Weekly note – another market wobble, updates on investment ideas, and (cheerfully)the Black Death

Programming note: I’m still on weekly notes with regular service (thrice weekly) resuming in mid-September.

Another week and another bout of market volatility! The first chart below shows price returns over various periods through Friday at the end of last week.  Some quite big (negative) numbers are on display here, with the Nikkei 225 down 5.97% in just a week, the NASDAQ composite down 5.77% and the FTSE All World down 3.7%.

If you’re especially technically minded, one might note that the S&P 500 has now broken below the 20-day moving average (at 5408). If it’s in a proper bear market, it will be looking to push through the 200-day moving average as well, implying a move below 5150.

At a global level, the MSCI World dropped 3.9% last week, led by the highest-beta names. The 10% of stocks with the highest 52-week betas dropped 8%, while stocks with the lowest betas rose 45bp last week.

The proximate cause of this further bout of bearish feeling is that the US Payroll numbers weren’t very optimistic, and US investors are now properly worried about a slowdown. They are right to be concerned by high positive real interest rates – as I keep noting in these letters – and there are real issues with lower-income households in the US and the UK (see next week). But as we stand now, I still think a recession is unlikely, and the market seems to be doing a good job of bullying the US Federal Reserve into base rate cuts, even if the market has somewhat exaggerated ideas about the pace of cuts (I’d still have US rates only a tad below 5% by the end of the year).

Macro concerns aren’t the only factor playing out—there’s also a shift away from the big tech names, which disproportionately impacts the broader market. As always, the quant team at French investment bank SocGen has an excellent take on this ‘de-concentration’ play. The critical factor here, according to SGs Andrew Lapthrone, is that different kinds of stocks (less volatile ones) are doing much better.

“…. low-volatility stocks have generally outperformed high‑volatility stocks throughout most of this year, but this performance has accelerated in recent weeks. In fact, global technology stocks, which had dominated early in the year, are now being outperformed by global utilities stocks and financials. …Strong vs weak balance sheet performance has been drifting up all year, albeit with significant volatility, particularly amongst US Smallcaps where leverage is of greater concern. By design, stocks with bad balance sheets tend to be more volatile and moves so far look more beta- than credit-risk related. But the bigger curiosity has been US investors clamour for Quality Income stocks, a traditionally defensive strategy but which has seen steady performance for most of the year.”

Earnings (profits) are of course a major driver of short-term price activity, as are Nvidia’s results. The tech giant’s earnings numbers—see the next paragraph—disappointed many (not me) but capped off a great earnings season with 80% of firms showing EPS beats despite only 60% showing a beat on sales, according to analysts at SocGen.

“2Q24 EPS got upgraded by 3.5% during the reporting season, but 3Q24 consensus was downgraded by 3%, while 2024 EPS consensus growth estimate is broadly unchanged at 10%. Importantly, the breadth of EPS revisions is a big positive this season. The EPS revision ratio shows 130 stock upgrades for every 100 downgrades for 2024, and 110 stocks saw EPS upgrades vs 100 downgrades during the reporting season. We see 14% EPS growth in 2024 and 11% in 2025, while consensus is now ahead of us at 15% for 2025. Profits are the glue for the S&P 500, and they are still sticky and strong. …The profit growth rate is improving for the S&P 500 ex-Nasdaq-100, while Nasdaq-100 profit growth should continue to slow for the next six months.”

As for Nvidia itself, I thought its recent quarterly numbers were pretty good, with revenue jumping 122% year-over-year to $30.04 billion. In comparison, its data centre revenue grew 154% to $26.3 billion, smashing through estimates. Nvidia also announced an additional $50 billion buyback program, signalling its confidence in what’s ahead after ending the quarter with a massive cash balance of $34.8 billion.

As analysts at Hargreaves Lansdown point out, these numbers aren’t the focus for many investors  – they are more concerned with guidance for the coming quarter and the outlook for demand into 2025, and the impact of delays from the new Blackwell platform. According to the HL report on the Nvidia results,

“guidance was higher than expected, and Blackwell commentary should alleviate some of the concerns that delays will have a meaningful impact on next quarter’s revenue. It’s not just the chips that make NVIDIA’s product so appealing, the CUDA software platform that enables users to optimise the hardware is just as important. Competition will come from the hyper-scalers themselves, who are working hard to build in-house chips, to more specialised companies looking to solve more specific problems. But it’s likely these remain edge cases for a good while yet, enabling NVIDIA to continue to enjoy its dominant position over the next few years.”

Regardless of whether Nvidia will keep up with market expectations, the broader question is whether the continued market volatility of the last few weeks should be a concern. The answer to this hinges on one further question: Is the US and, thus, the globally developed economy slowing down so fast that imminent rate cuts won’t be enough to save us from a proper bear market? My answer is that a recession isn’t likely and that the next big challenge will be an economy running too hot with inflation rising above 3% again.

That won’t stop rate cuts in the immediate future but will likely curb any rate cuts, i.e. we might only get a few rate cuts before the central bankers hang back and watch the data again. If that sounds like a call to avoid too much selling, it is! I am underweight the USA as an equity region, but I’m not especially antagonistic towards equities generally.

The table below helps explain why I am moderately optimistic. The table is from Tricio’s strategist Gerry Celaya, a font of knowledge regarding market data. He’s looked at what’s happened to the S&P 500 after a series of historic rate cuts:

“The key take away from this exercise is that shares recover over time. Even after the biggest loss of confidence and biggest bear sentiment of many decades (implosion of the dot-com bubble, global financial crisis and Covid) shares, as measured by the S&P 500 total return index, over time, delivered positive returns. Keep in mind that index returns, by the nature of their construction, have a survivor bias. We believe that for most investors, time in the market is more important than timing the market. Economic data over the course of this cycle will be key of course. It should also be noted that the 1998, 2001 and 2007 rate cut cycles came when stock market valuations were high (as they are now), so the 5-yr. returns are the smallest in
the sample.”

I’ve written before about the trials and tribulations of Digital 9 infrastructure fund. In October last year, I went through the many reasons why I got this fund wrong. Still, even after this mea culpa, I’ve stuck to the view that the likely break-up value of this digital infrastructure fund would be in the 60 to 80p range, primarily based on a sense that the key holding in Arqiva (a major digital broadcasting infrastructure operator) would produce long term value.

Last week brought some bleak news – the board had commissioned an independent report on the likely NAV of the fund based on current market conditions. Here’s the Numis account of the results of this exercise, which has produced a provisional NAV of just 45p:

“Ahead of its interim results to 30 June 2024, the Board has provided a provisional NAV of 45p, a decline of 43% compared with the last reported NAV at 31 December of 79.3p. Management notes that the valuation process is still ongoing, and there could be further adjustments to NAV when it completes the process. Interim results are expected to be published by 30 September at the latest. The initial decline was prompted by the findings of an independent valuation on certain portfolio companies which determined that the aggregate portfolio valuation as at 30 June 2024 is likely to be materially below the December level. A major part of the initial NAV reduction is attributable to a reassessment of the assumptions relating to the availability of finance for underlying portfolio companies and its impact on portfolio companies’ growth outcomes in the valuation models.

“Sale processes: In line with the new investment objective and investment policy approved by the Shareholders in the General Meeting held on 25 March 2024, non-binding offers for certain assets have been received and a selected number of preferred bidders have been admitted to a second phase of the sales processes, which will include detailed due diligence. Sales processes are also ongoing for various assets in the portfolio, excluding Arqiva. The processes will only be progressed if the Board is satisfied that the values achieved are acceptable”.

This announcement and the NAV update will likely have two working parts.

The first is an estimate of the value of the businesses likely to be sold in the coming months or years: Aqua Comms, Elio Networks, EMIC-1, and SeaEdge UK1.

I’m guessing that the board is resetting expectations on the likely value of these businesses. I worry that because of the timeline for sales, potential buyers are lowballing their bids, knowing that the fund ‘has to’ sell the assets.

The other working part is Arqiva, the deal that broke this fund. This isn’t likely to be sold any time soon, and again, I’m guessing here that the independent analysis has lowballed the value of the stake in this business (52% from memory)—which is exactly what I would do if I were looking at late-cycle private equity deals.

But here’s the rub: if D9 can hold on to the stake, be patient, and wait for a pick-up in the private equity cycle, that stake in Arqiva might be worth much more than the current valuation. Lower inflation rates may also result in lower capital outlays to fund the vendor loan notes issued at the time of the deal.

Still getting away from the details, I sense that we now have an appropriately realistic assessment of the value of the assets in this market. It’s not the 60 to 80p I had hoped, but it’s well above the current share price, which is below 20p a share. That suggests to me that investors should sit tight and bide their time. I do worry that the smaller businesses will be sold cheaply but after those disposals. the fund will turn into what is, in effect, a secondary listing for Arqiva, which might be a valuable asset in the next few years.

Another side effect of this grim news is that some investors might run away from its rival fund Cordiant Digital Infrastructure. They might think, “Gosh, all these digital infra funds are just too risky, so let’s avoid the whole segment!”. That would be a grave mistake. As I have frequently noted, Cordiant is a very different beast to D9 – its businesses are well funded, have room for growth, and the fund has a covered dividend with a sound balance sheet. I would agree with the following summary, plus useful sum-of-parts analysis below from analysts at Panmure Liberum:

“ We think the shares ( in Cordiant) offer excellent value at this price and that the share price rating is an aberration, particularly on a relative value basis. We think the market is not affording much, if any, capital growth potential to what are operating company assets with strong balance sheets, good growth potential, and most importantly, acquired on undemanding multiples. We also believe much more weight should be placed on taking a sum-of-parts perspective, given the number of business lines CRA and Emitel in particular operate. We rate CORD as BUY with a 120p TP.  “

Specialist aircraft leasing fund DNA2 recently announced a deal that involved the sale of its five remaining A380s at $40m per aircraft  – it sold five A380s to lessee Emirates for £30.7m in respect of each aircraft. This is equivalent to $40m, for a combined total of $200m. My most recent letter on DNA2 was back in July 2022 when I wrote the following:

“Even at the now higher share price, remember you will also get two years of 18p a year in dividends. I would prudently assume a $20m valuation (for each plane), which would…imply a 1.29 return or about 120p a share. If that happens, the total return, even at the current 93p, would be 156p .. for two years.

Shares in DNA 2 are now trading at 142p.

The DNA 2 deal also gives us a reliable mark in the sand for the valuation of jumbo A380 planes owned by two other funds, Doric Nimrod 3 and, crucially, AA4, Amadeo Air Four Plus, which I discussed back in November 2022,  HERE.

AA4 has two key challenges. The first is to determine what its own flotilla of A380s is worth – these are also leased to Emirates, although they have much later lease expiration dates. The second challenge is that its other big customer is Thai Air, which went bust and put its contingent of planes on a new, much less profitable contract with AA4. As I wrote at the time, as regards that first challenge,

“The key variable seems to be what the terminal value of its big planes might be when they come off lease to either Emirates or Thai Air (the latter had gone into administration after Covid). So, what’s in the portfolio? This currently comprises 12 aircraft at 31 March 2022 – six A380s (leased to Emirates), two B777s (leased to Emirates) and four A350s (leased to Thai Airways). Jefferies had estimated then that $40m would equate to an IRR in 2030 of 14.2% and 11.2% in 2036.”

The DNA 2 deal shines some new light on likely valuations, though it must be said that the AA4s situation is far more complex than the Doric Nimrod structure. Here’s Matt Hose at Jefferies latest estimates:

“Applying the $40m transaction value to AA4’s six A380s implies some equity value for four of the aircraft given junior debt balloon payments of $35m, although no equity value on the remaining two as their junior debt balloon payments are struck higher at $40m. Understandably, this will increase the fund’s forward-looking returns. As before, we model two scenarios on AA4: the status quo where the Thai-leased A350s are sold at the end of the leases in 2035/2036; and an additional scenario where the A350s are sold early in 2029/2030. Our IRRs increase to 7.4% from 6.4% under the former scenario, and to 14.9% from 13.4% under the latter.

More important, however, is that a $40m transaction price would help de-risk the fund, eliminating the possibility that a portion of the unrestricted cash balance (£45m as at 31/03/24) would be used to make the junior lenders whole, and possibly prompting an earlier than expected cash distribution as our model currently assumes any residual cash is returned at liquidation. We also note the company’s Chairman has recently commented that the DNA/DNA2 A380 sale transactions to Emirates are ‘not persuasive’ from an AA4 context. This is likely due to the later lease expiries for AA4’s A380s, between September 2026 and April 2028, by which time Emirates may begin to receive its 777X deliveries. As such, any further delays to this programme could be positive for AA4’s A380 valuations.”

After spending most of the last year trading at between 40 and 45p a share, AA4 has now moved to 50p a share, at this level, I think it’s still decent value, although not without risk.

Back in March this year, I discussed the fast-growing Latin American digital banking business Nubank. You can read the article HERE.

I think this is, by far and away, the most exciting fintech story on the planet. It is also extremely well-run and already highly profitable. Its potential to expand from its core market in Brazil and into Mexico and Colombia is huge, and the bank could move much further afield, perhaps starting with adjacent markets like Chile and Argentina and then, very adventurously, into other continents. Despite my optimism back in March, I did say that:

“I really don’t want readers to think that there is no risk here – there’s plenty baked into the share price. Ideally, I would like to buy this stock at the sub $10 a share level, which is why it’s only on my Watch List for now. But the upside looks very substantial. I think Wall Street has underestimated the potential for earnings growth. It is completely possible—to me at least—that the business could generate EPS in 2026 of more than $1 a share, especially as it moves into selling higher-margin wealth/investment products. If that were to happen, the astronomic rating would look more realistic.”

The share price was $11.42 at the time, and now, around six months later, it’s around $14. In that article back in March, I also neglected to mention that Warren Buffett owned more than 107 million shares. That makes Nu stock a top-10 position in Buffett’s portfolio based on the number of shares owned. Buffett invested in Nu Holdings around its December 2021 initial public offering, which priced Nu stock at 9.

That’s all helpful background, but this week, I want to run through some numbers from its second quarter update in mid-August, which underlines why this fintech business is so compelling. In that quarterly update, it announced that it had earned 10 cents per share on sales of $2.85 billion. Nu’s earnings jumped 115% vs. the year-ago period, and revenue rose 52%.

·         Added 5.2 million new customers during the quarter and 20.8 million year-over-year (YoY), reaching a total of 104.5 million customers at quarter-end. This further reinforces Nu’s position as one of the largest and fastest-growing digital financial services platforms worldwide, and the fourth largest financial institution in Latin America by number of customers . In Brazil, Nu has already become the institution with the largest number of active customers in credit operations.

·         Net Income increased to $487.3 million, from $224.9 million in Q2’23, while Adjusted Net Income increased to $562.5 million, from $262.7 million in Q2’23. Revenues were up 65% YoY on an FX neutral basis (FXN) to a new record high of $2.8 billion. Monthly Average Revenue per Active Customer (ARPAC) increased 30% YoY and 6% quarter-over-quarter (QoQ) FXN, respectively, to $11.2.

·         Deposits increased 64% YoY FXN to $25.2 billion, while cost of deposits was at 87% of the blended interbank rates in the quarter, and the Loan-to-Deposit ratio (LDR) reached 39%. Nu’s total receivables from its credit card and lending portfolios expanded 49% YoY and 8% QoQ FXN, respectively, to $18.9 billion, and 81% YoY FXN in its Interest-Earning Portfolio (IEP) to $9.8 billion.

·         The 15-90 NPL ratio for the Brazil Consumer Credit Portfolio has promptly decreased to 4.5%3 this quarter, while the 90+ NPL ratio increased to 7.0%3 , in line with expectations. The 70 basis points (bp) increase in 90+ NPL this quarter is a reflection of the 90 basis points seasonal increase in 15-90 NPL last quarter.

·       Risk-adjusted NIM reached a record high of 11.0%, reflecting a 300 bp exp from a year ago and an 150 bp expansion QoQ.

Back in the middle of August, Chris Bottomley at London-based investment house  Shore Capital released a handy briefing note about equity income investing and the state of UK dividends.

Investing for an Income noted that the FTSE All Share now offers a 12-month forward dividend yield of 3.9%, which is on a par with the 10-year Gilt yield of 3.9% vs. the 10-year AA corporate bond yield of 4.9%. Usefully, Chris also ran through their favourite house dividend ideas, all of which had attractive fundamentals and dividend yields:

Arbuthnot+ (ARBB, House Stock, 940p) has a well-established commercial and private banking  franchise that uses as an engine to accumulate low cost deposits, to fund growth in relatively high- yield assets through the specialist lending subsidiaries. We view the valuation as undemanding for a sustainable low/mid-teens RoTE (12% in FY24F), and an estimated 7% compound TNAV growth from FY23A-26F, trading on a trailing P/TNAV of 0.7x. Including 20p of specials, dividend yield in respect of FY24F is >7%, striking against P/E of 5x.

H&T+ (HAT, House Stock, 409p) is the UK’s largest pawnbroker and a leading retailer of new and used jewellery. It is currently seeing strong demand for its pawnbroking services due to the withdrawal of competition following regulatory change. Retail is also benefiting from the growing fashion for recycled jewellery, while FX is seeing market share gains as increased focus has been placed on growing this business line. Further growth potential is underpinned by ongoing geographical expansion through new store openings. Together, we expect these factors to support continued attractive growth in both earnings and dividends on top of a current yield of 4.6%

STV Group+ (STVG, House Stock at 265p) offers a well-covered forward yield of 4.3% and we expect solid DPS growth across our forecast horizon backed by average there year cash conversion of c.110%. From an earnings perspective, we forecast three-year aggregate growth of over 50% reflecting strong momentum within its content production and digital divisions and an improving advertising market. We believe that the group’s current stock valuation is extremely modest and offers a very attractive total return opportunity.

Wynnstay+ (WYN, House Stock, 350p) provides livestock and arable farmers across the UK with market-leading products and specialist advice/services to facilitate high-quality, safe, sustainable and environmentally friendly food production in a profitable manner. The Group is a critical/vital partner in supporting UK agriculture/farmers in ensuring efficient food production (cost-effective food for consumers), food security and food safety, which is becoming an increasingly important issue. We also believe that the Group’s market leading blending capabilities across seed, feed and fertiliser will be a significant beneficiary, as farmers transition to higher value/bespoke product offerings. Wynnstay trades on an FY24F PER of c.9x, EV/EBITDA 3.6x, FCF yield of c.20% and dividend yield of >5%. The asset backed Group currently trades on an >40% EV/EBITDA discount relative to its five-year avg. at 6.5x and its NAV at 591p/share.

The chart below is also very useful – it shows the output of a FTSE 350 dividend and fundamentals screen.

If you are interested in investing in UK equities, make sure you come to an event I’m involved with on the afternoon of Wednesday, October 9^th (apologies, I’d mistakenly put in the 6^th last week).

It’s the annual Investor event for UK trust Aurora, where I am a non-executive director. Gary Channon of Phoenix manages the fund and boasts a unique all-equities (small to large cap) value-based approach with a fantastic long-term track record. The event itself is at the Queen Elizabeth II Centre in London. The event will review performance and provide updates on the portfolio holdings.

Commencing at 3:30 p.m. with teas and coffees on arrival, the event will feature presentations from Gary and the investment team and an opportunity for Q&A. Aurora invites you to join them for drinks afterwards to meet the wider team.  Full details as follows:

Time:  3:30 pm – 4:00pm (Teas and Coffees)
           4:00pm – 5:30pm (Presentation)
           5.30pm onwards (Drinks & Meet the team)

If you are interested in coming – you don’t have to be an investor – please follow this LINK, where you can RSVP.

And lets be honest, its probably already pretty bad but Jesus Fernandez-Villaverde in The Spectator reckons that UN projections overstate the fertility rate which he puts at 2.18 and argues “Creating the conditions for large families to flourish is the only way to reverse the trend in fertility rates.” Good luck with that hope!

“By adjusting the UN’s figures to account for the lower births in many countries, I estimate the global fertility rate last year was 2.18, i.e. below the 2.21 replacement threshold. It could be even lower than that, as it’s likely that the birth rate in many African countries saw a larger fall than the UN estimated. This doesn’t mean the global population is already falling. ‘Demographic momentum’ means that women born in the 1990s and 2000s are currently having children, while their parents’ generations haven’t yet died. Longevity, meanwhile, is increasing. So although global births are falling, they still exceed deaths. At present rates the human population will peak in around 30 years. Then start plummeting. Creating the conditions for large families to flourish is the only way to reverse the trend in fertility rates. If we fail to do so, then the coming demographic winter will be far harsher than anyone cares to admit.”

More HERE

The economic historian Adam Tooze has a fantastic deep dive into the inner workings of the Lebanese Hezbollah movement. He reminds readers that this enormously powerful militia cum political party cum rival military power centre is so much more than just an ally of Iran. It’s also deeply embedded in the Lebanese economy.

“To give one critical example, the failure of central electricity supply makes local government and privately operated generators into key suppliers. As Samara Azzi and Hanin Ghaddar report electrical supply becomes political in the most direct sense:

the two Shia parties own the generator networks in Beirut’s southern suburbs and the country’s south. It does not cover the Baalbek-Hermel area, but local observers confirm the same trend there.52 Generator networks are run in one of three ways in Hezbollah-controlled areas: (1) They are owned and operated by the municipalities—which are typically controlled by Hezbollah (or Amal) members.53 (2) The party works through an individual to run the network as a private enterprise, even as the investment and profits consist mostly of Hezbollah cash. Or (3) they operate through a “private-public partnership” involving the municipality and private actors. Whichever the arrangement, the infrastructure and funding come from the “Party of God” and ultimately benefit Hezbollah operations. Unsurprisingly, the individuals and their companies are usually fronts for Hezbollah, or parts of its business network.54

Since the collapse of the Lebanese financial system in 2020, the Hezbollah-controlled financial firm known as al-Qard al-Hasan Association, or AQAH has expanded from paying Hezbollah’s army and officials to supplying liquidity to the wider Lebanese economy.

As one recent report described its operations:

In 2021, several of AQAH’s branches began installing ATMs that dispense large sums of Lebanese pounds and U.S. dollars to borrowers. Borrowers can withdraw as many dollars as they want and renew loans indefinitely, so long as they provide the collateral of gold, whose value is currently at an all-time high. Although there have been reports of gold confiscations in response to defaults, these cases are limited due to the negative impact this would have on Hezbollah’s public image. Instead, Hezbollah tends to hold onto the depositor’s gold while offering the option of renewing loans against it indefinitely upon repayment.

Want to set up a small business? AQAH will make you a loan. Want to answer the power crisis by installing cheap Chinese solar panels? Hezbollah controls the imports and it will be happy to provide you with financing.

Under US sanctions since 2007, Hezbollah’s shadow bank operates at arms length from the officially licensed and regulated banking system. It relies on a network of front operations and helpful connections in friendly Arab states. It may be cumbersome and rudimentary in its techniques. But, all told, it boasts of providing billions of dollars in loans to Lebanon’s families and small businesses.

Many of the loans are secured against gold, meaning that Hezbollah has become an aggregator of savings and assets, on the basis of which it can make rotating loans. To get its hands on dollars, Hezbollah, with the consent of local financial interests, operates a network of exchange shops. As Azzi and Ghaddar explain, Hezbollah exists not in isolation but in mutually beneficial cooperation with Christian business interests in Lebanon:

In the Lebanese cash economy, Hezbollah’s Christian allies control the foreign remittance services and the hard currency coming from abroad, while Hezbollah and Amal actors run the foreign exchange houses, and the internal transfer market— which deals mainly with payment to government ministries—is controlled by former Zgharta mayor Mouawad. This three-way setup ensures the financial health of the Hezbollah-Amal-Bassil axis—which in turn relies on BDL, the facilitator of a highly corrupt process, and the Ministry of Finance, the collector of payments and the distributor of contracts to internal transfer companies.

Hezbollah has friends not just in Teheran but in Baghdad too. Iraq’s foreign exchange regulations allow tourist travel schemes to be exploited to shuffle dollars into Lebanon.

A further source of revenue comes from Hezbollah’s connections to the Captogen drug-running schemes that have become a key pillar of the Iran-backed Assad regime in Syria.

Even further afield, investigations by the US authorities have exposed a set of connections between Hezbollah and the Syrian and Lebanese diaspora in South America and particularly in Venezuela. Most recently these networks appear to have been trading Iranian oil for Venezuelan gold, which is hoarded by the financial authorities in Teheran. As a result in 2000 Washington labeled Hezbollah not only as a terrorist organization, but as a transnational criminal organization along with MS-13 and the major Mexican cartels.

I’m in no position to judge the plausibility of these, at times, surreal seeming claims. Are there really Hezbollah-aligned clans dotting the Atlantic coastline of Venezuela?

The Atlantic Council thinks so, and what that means for Lebanon is that there is not just a war with Israel to worry about, but the Damocles sword of the Paris-based Financial Action Task Force (FATF. 

More HERE

The science website Azimov Press has a cracking piece about measuring the Black Death, which we all knew was terrible and devastating, killing (we think) between 40 and 60% of the European population.

The question remains: How devastating was it exactly, given that few mortality records are available to assess the impact (which we know is massive)? Researchers are increasingly focusing on tax registries, which reveal important weaknesses in how we measure the cataclysmic impact of the Black Death.

“First, we lack good historical data on the Black Death’s impact on women and children. However, we do know that modern plague has been more deadly for both due to social and biological reasons: women and children spent more time at home and women tended to care for the ill, resulting in higher exposure to rats, and pregnant women infected with bubonic plague have very high rates of abortion and/or death during pregnancy.

Second, we lack certainty regarding average household size and makeup. The Black Death led to labor shocks, migration, and social mobility, wherein laborers inherited resources and moved into housing that had been left empty. This likely affected the size and makeup of households in the following years, which would then be used as the comparison for estimating pre-plague populations.

In some cases, censuses were conducted to gather this data. An example was in the Tuscan commune San Gimignano, a self-governing area that included a town and its surrounding rural areas. In 1350, the local government sought to make good on its salt monopoly and organized a tax list similar to a census to estimate the area’s population size, so it could implement a “salt tax” on all citizens except children under seven years old.⁴

Comparing the 1350 tax list to the town’s previous tax list, compiled in 1332, suggests that 52 to 60 percent of the population died during the Black Death.⁵ (Note that 18 years elapsed between the two tax lists, which means we’re making a strong assumption that the population was roughly stable up to the Black Death.)

It might seem reasonable to assume everyone would want to be counted because salt was important for taste and food preservation. But the salt tax was costly, and households might avoid paying it for servants and maids, or claim that older children were under seven years old. And there were urban workers who commuted to Florence for day work and could bypass the tax or the need for local salt provision. This goes to show that even with detailed medieval data, we’re required to make strong assumptions in order to make estimates of the death toll.

Finally, the plague itself disrupted historical record-keeping, taxation, and burials, and caused demographic shifts, which affected records from the time. Given such limitations, how can we accurately estimate the Black Death’s toll?

One approach is to make educated guesses about some of the factors we’re unsure of, such as the average number of children, rates of tax evasion, child mortality, pregnancy mortality, and disparities between regions. This allows us to develop plausible ranges of mortality for different data sources and is what historians and demographers have done so far. 

Another approach is to combine many different data sources and their uncertainties together in a single statistical model, but this has been less common.

In either case, we still face a large underlying problem. We lack sufficient data to fully understand many past pandemics. The COVID-19 pandemic, whose estimated death toll varies between 19 million and 35 million, is just the most recent example. Most of the uncertainty comes from low- and middle-income countries, which tend to have patchier data. 

Or consider influenza. Since 1580, researchers believe that we’ve faced between 10 and 28 separate flu pandemics, but without further historical research and genomic sampling, it’s hard to be confident. Global mortality estimates have only been made for a handful of these flu pandemics. This includes the 1918 “Spanish flu” pandemic, whose estimated death toll ranges between 50 and 100 million deaths worldwide.

The same holds for cholera, which has caused seven pandemics in the last 200 years. Around 23 million people died from the disease in India alone between 1865 and 1947, but there are no global mortality estimates. For the third plague pandemic (1894–1940), only rough estimates have been made for India and China.

We lack knowledge of the cause of plenty of additional pandemics, such as “sweating sickness,” which led to multiple deadly outbreaks in Europe in the 15th and 16th centuries.

The Black Death isn’t an isolated case, though it happens to be one of the most well-studied. Our poor understanding is the result of a historical dearth of statistical institutions collecting data on deaths and their causes.

We don’t have sufficient data on most areas of 14th-century Europe. We lack data on the number of deaths broken down by cause from most medieval states. In fact, we generally lack data on the number of deaths in total from any cause. Even data on the total population size of Europe in history must be extrapolated from a few regions and periods, based on strong assumptions.

While some states collected this data in the past, it tended to be infrequent or came from select regions. London, for example, only began collecting data on the number of deaths by cause in the 16th century, to track epidemics such as plague and smallpox. England as a whole followed much later, in the 1830s.”

More HERE