When governments first started responding to the Covid 19 pandemic by locking down economies and using War metaphors, we suggested that it all had the air of the British Comedy series Dad’s Army; with the Media acting as Corporal Jones, panicking hugely while shouting “Don’t Panic’, the medical profession as Private Fraser saying ‘we are all doomed’ and government represented by the charming but hapless Sergeant Wilson and the bluffing but hopeless Captain Mainwearing. We also warned against the likely appearance of the bolshy, authoritarian Warden Hodges. But the sun was shining and the great British public, rather like Private Pike, went along with the initial lockdown, queueing for their groceries while staying 2 metres apart and washing their hands frequently. Everyone in the state sector got paid for not coming to work, as did most of the private sector, even if it was actually now the government paying them as well through ‘furlough’.
Now however, and to invert the famous phrase of Karl Marx, that ‘all great historical facts and personages occur, as it were twice – the first time as tragedy, the second as farce’, what we see now with government response is that while the first time was farce, this time is potentially tragic. In comedic terms, we have shifted from the ‘all life and its comedy is represented in these characters’ of Dad’s Army to the tragi-comedy of Blackadder goes forth. This time the British public are Captain Blackadder, Baldrick and the hopeless (and hapless) George, while the medics and scientists are now the General Staff and the politicians are, well, just like WW1 era politicians.
General Melchett appears to be running the UK War on the Virus
We mean no disrespect to the fatalities from the first world war in making this comparison, but from an investor perspective we feel it may be instructive as well as interesting, for we also suspect it represents a similar end of regime type situation.
As with WW1, we began this ‘campaign’ fighting the last war, believing initially that this was an influenza type virus. Indeed, the two sub groups of SAGE (the equivalent of the old War Office in this analogy) responsible for modelling and behaviour, SPI-M and SPI-B are named in full, Scientific Pandemic Influenza Group on Modelling and Scientific Pandemic Influenza Group on Behaviour. In other words, they were modelling for a flu like virus. Moreover, as we now know, the initial response protocol – at least in the UK – of nothing more than Paracetamol and putting people with low oxygenated, but clotting, blood onto ventilators arguably ended up killing more people than it saved. This is the equivalent of sending cavalry and horse artillery in to face machine gun nests. Similarly discharging elderly and vulnerable patients from hospitals into care homes without testing was a huge execution error equivalent to failing to bring up reserves to support an attack (be it the Somme or Galipoli) and being forced to retreat with huge losses and no gain.
Lockdown however was the equivalent of the start of trench warfare. To continue the metaphor, attempts to ‘eliminate’ the virus by shutting down whole economies were the equivalent of the 7 days of artillery bombardment that happened at the beginning of the Battle of the Somme. They achieved little or nothing in terms of the Virus (which as we now know from the death toll had in fact already peaked) but destroyed hundreds of thousands of jobs and businesses. In the same way, the focus on flu based modelling meant that schools were closed unnecessarily, even as data was showing that children were not getting or spreading the virus.
The ‘It will be all over by Christmas’ message from the first World War was replicated in terms of ‘Three week lockdown’ and interesting to observe that the SPI-B behavioural group are employing many of the methods described and used by Edward Bernays, otherwise known as the father of PR, in his 1920s book Propaganda. Bernay’s himself, who was incidentally the nephew of Sigmund Freud, had been instrumental in persuading Americans to enter WW1 through, inter alia, the technique of demonising Germans by unsubstantiated tales of German atrocities and the creation of the recruiting character Uncle Sam and these and other mass persuasion techniques were essential in sustaining the justification for War. In a very similar way a hundred years later, the PR industry is being used as part of a relentless propaganda campaign to justify the continuing ‘War on Covid’.
The latest focus on a ‘Casedemic’ is thus equivalent to ‘ the big push’ that sees Captain Blackadder, George, Baldrick and Captain Darling go over the top at the end of the tragi-comic series. ‘Everyone’ seemingly knows and realises that there is a big difference between cases rising through testing and increases in serious illness and fatalities. The data is there, but ‘no-one’ is talking about it. And yet, a rise in cases is being used for a continuation of the trench warfare to ‘eliminate Covid’.
There is so much that is wrong with the behaviour of the General Melchetts running the UK response at the moment that the best thing we can suggest is to get a proper analysis of the data from Ivor Cummings. All his stuff is excellent, but this clip nails it (it’s quite long but worth it). A quick summary here can not do it justice, but suffice to say his point (made through many fascinating graphs) is that the data shows that the Covid virus followed almost exactly the same pattern regardless of human response, lockdown or not, masks or not (something we noted right at the beginning). Moreover, there is a strong seasonality with all respiratory diseases that Covid-19 has followed and that in Northern climes it essentially disappeared in the summer. More tropical areas, such as South America and the southern states of the US are also showing a ‘lagging’ but also in a typical seasonal pattern.
He also makes a strong case for the ‘dry tinder’ effect. Those countries that had seen previously mild flu epidemics for the previous couple of years lost a lot of elderly and infirm people quickly at the beginning. The fact that two of these, Sweden and the UK, also made the mistake of discharging from hospitals into care homes compounded this of course, but rather like the fact that very few trees were lost in the first big storms after 1987 (the weakest all having already gone) it looks like, in Sweden at least, that the storm is completely blown out. Finally he highlights the possibility that, leaving aside the non Covid deaths – Covid deaths are a little over 1% of total deaths at the moment – by limiting interaction and general immunity through lockdown we are in fact increasing the chance of a normal winter flu season being far more lethal.
There is a lot more, but the bottom line is that if governments don’t know these facts (and they are facts) then we should ask ‘Why not?’ and if they do, we should be asking “why then are they continuing with the equivalent of trench warfare?’
The reason for writing all this is not to be another lockdown sceptic blog, (there are plenty of those emerging of which lockdownsceptics.org is probably the best starting point) but rather to try and see how this might play out for economies and investors. The reality is that the sunk cost fallacy is now so entrenched that the governments don’t seem to be able to be deflected from their current course. Interesting that this seems to be particularly true of the ‘five eyes’ countries where the focus on ‘ a vaccine’ is the equivalent of German surrender with the big Pharma companies in the role of the arms manufacturers in WW1 looking to extend the fighting as long as possible. Merchants of Health perhaps?
A second lockdown in response to an imagined second wave looks, sadly, increasingly likely in the UK if we are to take at face value the output of the propaganda machine that has unfortunately become so consumed by its own previous narrative that it has lost sight of what we are actually trying to achieve. If so, then the V shaped recovery in the private, gig, economy is at best postponed and at worst cancelled entirely, while the U shaped recovery on the high street could become an L. In particular the hospitality sector was relying heavily on a Christmas season that the Melchetts have now cancelled. Some may never come back and the lack of supply will only push prices higher in the medium term. Stagflation therefore beckons.
Meanwhile the law of unintended consequences continues to run riot. Cancelling the VAT refund system for non UK citizens when the UK leaves the EU in January sounds like a good way of saving money, but then so did saving GBP4bn a year through ending imputed tax credits on dividends. The fact that it destroyed a previously healthy pension system was overlooked (although many of us warned about it at the time). The reality is that much of the UK’s inbound tourism from Asia and the Middle East is tied up with this and the associated spending on hotels, shopping not claimed back etc. dwarfs the refund cost. Ministers might not mind if it kills of what remains of Bond Street, Knightsbridge or Bicester village, let alone the Airport sector, but we will all be the poorer for it.
Longer term, we might consider how WW1 marked an end of Empire, with the Russian, Austro Hungarian and Ottoman Empire all coming to an end in the few years afterward and hindsight demonstrating it to be not only the beginning of the end for the British Empire – but the start of the American one. This too was an end to a period of globalism, replaced by tariff wars and a structural change in the monetary system. China is obviously playing the US to America’s UK in this scenario, but what of the EU? Will its fate be that of the Ottoman Empire, or maybe Austria- Hungary? And the US, will their fate be similar to the UK, or even 1920s Russia?
A final thought. The US has undoubtedly politicised Covid, so while on the one hand that means we have another almost 50 days to go, on the other it could represent a reset. And where the US goes, the UK and the rest will follow. Perhaps Covid will unconditionally surrender on November 11th? Here’s hoping!
