Long Covid and Political Risk  

Markets anticipate the end of pandemic, but the news flow from India highlights ongoing global crisis and Covid is here for the long-term. The risk of political instability from failed Covid policies is high. In the UK, political instability could ratchet higher on the rising tide of Tory sleaze and Dominic Cummings taking his revenge cold.

Blain’s Morning Porridge – 26 April 2021: Long Covid and Political Risk  

“My chances of being Prime Minister are about as good as my chance of being reincarnated as an olive ”

This morning: Markets anticipate the end of pandemic, but the news flow from India highlights ongoing global crisis and Covid is here for the long-term. The risk of political instability from failed Covid policies is high. In the UK, political instability could ratchet higher on the rising tide of Tory sleaze and Dominic Cummings taking his revenge cold.

If the Pandemic was going according to script, this week we should be seeing further steps towards the reopening and normalisation of the global economy on the back of vaccination programmes breaking the pandemic’s back. Signals and indications of recovering growth have been driving up positive market sentiment since vaccinations began last December. The UK and US are ahead of their inoculation curves. Sure enough, there is even a piece on BBerg this morning about how strongly first-class air-travel is set to come back as repressed travellers use their accumulated miles to fly sitting in the more socially-distanced front end of the plane.

Instead, the headlines are all about India – the latest nation where Covid is running riot. The BBC’s breathless reporters file stories of how hospitals are close to breaking point, alleged political folly from not locking down earlier, a failing vax programme, and the human tragedy of not being able to visit elderly relatives because India is now on the Red List – meaning you would have to pay for hotel quarantine.

The press just loves to scare the bejesus out of us.

Just a few weeks ago it was Brazil that appeared to be on the verge of collapse. We had a similar flow of news items about chaotic hospital care, failed government policies allowing new more deadly variants to breed and infect millions on the back of negligible containment, while President Bolsonaro’s initial denial, (calling it a “little flu”, and branding regional governors who locked-down to be tyrants), has resulted in Brazil being turned into an avoidable humanitarian disaster.

Yet, the numbers have peaked in Brazil. New cases have been falling through April, and are now down 20% from the peak in March. Let’s not lose sight of the fact nearly 400,000 people have died – but the country did not implode. They coped.

Covid is real, it’s terrible and it’s tragic.. and there is not much we can do about it except get on with it.

Brazil and India share a number of commonalities. Both have established national health services which are “adequate” in normal times, but neither is the kind of wealthy well managed nation likely to cope well in times of crisis. There is enormous disparity across both nations in terms of regional wealth, equality, education and incomes. Both nations saw the virus politicized in terms of India allowing religious and sports events to go ahead, while Bolsonaro’s refusal to engage lockdown is well known. In Brazil some parts of the country saw limited deaths while others were overwhelmed. It will be the same in India.

The bottom line is that everywhere the main determinant of the Covid deaths has boiled down to inequalities with low-income, poor-health populations suffering more than the wealthy regions.

Some nations have done comparatively well, others comparatively worse.

Covid performance is a factor markets are watching and trying to figure out. As it now looks like Covid will be a long-term feature and new variants look set to emerge requiring long-term care and vax programmes, the trick will be to get past the headline news and figure out which economies will require full lockdown to avoid the hospitalisation crisis? Which are likely to prove more resilient and less likely to collapse, requiring less of lockdown?

That may sound like a cynical investment principle – but it’s fairly basic. Which countries look more likely to be a good long-term bet, and which aren’t? The trick for markets will be anticipating where future waves of the virus will do least and most damage.

All of which leads us to the political cost of the Pandemic. Political stability is a key investment metric – the less stable a nation, the more it has to pay to borrow and the less likely its companies are to thrive. Its currency will be pressured. There are bound to be political leaders who will pay a hefty cost for their pandemic failures, ranging from rich nations (including Europe’s flawed vaccine responses) and those that have done well…

Which doesn’t look likely to include the UK’s premier, Boris Johnson.

The weekend reports that Johnson apparently said he’d rather see “bodies pile high in their thousands” than order a third lockdown sound preposterous…. But you can’t help but imagine a scenario when he may just have said such a thing with some rhetorical flare. Boris is paying a very high price for his previous reliance on Dominic Cummings – and could well pay the ultimate cost for ditching him late last year. What are the odds Cummings revelations could cost him his very expensively redecorated Downing Street apartment?

This should have been the UK’s year. Fresh from Brexit and the success and speed of the vaccination programme, the UK had a national opportunity to reinvent our mercantile past, opening new trading relationships and using the government’s rediscovery of fiscal policy to direct growth, recovery and new economic activity. We could have been relaunching a revitalised UK onto the global stage. We could have been redirecting investment into the regions, reforming the NHS to make it fit for a modern age, and rebranding Global Britannia as a haven of inventive, innovative entrepreneurship.

Instead, we’ve a government riven by sleaze where the impression is becoming a Tory MP is the first step on a gravy train to unlimited wealth from preferential access to government contracts and high-paid corporate sector sinecure jobs. It really feels time someone in government is punished…

But, will it be Boris on the basis the buck should stop with him? Probably not. Who would be the alternative? That’s why I’m thinking we need a UK Cabinet deadpool – which minister will be thrown to the lions to appease the mob? Maybe Matt Hancock? We will find out what the public thing at the local elections n Mid-May. Apparently 38% of UK population reckon the Tories as a party are corrupt.

It’s the way you tell them that matters.

Last week I called for Bitcoin to be banned on the basis it (uselessly) consumes so much energy derived from the burning of fossil fuels. We know that’s fact – demonstrated by the China power outage last week when a coal fired power station going offline closed down a large number of coin miners. Meanwhile, Cathie Wood, darling of the stockmarkets for her distruptive tech stance at ARK, countered with an argument that Bitcoin mining is positive for climate change as its driving the adoption of renewable power across the world.

  • Aside from my joke Coinbase account (down 14% since I opened it), I am not invested in cryptocurrencies.
  • Wood’s Ark ETF’s are over 5% invested in Grayscale – and investment vehicle in Bitcoin. She has publicly stated she expects Buttcoin to hit $500,000. She is also invested in Coinbase.

Which of us has a vested interest in the success of the cryptocurrency? I leave readers to make their own mind up.

Five Things to Read This Morning

Garuniad – Johnson faces MPs’ fury over Downing Street sleaze claims

FT – China stock sales in US surge to record despite delisting threat

BBerg – India’s Covid Crisis Threatens a Global Oil Recovery

FT – Qatar boss pours cold water on hopes for rapid aviation recovery

WSJ – SPAC Insiders Can Make Millions Even When The Company They Take Public Struggles

Out of time and back to the day job.

Bill Blain

Shard Capital