Market Thinking

making sense of the narrative

No escaping the Covid narrative just yet

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Just when I thought I was out, they pulled me back in again

Michael Corleone. Godfather lll

A wise man once said that all life could be explained through one of two prisms, Cricket and the films of the Godfather trilogy. It was a quote from the latter that sprang to mind this weekend as we realised that any attempt to move past the two dominant narratives of the last nine months – the US Presidential Election and Covid 19 – was to be frustrated by the two combining to crowd out all other news for the next week (at least).

The narrative and timing continues the eerie feeling of living inside a movie script; the apparent super-spreader event not being a BLM rally or even a Trump rally but the Rose Garden where the Trump administration were gathered to announce the controversial (for Democrats) appointment to the Supreme Court. The President is thus likely sidelined until after the Vice Presidential debate on October 15th, which now has a greater focus on both VP candidates than usual. President Trump’s health is likely to overshadow most meaningful discussion for the next week at least and then we wonder, where will the narrative/script go next? Will he re-emerge as a kinder, more empathetic Trump? Or even more ‘Trump’ than before?

We have to hope at least that he doesn’t re-emerge like Boris Johnson, whose own (serious) bout of Covid garnered a huge sympathy vote but appears to have left him incapable of leadership – although the serialisation of a new biography suggests that this may not be a surprise to his inner circle. In particular, Boris seems to have fallen for the twin logical fallacies of the False dichotomy and the Middle Ground fallacy. The false dichotomy suggests that the only two options are further lockdowns or a complete relaxation (“let the virus rip” as Health Secretary Hancock puts it), when the actual alternative is a slow and steady opening up. The Middle Ground fallacy is thus to settle on a compromise between the two false extremes – giving local lockdowns and the inane ‘rule of six’ – which is actually the worst of all possible worlds.

Those who believe masks are the answer are naturally claiming that it was the failure of the Trump team to wear masks that made them infected – although they have previously said that masks don’t protect the wearer, rather that they prevent the wearer from infecting others. Don’t let the facts get in the way of a good narrative as they say. Readers are probably extremely bored with the whole Covid story, but we would recommend this article – from the always interesting Hector Drummond blog – which is beautifully succinct in laying out the arguments for ‘moving on’.

The startling fact is that dying with (not even from) Covid 19 is now the 17th most ‘popular’ cause of death in the UK – and similar elsewhere, and as the chart from Christopher Boyer also at Hector Drummond blog shows, it has fallen from almost 40% of weekly deaths back in April, to a little over 1% now.

ONS England and Wales Covid-19 deaths as a proportion of all deaths registered that week.

One of the (much) greater causes of death now is traditional influenza – almost 10x the number in fact, although in context – something which is rarely quoted – this is currently on a completely ‘normal’ seasonal path. However, this in turn should raise the question of why with all the social distancing and mask wearing this isn’t in fact lower than normal? After all, unlike Covid, we do have a base level to compare against. We know from international observation that the progress of Covid appears to be relatively independent of variations in style and severity of lockdown, masks etc, but if they also have no meaningful impact on ‘normal’ seasonal flu compared to previous years of no lockdown, then what indeed is the point?

The harsh reality however, is that the promotion of lockdown, and in particular mask wearing – originally advised against but now almost universally adopted, despite no additional evidence of efficacy – has become heavily politicised by the US; wearers = democrats = good people, Non wearers = deplorables = bad people. As such it is probably quixotic to keep rehearsing ‘the facts’ since the authorities must know them by now, but choose not to do ‘what we would do’. This of course is a classic mistake of forecasters – seen often with interest rate predictions where economists predict what they would do themselves instead of what those actually setting policy (central banks) are actually most likely to do.

The good news is that whoever wins the US Election they will almost certainly make their first ‘hundred days’ about Covid (still) and almost certainly this will mean more pragmatism and easing of restrictions – while naturally blaming the other team. Assuming that is, if they can navigate the certain escalation of tensions from whichever side loses. The unwelcome precedent set in 2016 by both Remain supporters in the UK and the Democrats in the US of refusing to acknowledge the legitimacy of the winning side is now a key medium term risk for markets, contributing to a desire to sit on the sidelines.

Nevertheless on Covid and lockdowns, with the US leading the way, it is to be hoped that much of the rest of the west can start to follow and one of the key things to look out for next year will be how much the Globalists and the men of Davos succeed in their ambitions for the Great Reset, especially with the UK having finally left the EU. Meanwhile in Asia, China has already moved on from Covid, which is positive for the cyclical goods selling into China and those exposed to Chinese consumption, encouraging some strategic allocation towards Asia. Also a new administration in the US is actually likely to dial down the rhetoric on trade – if nevertheless continuing to strategically retreat from China. Sadly Hong Kong has yet to move on and continues to be effectively ‘closed’ to international business. Perhaps with the end of Golden week and with no more festivals to act as catalysts for protests we too can start to relax a little. Here’s hoping.

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