough, I have even more news to share.

As we discussed recently, Google recently published its “Community Mobility Reports.” These reports gather location data from smartphones to track how people have been moving around at country, state, and even county levels.

Companies like Google already know where we work, live, shop, entertain ourselves. They even know what parks we go to. But it turns out that’s just the tip of the iceberg. They also know who we are encountering as we go about our daily lives.

This rich treasure trove of data is enabling something called “contact tracing.” It’s designed to alert consumers if they have come in contact with a person who has COVID-19.

And both Google and Apple just announced that they are adding an application that employs this technology to iPhones and Android phones.

Google and Apple will roll out their respective contact tracing apps as early as next month. I, for one, will not be downloading it.

Through this app, our phones will share information with other phones automatically using Bluetooth. That’s right – our phones will connect us to other people’s phones. It will happen automatically. Health authorities like the CDC will manage this communication system.

And it gets much worse.

Later this year, both companies plan to add this contact tracing technology directly to their operating systems.

We’ll get a software update on our phones that will automatically install this functionality – no app necessary. It will be built right into the operating system… We won’t be able to delete it.

Officially, this is an opt-in system. But as we know, this type of thing is usually buried within a giant legal agreement that we must consent to use the product or service. When it gets built into the operating system, we won’t have much choice in the matter. If we consent to use the operating system, we consent to contact tracing.

Looking at the big picture… More than a third of the world’s population uses an iPhone or Android smartphone. That means that Apple and Google will be contact tracing more than three billion people around the globe.

Let’s imagine a worst-case scenario: Let’s say this technology tags you as coming into close contact with somebody infected with COVID-19.

Then, perhaps on your way to the grocery store, a police cruiser is sent to intercept you. You are “contained” by force and quarantined for the sake of society. To me, that sounds an awful lot like detention without due process.

I know the world is eager to stop the spread of COVID-19, as am I. But for those of us who care about our rights and privacy, this is a frightening development.

This early stage company may be the one that delivers a universal quantum computer…

As a reminder, we’re now living in the age of quantum supremacy. That simply means that today’s quantum computers are far and away superior to even the best classical supercomputers for a limited number of specific tasks.

And it won’t be long before a general-purpose quantum computer will be built. When that happens, it will render all classical computers, the ones that we use today, pretty much useless.

And we just got an insight into what could be the next big leap in quantum computing technology…

I’ve been keeping a close eye on an early stage quantum computing company called PsiQuantum. For the past five years, it has been working in stealth mode. Not much information has been out there about what this company was up to.

And PsiQuantum only has generic information on its website. But with its latest venture capital (VC) raise, we’re starting to get a better picture of what the company is up to… and why we should be even more excited.

PsiQuantum has now raised $215 million after a VC round headlined by M12, the venture capital division of Microsoft. The latest round brought in $150 million.

What’s exciting is PsiQuantum’s approach to developing a universal fault-tolerant quantum computer. That’s the “holy grail” of quantum computing, as we have talked about before.

Strategically, PsiQuantum is using conventional silicon chips manufacturing technology to build a quantum computer with one million qubits. And the company believes it can get there in a “handful of years.” This is important for two reasons…

First, we have been using silicon chips in electronics for decades now. The semiconductor manufacturing processes are tried and true. And silicon chips can be mass-produced in high quantity.

Taking this approach. PsiQuantum will be able to build its quantum computers at a relatively low cost with less risk than those quantum companies pioneering new technology.

Second, the fact that this company thinks it can build a one million-qubit quantum computer in just five years or so is incredible.

For context, the quantum computer Google used to demonstrate quantum supremacy ran on just 53 qubits. That’s all it took to outclass the world’s most powerful supercomputers.

And at just 80 qubits, a quantum computer would be able to store more information than the total number of atoms in the known universe. That’s how exponentially more powerful additional qubits are.

At one million qubits, PsiQuantum would have a universal quantum computer capable of solving the world’s most complex problems.

Long-term weather prediction? Creating stable nuclear fusion reactions? Discovering new groundbreaking materials? Developing a vaccine in seconds for a virus? All these tasks would be on the table with a quantum computer this powerful.

Simply put, this level of computing power was unthinkable just a few short years ago.

That’s why this company is so exciting. PsiQuantum may be the company that delivers the world’s first universal quantum computer. This is definitely a company to add to our watchlist.

The most important 5G acquisition to date…

Speaking of Microsoft, the company just acquired my No. 1 5G watchlist company, Affirmed Networks. I discussed this topic in a recent mailbag edition of The Bleeding Edge.

The acquisition happened on March 26, but the acquisition price wasn’t released at first. Now we know that the deal is for $1.35 billion, which is about 13% above where Affirmed Networks was valued in February.

I’m very disappointed about this. Affirmed Networks was an immensely exciting company building a software layer on 5G wireless networks.

Affirmed’s tech will allow wireless operators to “virtualize” applications running across networks. This allows operators to allocate more capacity to certain parts of the network where necessary.

This technology is being widely used on 4G networks around the world, but I considered those applications just a warm-up for 5G. Affirmed Networks’ technology is absolutely critical for 5G. Here’s why…

One of the many advantages to 5G is the ability to dedicate certain parts of the spectrum to specific applications. We can imagine a 5G wireless networks divided into a thousand different slices for different applications.

For example, one part of the spectrum can serve only self-driving cars. Another part can serve only the first responder networks and health tracking devices.

This way, those applications are guaranteed to get all the bandwidth they need.

Affirmed Networks’ technology is a hot commodity with the 5G build-out racing ahead. So it’s no surprise the company was acquired.

I was, however, hoping to see Affirmed stay independent and go public later this year. It would have been perfect timing, and it would have made a fantastic investment target for us.

I am also disappointed that Microsoft was the acquirer. That’s because Microsoft has not traditionally served the wireless operator community. And I don’t believe it will be a good manager of Affirmed Networks’ technology and team.

The driver behind Microsoft’s acquisition is to run Affirmed Networks technology on its Microsoft Azure cloud… thus inflating the revenue numbers for that division.

But just because the chance to invest in Affirmed is gone, that doesn’t mean that there aren’t more great up-and-coming 5G investments. This acquisition will create an opening for other companies to jump in where Affirmed left off. I’m analyzing a couple of those companies right now.

As I’ve been telling readers, the COVID-19 lockdowns have caused network traffic to surge as high as 50% over normal use. This has shown the world how desperately it needs 5G networks.

And yet, the best 5G companies are trading for “bargain” valuations. This dynamic won’t last long. And that’s why I’ve been pounding the table on quality 5G investments. The returns from these levels could be life-changing.

For investors who would like to learn about the small-cap 5G companies I’m recommending today, please take the time to view my State of 5G Summit. But don’t delay. After today, my publisher will take the presentation offline. So access it right here while there’s still time.


Jeff Brown
Editor, The Bleeding Edge

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