Markets start the week with some profit taking from the hot markets in China spilling over into a generally weaker Europe disappointed by lack of co-ordinated action on any form of fiscal stimulus ‘rescue package’. The US meanwhile is navigating a busy earnings season with a bifurcation between tech and the rest. There is a general, growing acceptance that ‘2020 is a write off’, not just for corporate earnings, but for everything.

As noted before, while we don’t believe in the conspiracy theories that the health crisis itself was somehow deliberately engineered, we do believe that it would be naive not to accept that a lot of vested interests are now trying to drive the narrative, and by extension policy, in a direction to suit themselves. As previously mentioned, the over-riding attempted narrative from the Men of Davos is a Great Reset, but there are other, more focused narratives, and one particularly powerful one that is beginning to emerge (or is being created) is that nothing can really happen until we get a vaccine for Covid-19.

Vaccine hype is everywhere – even blending in with the other powerful narrative du jour of anti China and Anti Russia policy – Russia and China are allegedly trying to ‘steal our vaccines‘ – no doubt using some special evil tool designed by Huawei (!) It is all pretty obvious tactics but the UK government has duly signed contracts for 30 million doses of vaccines from an alliance of BioNtech and Pfizer a further 60 million from a company called Valneva and all of this on top of the contract for 100m doses of a vaccine being developed by Oxford University and Astra Zeneca. The US meanwhile has signed up for deals with all the major companies working on vaccines, like Pfizer, J&J and Sanofi and including a contract for 300 million doses from Astra Zeneca, which perhaps not surprisingly is now the biggest company in the FTSE 100 by market cap. Meanwhile, we note that the latest ‘concerns’ in the UK press this weekend are for a flu epidemic this winter that, on the back of Covid, will allegedly overwhelm the NHS. Backed by the usual apocalyptic projections from the usual suspects such as Prof Ferguson of Imperial Collage, the UK government is naturally being urged to buy billions of pounds worth of Flu Vaccines – which big Pharma already make- in order to ‘protect the NHS’.

This is all alarming to us for a number of reasons, not just the money being spent, which makes the Tamiflu stockpiling back in the 2000s look like chicken feed. In particular, this focus on a vaccine pins policy on a specific, yet highly uncertain, event; remember, the common cold is actually a covid virus and we have yet to find a vaccine for that despite decades of trying. This profit motive for Pharma will thus elevate uncertainty for everyone else. Second, to drive this narrative the deadliness of the virus must be hyped constantly and the further this is from reality, the more fear needs to be produced. Hong Kong has had a so called ‘third wave’ of cases – 108 to be precise, but has largely locked the country down again with calls for mask wearing to be made compulsory and even curfew. This for a total of 12 deaths from a population of 8.5m. In New South Wales there is ‘a terrifying new cluster’ of cases – in fact it was 8 people, no hospitalisations. No deaths. Meanwhile, in Montreal a man was pepper sprayed and arrested for refusing to wear the now mandatory face mask. Governments everywhere are acting as if it is possible to eliminate the virus by masks and lockdown, overriding concerns about non covid deaths and the lack of actual science behind masks. This is all putting the world economy into stasis.

Without wishing to sound inappropriate, we can’t help thinking of the aftermath of 9/11 where the invasion of Iraq was presented as a ‘solution’ to the problem of Islamic terrorism. A lot of people became extremely invested in that narrative and were thus very disappointed and confused when it failed to deliver on its promises. In the meantime a lot of vested interests, most obviously in the so called Military Industrial Complex encouraged the narrative for their own, often monetary, purposes. Since then, trillions of dollars have been diverted to be spent on ‘the war on Terror’. Will the new ‘war on Viruses’ (for there will be others) do the same?

The biggest risk to economies then at the moment remains not only the response to the perceived threat of the virus but also the extent to which it is being influenced by external actors. A V shaped recovery in the private sector ‘gig’ economy should be gathering pace, but it is being disrupted by stop go social distancing rules, while the U shaped recovery on the high street is being threatened by mask policy driving a permanent shift to online retail. This in turn threatens an L shape for a lot of zombie businesses – including those that have been propped up by private equity for the last few years but which amounted to little more than vehicles through which the Private Equity Barons extracted rent through loading up with leverage. That leverage, as well as that accumulated by REITs and the property sector in general is largely not covered by the Central Bank policies of propping up credit markets through debt purchases and yet forms the bulk of the private credit, leveraged loans and alternative asset markets. The prospect of that debt having to be restructured – along with perhaps the vast auto and (US) student loan books is something that governments and regulators should perhaps be spending a little more time on. Investors too for that matter.

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