Market Thinking

making sense of the narrative

Spring, but not sprung

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Wanderer on lockdown

Most of Europe is keeping its borders closed, while Hong Kong has basically banned visitors and any returning residents are effectively being placed under very close house arrest for a fortnight on returning. Meanwhile, in the UK, the aptly named deputy Prime Minister D.Rabb announced at the end of last week that the UK lockdown would extend for ‘at least’ another three weeks. As a result, I remain confined to pleasant if frustrating surroundings in the English countryside, where at least we have been blessed with almost permanent clear blue skies and sunshine for over a month and have been privileged to watch the arrival of spring, even if we are not yet sprung.

Our little seaside village, with polite but orderly queues outside the greengrocer, the butcher and the chemist as well as the small but well stocked co-op, does currently have an air of wartime Walmington on Sea about it, which is consistent with a general feeling that we are all living in an episode of Dad’s Army. The characters are obviously central not local, with the scientists at Imperial College playing the role of Private Frazer (“We’re all doomed”), the Media as Corporal Jones (“Don’t Panic, Mr Mainwearing!) and government officials as some combination of the charming but hopeless Sgt Wilson, the blustering out of his depth bluffer Captain Mainwearing or the well intentioned but utterly useless Vicar. There are of course far too many people taking on the role of the Chief Warden Hodges, eagerly enforcing not only the new regulations, but a lot that aren’t even there. The rest of us are left playing the role of Private Pike; obeying orders and doing as we are told, but increasingly wondering about the competence of those in charge and, more importantly, who put them there.

Many of us are also suffering from a version of Stockholm syndrome, either we are becoming increasingly fearful and compliant (as the official terminology about kidnappers identifying with their captors would imply) and demanding almost permanent lockdown, or we are looking at Stockholm itself and wondering how it is that the Swedish ‘experiment’ of not locking down totally does not seem to have produced a worse response medically than in places that did so, while obviously doing far less damage to the economy.

As noted previously, from a markets’ perspective uncertainty remains less about the virus now than about the end to the response to the virus and the economic consequences of lockdown and that is increasingly a political decision. As such we are back to policy makers driving market narratives. From a narrow UK perspective, the political weather vane that is Michael Gove appears to have switched sides from the so called Doves to the Hawks (a terminology from the Sunday Times that we strongly suspect he himself invented), meaning he is now more worried about being blamed for economic failure than for future Covid deaths. This we suspect is a calculation being made by politicians everywhere.

At the same time we are hearing from the medical profession about possible paradigm shifts in treatment, broadly in the direction that has been proposed by maverick French virologist Didier Raoult, who was recently hailed by French President Macron as ‘a great scientist’.

While there is a lot of (valid) controversy over the rigour of the testing procedure, more interesting is the potential shift in thinking and the emergence of a ‘new narrative’. In brief the thinking in some medical circles in now that that this may not simply be a respiratory disease and a viral pneumonia, but something that triggers massive immune reaction known as a Cytokine storm in some patients and brings with it bacterial pnueumonia as the body fights the virus. Meanwhile, medical professionals are spotting connections in the most seriously ill patients, including low oxygen in the blood despite no breathing problems, over-active immune responses and symptoms consistent with the body fighting the virus as it binds to ACE-2 receptors in the lungs, heart and elsewhere. Also the markers for blood clots are highly prevalent. As such  a combination of immunosuppressant (hydrochloroquin), antibiotics and the type of drugs used to treat stroke victims is being proposed – broadly consistent with Professor Raoult’s treatment advice.

This is a very interesting and easy for the layman discussion.

Of course, the more data we gather, the better our AI systems can help with diagnosis. Some interesting points here.

Markets as well as politicians are therefore both searching for a narrative, this time one of ‘Corvid Closure’. The distressed selling in mid March looks to have subsided and markets have stabilised, but to return to previous levels markets need to ‘move on’. For a while the narrative was around testing, then around a vaccine, but if, as might be the case, politicians can argue that ‘Science’ has given us a way of treating Covid such that the death rate in ICU drops, then the fear element can subside. More important for the politicians the question of whether lockdown was needed or not can be avoided as any subsequent re-emergence can be treated by doctors rather than by lockdown. After all it would be difficult to say that the Health systems were unprepared next time.

Comparisons with the world post 9-11 are not as foolish as some might claim. The period immediately after 9/11 saw sharp market reactions to apparent terrorist activity (not always real) before everything became ‘in the price’ and even major attacks caused only modest market reactions. Meanwhile the public became used to heavy security checks at airports as a norm and the periodic re-emergence of the terror threat. Life changed then, and will do again, almost twenty years later. It looks likely that to get back to Hong Kong I will need some form of immunity certificate and perhaps even evidence of inoculations, just like my dog did when he first traveled out six years ago!

To put it bluntly, markets are not particularly bothered about a few thousand ‘excess deaths’, be they from terrorism, war or infection. What they are worried about is collapsing economic activity caused by lockdowns. Governments and politicians are starting to test acceptable ways to say the same thing.

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