Coronavirus remains a destabilising threat

Blain’s Morning Porridge – July 13^th 2021: Coronavirus remains a destabilising threat

“With flaming locks of auburn hair, with ivory skin and eyes of emerald green…”

This morning: As Freedom Day in the UK approaches, just what are the risks? Rising infections, and more virulent and dangerous mutated variants could still put a kybosh on reopening. Are we doomed to a repeating cycle of lockdowns? And what could that mean for markets? Probably another opportunity..

A good chum runs a successful restaurant. He’s right at the centre of our nicely prosperous village. His place is full most evenings with families feeding their kids pizza and pasta after they’ve been sailing, and rammed Thursday-Sunday with locals and visitors. It’s a village hub, yet he just closed it and did a swap – moving outside the village to set up a new restaurant at a marina up the river. It’s a 20-minute drive away.

He might be a genius.

The critical difference is his village venue has no outside space. The new marina spot is surrounded with woods and land overlooking the river with space for plenty of outside tables and firepits. He’s already installing heaters and shade/rain-cover. His reasons for moving are complex and cost based, but the fact he will have outside room to continue his business if/when Covi0d strikes again was a critical factor. He knows Covid has changed the world. (For the record, the new place was excellent when we visited on Friday night – and we ate inside!)

It’s not just rules that closed down inside venues and have hammered the hospitality business, but as a recent poll in the UK shows, attitudes towards post-covid entertainment may have changed. Apparently, a large part of the population won’t mind if we end up wearing masks forever – but the poll questions were somewhat loaded by fanatical Covid-nazis.

Most of my market contacts believe its high-time we pressed on with the reopening of commerce and learn to live with any post-Covid risks. They look at the risks and conclude there will be costs from equipping health services to cope with numbers, new therapies, and from new variants, but these will just have to be borne. Others warn that Covid is becoming a distraction from bigger issues like climate change.

I would simply observe the Pandemic has indirectly caused the largest ever redistribution of wealth in human history – from the poorest in society towards the richest. The elites have seen the value of their financial assets soar on the back of Covid support packages and ongoing easy money policies. No one is yet talking about how to undo that – and if they mention it, they are immediately branded a communist! Tax them till the pips squeak!

The widespread expectation of a strong global recovery is based on reopening. Politicians know they have to reopen, but are also acutely conscious of the election risks if they misjudge – as the Dutch are discovering. They have to balance how people react to new freedoms as society reopens. Boris was havering about “I can’t say this emphatically enough, but this pandemic is not over..” It still carries risk.

The new generation in government, like UK health minister the excellent Sajid Javid has accepted the number of new cases could climb to 100,000 per day; “coronavirus is not going away”, he said. For better or worse, the UK government is reopening – and good on them for doing so. In contrast to the UK, around Europe, rising infections means nations are shelving reopening plans and abandoning their tourist seasons to close as the Delta variant sweeps through.

Covid may be beaten according to the vaccinators and politicians, but no one had explained that to the mutating virus. The scientists advising governments fear two things; mutations, and human behaviour causing a spike in infections. They are predicting a post freedom-day surge in the UK as the R-number balloons.

The fact is economic growth is all about human behaviour. As stock markets price in “the strongest earnings season ever” according to one US investment bank, the reality is a resurgence in Covid could knock back the global economy just as quickly. (For the record – yes, we will get a strong earning season, but bottom line profits and margins are going to be thumped by supply-chain issues, commodity price hikes caused by hoarding, and rising inflation.. Get over it.)

In Covid threat terms Delta will be followed by the Lambda variant, the dominant strain in Peru where it’s has achieved the highest observed Covid mortality rate. It’s now spread to over 30 countries – and, yes, it’s here in the UK. The Peru Covid fatality ratio is a frightening 9.3% – but that may reflect under-reporting of infections. According to John Hopkins University, Covid deaths per 100,000 in Peru are 598, nearly double the rate anywhere else. (In the UK the cumulative number is 193 per 100,000, and a fatality rate of 2.5%. In the US it’s 1.8% mortality rate and 185 per 100,000.)

According to an excellent piece in Forbes other variants like Eta, Iota, and Kappa are also of “interest” to the WHO. New mutations will continue to spread – and although we don’t really know if they are or are not more transmissible or more deadly than the earlier strains, or how effective older vaccines are, or whether we need new booster shots, or how the new strains react to new therapy regimes, it’s clear the world has changed.

Just how scared should people be? That’s the difficult question.

One useful page is the UK hospitalisation stats – showing the number of patients admitted to hospital with Covid and the number on ventilators – but it doesn’t show outcomes or how many patients recovered and went home. For instance, we know that on the 6^th of July 563 new Covid patients went into hospital, but extrapolating from the data, the net increase was only 193 – 33 people died of Covid that day, therefore 337 people were well enough to go home. The UK death rate has fallen to 2 per 100,000 since mid-May.

Yet Delta infections in the UK are soaring. Although the hospitals are not swamped, most patients are going home, and the death rate has tumbled, the fear remains… that the NHS could still be swamped by an exponential explosion in cases, or that a new variant will undo all the work done thus far. According to the Torygraph – not normally given to Covipanic – the rising number of hospital admissions are above the expectations of government modellers.

There is lots of data available on how its younger folk who are being infected and they are not likely to die, or how long covid is a serious threat to the under 30s. There are stories of people suffering multiple cases of Covid, even an elderly lady being infected by two different stains on the same day. It’s difficult to draw any clear conclusions – except the obvious one that the risks now seem far less for most people.

That is true today.. but will it be true tomorrow if/when a more virulent, more deadly strain does emerge? How quickly will that force lockdowns and renewed government bailouts of the economy? Will that be a signal to buy markets on renewed government largesse?

Meanwhile, here in the UK we are less than a week away from July 19^th Freedom day.. Chums in London were telling me they are looking forward to the reopening of The Peppermint Hippo “gentlemen’s entertainment club” – not that I’m in the least bit interested… I suspect it might close fairly swiftly on any sign of rising infections… Now, if I was the proprietor of a Lap-Dancing Bar, should I be looking for an open-air venue?

Five Things to Read Today

City AM: Masks, mass events and more in the office: What Freedom Day means for you

Bloomberg: Johnson’s UK Virus Gamble Sparks Fear and Unease as Cases Grow

Torygraph: Lagarde poised to extend Eurozone life support as Delta Variant takes hold

FT: The quest for the investment Holy Grail – an index of everything

WSJ: ByteDance Shelved IPO Intentions After Chinese Regulators Warned About Data Security

Out of time, and back to the day job…

Bill Blain

Strategist – Shard Capital