economy Markets

When Is A Silver Bullet Not A Silver Bullet?

When is a silver bullet not a silver bullet?

That’s a question market participants need to start asking themselves vis-à-vis vaccine assumptions.

On Wednesday afternoon, as US equities surged into quarter-end, capping off an otherwise dismal month with an outsized gain, Moderna CEO Stéphane Bancel threw a bit of cold water on Donald Trump’s aggressive vaccine timeline.

During remarks at an FT conference, Bancel said the company won’t seek FDA emergency use authorization until at least November 25, adding that approval to distribute a shot widely isn’t expected until spring. That, FT wrote, “undermines Trump’s claim at Tuesday’s debate that a shot would be available ‘a lot sooner'”.

While it seems strange to suggest that the closest thing to a “cure” for the worst public health crisis in a century could be a “sell the news” event, that is eminently possible for a number of reasons, not least of which is palpable public angst about politicization of the process.

Trump sought to play down those fears during Tuesday night’s debate, essentially putting the onus on Pfizer (“You don’t trust Pfizer?”, he asked Joe Biden). But when you label your version of a notoriously deliberate process “Operation Warp Speed”, you set yourself up not just for disappointment, but for questions in the event you succeed.

As I’ve discussed in these pages on any number of occasions, a shot could be shunned both by Trump’s supporters and his detractors. The former are deeply suspicious of the pandemic itself (taking their cues from Trump’s “hoax” narrative and various conspiracy theories), while the latter don’t trust a vaccine development effort overseen by the current administration.

Read more: Cracks And Ceiling Shadows – Unprecedented Governmental Dysfunction Sows Doubt On Vaccine, Election

Bancel’s comments to FT on Wednesday reminded me of a note penned by SocGen’s Solomon Tadesse over the summer.

At the time (in late July), he noted that market expectations for first availability of a vaccine were “as early as late 2020”. Since then, the Trump administration has gone out of its way not just to cement that timeline in the minds of investors (and the public), but in fact to bring it forward to October. Indeed, there are two things Trump wants done prior to November 3: He wants a vaccine approved and he wants Amy Coney Barrett approved.

Virtually no one thinks Trump’s timeline is achievable, and the clock is ticking. This will be a promise not kept in just four weeks. SocGen’s Tadesse cited a June survey of health care executives who generally said an effective and safe vaccine wouldn’t likely be widely available until the second half of next year (or later). That’s consistent with what some US officials have said recently.

Beyond that, though, Tadesse reiterated that “even after discovery and approval, mass production and distribution [will] be daunting”.

Even if you assume the supply side problems will be addressed by the world’s pharmaceutical giants, the demand issue (as discussed at length in the “read more” piece above) will likely come into play. “Many Americans appear reluctant to be vaccinated, even if a vaccine were FDA-approved and available to them at no cost”, Gallup wrote last month, describing the results of a poll. “Asked if they would get such a COVID-19 vaccine, 65% say they would, but 35% would not”.

“On the demand side, safety, side effects and other concerns may prevent wide acceptance of vaccines”, Tadesse cautioned, adding that “the resolution of the pandemic will then depend on the timeline of when communities achieve herd immunity, which may be much longer”.

If these worries are realized, it could hold back the pro-cyclical rotation that many expect would accompany the combination of vaccine discovery and a Democratic sweep. Indeed, respondents to the September edition of BofA’s Global Fund Manager survey said a credible vaccine is the most likely catalyst when it comes to pushing yields higher.

Even assuming a vaccine is approved, widely distributed, and accepted by the public, there are still no guarantees that life is going to simply return to “normal” in the near- to medium-term.

As I recently told one analyst, it makes little sense to me that movie studios would delay blockbuster releases to 2021 as opposed to simply pushing them out now on streaming platforms and charging à la carte. It seems highly unlikely to me that the public will be willing to pack theaters next year, and may even be reluctant into 2022.

“To return to pre-pandemic modes of behavior, it also takes time for people to change the psychological imprints left by the pandemic”, Tadesse went on to remark, in the same note cited above. “These include altered behavior related to in-person communications, public transportation, and social interactions in general, which are the springboard of economic activity”.

Remember, some decisions made during the pandemic are “final” or at least semi-permanent. Leaving the city for the suburbs, even if you rent, isn’t a choice that can be reversed overnight as soon as a vaccine comes along. If you’re one of the multitudes of new home buyers who took advantage of record-low mortgage rates this summer to flee urban centers, you’re not likely to sell that home and move back to a downtown loft just because a shot is discovered.

Read more: ‘Collapse’ Art: De-Urbanization Reimagined

As long as employers are open to work-from-home arrangements, many employees will be more than happy to take management up on the offer, even if it means a bit of cabin fever. I saw a Mercedes commercial over the weekend for the new E-Class and the premise was that drivers “miss the morning rush”. As someone who once drove a mid-sized luxury sedan during the morning rush (although not an E-Class), I can tell you that there isn’t anything to “miss” — unless you’re a masochist.

Tadesse, an academic by training, notes that “psychometric studies on such [things] are lacking, [but] it might be reasonable to assume that it would take longer” for behavior to revert. I think that’s entirely “reasonable”. Indeed, I think some of the shifts we’ve seen are irreversible.

All of this is to say nothing of the fact that the economic damage dealt by the pandemic still isn’t really quantifiable. The structural impact and the so-called “scarring” effect, won’t be evident for months, and perhaps even years.

“Given the full repricing of the market to the pre-pandemic level, further gains on the upside from vaccine development news do not appear as likely”, Tadesse warned, adding that “downside risks seem to abound” from “uncertainty on the effectiveness, availability, length of time to delivery of vaccines and their eventual general acceptance” to “downside risks” from the pandemic’s aftershocks on aggregate demand, elevated unemployment levels, and the “negative shock to investment demand [from] increased savings” tied to “pandemic-induced precautionary” measures.

Those words were true when they were written on July 30. They are even more true two months later on September 30.


10 comments on “When Is A Silver Bullet Not A Silver Bullet?

  1. John says:

    People differ widely in their attitudes about the virus and its risks. If all the bars, restaurants, music venues, theaters, and shops in a city were reopened tommorrow, some would stay away while others would immediately flock back, and each week more will return. The early returners will be usually be younger than those who initially stay away.

    Look at the Chinese and European data. When those locked-down cities reopened, consumer footfall did not stay on the floor, or immediately rebound to pre-Covid levels, it rose steadily and fairly strongly over a period of a few months, heading back toward something approximating normal – unless/until a second wave happened, as in Europe. Or unless a particular class of business remained closed by govt order, e.g. movie theaters in China.

    For small businesses, traffic going from 0% or 10% now to 30% in a few weeks and 60% in a few months will not always forestall bankruptcy, but it will help. For stocks, the move from 10% to 30% will quickly be extrapolated to 60%, 80%, 100%.

  2. MirandaSez says:

    If expectations for a vaccine to put a floor under risk assets don’t discount the risk of the virus mutating (putting vaccine development back to square one), the March lows will be a mile marker whizzing by so fast it’ll be of little significance.

    Remember, the 2nd wave of the Spanish Flu was much deadlier because the virus mutated. We take solace in knowing this virus hasn’t mutated much (relatively). That could have been said of the so-called Spanish Flu virus if they had the means to sequence its genome back then.

    We know genetic mutations occur at a certain rate and the larger the population of the virus, the greater the number of mutations in the virus population.

    Not only are we not out of the woods, in terms of risk, I’d say we are still moving into them.

  3. Jesse says:

    There is, in certain quarters, a growing sense of confidence that herd immunity may be considerably closer than previously thought. The standard assumption of homogeneity in SIR models might well be exaggerating the level at which it occurs.

    Forgive me if pasting links is frowned upon here but this podcast is, I think, quite illuminating.

  4. Anonymous says:

    Trump only cares about the perception about the availability of the vaccine. If he gets voted out he may care it comes as soon as possible to shore up his travel exposed businesses and to boost his brand but I am not sure he cares if or when we are protected unless it benefits him.

    The economic negative impact will be with is for years sadly. Way out of consensus view. It will be shocking that the hit may exceed 1% per year for years ultimately taking 7-10% off the economy off a 2021 baseline. MMT is hear to stay and support will total $10-20tn total 5 years from now. This year’s support will be a blip compared to what is coming.

    • runamok says:

      I’m with you on the lingering, long-term impacts. This event will result in permanent scarring. Who cares if CCL starts cruising again in defiance of CDC guidelines. We know people will get sick. This is an industry that is coming back to pre-COVID levels for a while, if ever.

      Agree also with the abundance of $T that they are going to have to throw into the hole. Yeah, that’s 7-10% and that just the first year. Follow that out for five or six years and soon we’re talking real money. It’s hilarious that Munchin and his counterparts say the D proposal is too big. hahahahha. If the Rs hold office, they’ll be spending trillions on fiscal support just like their D counterparts. MMT for sure.

      Quite ironic that the Trump’s personal businesses (how many of the hundreds, we’ll never know), depend on travel without fear. Quite possibly explains his sociopathy (is that a word?). Perhaps his firms will be one of the thousands of insolvent businesses the nation will have to suffer through in the period ahead.

  5. Techfomo says:

    When Europe has a vaccine, and Europeans are accepting/taking the vaccination shot, and the media (and conspiracy theorists) pitch the FDA has illegimately approved the same vaccine, that is when we will realize people elevate politics over drug trial science and risk management. Any new drug/vaccine has risk margin error, which has to be weighed when pursuing health care decisions. Instead of casting shade on a target general availability date from a person communicating a mobilization goal, we should encourage the process to move as fast as possible under experimental/emergency use, and carefully monitor effects. Maybe I will go back long VEEV.

  6. Ria says:

    Nobody really knows what will happen with the vaccine or the virus in the next 12 months. It is likely we will get a robust set of treatments and a vaccine within the next two to three years. Just like after the banking panic/ GFC, change will be accelerated and telescoped due to this event. It will probably take 5 years for the economy and public to feel some sort of stability. A Trump re-election, although unlikely would push a return to normalcy an additional 5 years.

  7. Vlad is Mad says:

    Agree the positive from vaccine is over-estimated, also agree that residual fear will persist–think about 1987 crash, fear of a repeat persisted for a decade making downside elevated. However, it is probably human nature to focus on the downside and not think about the positives of creative destruction and all those new innovations coming out of the crisis, including that fact that all those in their 20s and 30s coming out of the basement to buy houses, and all the new spending to fix up those houses.

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