Loving The Longer-Term Revolutions, Seeing Some Shorter-Term Risks

Where are all the people going, Round and round till we reach the end
One day leading to another, Get up go out do it again
Then it’s back where you started, Here we go round again
Back where you started, Come on do it again  – The Kinks

The markets like the fact that a vaccine is here (and one which looks like it has more than 90% efficacy) and the market is increasingly convinced that will be a smooth transition to a blue and red divided government because the media and most of the world declared Joe Biden to be president-elect over the weekend. And so the people who sold and/or shorted lower are buying and/or covering their shorts today. Groups that depend on a reopened economy like airlines, concert stocks, oil and malls are on fire. Cloud stocks like ZM an DOCU are being slammed lower.

So it’s “back where they started” and here we go round again: The question becomes, now that a very effective vaccine looks much more likely in the next couple quarters — are we going to rocket on through these lows into a revitalized economy with strong corporate earnings next year, earnings that are so strong that it makes today’s elevated valuations look sane in retrospect?

I think the reason the the markets have rallied so hard this morning off is mostly off the vaccine news as the 90% efficacy rate is really good for the world’s chances to getting to herd immunity in a year or two. With a 90% efficacy rate, a widely distributed and dispensed Covid-19 vaccine could get us out of The Coronavirus Crisis and back to the new normal in 12 months. 90% efficacy is really good and also the vaccine apparently looks quite safe so far. There could still be a snag, of course. But at this point, would it be safe to say that the markets, as of this morning, at least for now, are pricing in that there’s an 80-90% chance that we have an effective vaccine widely available to hundreds of millions of people in six months.

What can go wrong with this rosy scenario? First off, there is a smaller chance there could still be a safety issue. What happens if there’s an adverse event that happens in “just” 1 in 10,000 people. Statistically, you might not even see that show up in a trial of 30,000 people. But the problem with vaccines is that you’re not going to be dosing tens of thousands of people who have an underlying issue — it’s going to be put into millions and millions if not billions of people. The second thing is that the tolerance for side effects when you’re testing it out on mostly healthy people who volunteered could be much higher than it is when this vaccine gets put out to the world’s billions of people, many with underlying conditions and existing health issues?   Some side effects might take some time to emerge. Three months, six months or even a year or two later? Will the vaccine react with the flu? Or even with a cold? There’s a very small risk of these things, I’d guess, but there’s a risk. And the longer we wait, the more people will die from Covid-19 complications, so there’s a reason to rush, and it I think it makes sense to rush it. Other issues could come up, including how long will it take to get manufacturing and distribution scaled up around the world?

On a longer-term economic and corporate earnings note, I’ve talked about for a while and that we should take note of once again is how The Coronavirus Crisis and the shut down around it has allowed corporate (and even government and small businesses) to learn how to use the Cloud and delivery technologies and other revolutions that are now mainstream to increase efficiencies and profit margins. My wife is an attorney and she was telling me this weekend about how the judges she deal with have said they are not planning on going back to in-person court for most of the things that used to require in-person court because they are getting so much more done over Zoom and even people appearing before the courts has shot through the roof since people aren’t scared to go into a giant court building to appear over a speeding ticket or similar reason for appearing at court. It makes sense, right? And the fact that even a giant bureaucracy like the NM court system can recognize and act to reset their system to create new efficiencies is anecdotal evidence of just how big this whole reset might be.

Meanwhile, let’s not ignore that the pandemic is out of control here in the US and in Europe. The question here is, are we going to have lock downs and/or are people going to shut themselves in and thusly, the economy craters again to a level that’s harmful before the vaccine can get out through the world?

Meanwhile, why has the market decided he is going to just leave no problem? Isn’t there a chance that Trump digs in and won’t concede and that the Republican party stands behind him? Also, might he be destructive before he leaves, even if he does leave of his own volition when the time comes? For example, would he allow a stimulus to happen before he’s supposed to leave even if he does leave? So no stimulus until January? If you were worried about Trump contesting the election, why have you decided there’s less risk to that today? He is indeed confusing to concede so far, isn’t he? And few Republicans in power have stood up to him about that so far, right? So isn’t the risk still about the same it was last week? Is it because he needs a full four states to flip here and it’s not just one state with a hanging chad issue this time and so the markets are like, “Naaa, it’s over, Trump’s out and Biden’s in”? Reminds me of another quote, this time from Lyncoln’s kindergarten teacher last year during simpler times when Lyncoln went to school in a normal way with lots of other kids:

“You get what you get and you don’t throw a fit.”

So what’s the upshot of all this analysis? The upshot is that there near-term risks remain elevated with valuations and geopolitical and economic risks while the long-term trends remain incredibly positive, maybe even more than previously thought, for the Revolutionary companies we invest in.

Speaking of which, as for trading and the markets, I’m not doing much here. I’ll let things settle down a little bit. Might nibble a few more put hedges. Might trim a few longs. I’m going to nibble a little bit of GLD back that we’d sold higher.

Things are not fully going back where they started. And we know where some of the biggest, most important Revolutionary Trends are that we will be getting out in front of — I guess we can quote Mr. Davies once again because “we’ll do it again, do it again, do it again”.