Obviously, the big story of the week is the great news around the Pfizer vaccine. I have a number of thoughts about what this means which means it’s time to combine them all into a Brief.
Revisiting Sell the News
A few months back I predicted that a vaccine announcement would precede the top in the market. There were two big pieces to that call. The first is that it would signal a forthcoming change in the Fed’s behavior. Second, it would cause a rotation out of tech and into value and, in particular, left behind stocks like travel and leisure.
The second part is already under way. While the immediate reaction was to drive the entire market up, that was largely due to giant moves in some of the embattled stocks. That obviously can’t happen everyday, so the mix shift from “stay at home” to “return to normal” will be an overall negative going forward.
There is one hiccup to this which is covid numbers are spiking again and with fear of another lockdown, the ultimate selloff in tech might be delayed until we get through winter and cases start to decline again.
As for the Fed, my suggestion then still holds. Sell before the first Fed meeting post the vaccine. That may turn out to be too early given the covid numbers, so might need to push that back a meeting depending on the numbers.
The other new variable is we will likely be looking at more fiscal stimulus in February which may offset some of the Fed action, but all things considered, the Fed messaging is much more impactful than fiscal action.
The Winter Wave
Let’s put some context around the covid resurgence. The image below is a pretty good framework. We can ignore the testing because that might not be stationary data (since availability of testing has changed over time).
Even the daily cases isn’t a great metric as we don’t know if the % of the infected population that seeks confirmation has changed or not over time. However, it is a useful starting point.
If we compare the direction of daily cases with the future hospitalizations (about a two week lag) and future deaths (about a month lag), there is a pretty solid correlation. Thankfully the % of hospitalizations and deaths relative to cases have come down (as we learn better how to treat the disease), but the directional trends remain.
The implication – if the new spike in cases is representative of the last few months rather than a change in testing methods – is we are heading to well over 100K hospitalizations and over 2,000 daily deaths.
To put it more plainly, we are about a month away from national outcomes worse than anything we saw this spring.
Failed Predictions
The one peril with putting predictions in print is you will get some wrong. Some people hide from them. I try to learn from them. So let’s revisit my worst prediction ever…that only 10,000 people would die from Covid.
What did I get wrong? In insurance terms, frequency. I was actually remarkably accurate on severity (more on that in a minute) but I assumed we would be able to bring R0 below 1. That clearly didn’t happen.
There were two big pieces I missed. One, spread happens a lot faster than I imagined (in other words, the undisturbed R0 is substantially > the flu).
Two, I expected we would take it more seriously – at both the individual and government level – and that behavior would lower R0 meaningfully. This incorporates everything from mask wearing becoming political to assuming we would have developed better testing capability.
However, as mentioned, I did get the severity very close to the pin. I suggested mortality would be closer to 0.5% and mild cases would be >95%. That has largely proven out especially when you adjust for the best estimates of undiagnosed cases.
To simplify, I accurately predicted the east Asian experience. While it’s hard to trust the Chinese numbers, Japan has fewer than 2000 deaths with about 40% of our population. Numbers in Korea, Taiwan, etc. are even better.
So, we could have had under 10,000 deaths, but we mismanaged the process (and no, that’s not a political statement, the private sector failed as well).
The Profit Motive and Tail Protection
One thing we can hopefully all agree on is Pfizer (and the other vaccine entrants) deserves our great thanks for being so proactive and motivated to find the vaccine and go beyond the normal call of duty.
If I can be a little jingoistic, all but one of the serious vaccine candidates is from the US. Next time politicians consider moving to socialized medicine, they should think on this.
It may be all fine and well to demonize pharma makers during normal times, but when things hit the fan, we need our robust private sector to ride to the rescue.
If we take the profit incentive out of innovation, we will, in return, get little innovation. And while we may not need another cholesterol drug or antidepressant on the market, that is the price of keeping the machine going for when we need to fight covid or polio or whatever waits for us next.
A vibrant pharmaceutical industry is a national resource and we should treat it as such. Like any other tail risk, it may seem like we’re overpaying for it in good times, but it more than makes up for it when we can call on the tail protection.
So next time some Senator tells you about how we need to regulate the profit out of the evil drug companies, remind them how they saved our skin during covid and go find someone else to pick on.
The Vaccine Song
You know you’re old when some of the things you remember best from your childhood are TV show theme songs. Today, hardly any show has a song. I don’t understand why. It was great branding. I wanted to know if the Facts of Life was all about me!
My kids will grow up with fond memories of pharmaceutical theme songs. They’ve copied the old TV show formula. Catchy tune that gets stuck in your head and makes you pay attention. I would have no idea what half these pills do without being constantly bombarded with messages like “nothing is everythiiiiing“.
To that point, with as many as half of Americans apprehensive about the vaccine, the clear solution is a catchy theme song. How about a new version of Billy Joel’s Big Shot?
You had to get a big shot, did ya, had to upload proof to the cloud.
Had to get your vaccine passport, so you could eat dinner in a crowd.
OK, I’m sure the marketing department at Pfizer can come up with something better, but this is what we need to drive up compliance.
Maybe we need a Schoolhouse Rock revival? “Vaccination Evasion, what’s your fascination?” I’ll keep working on it, but I feel like this is the path to compliance…we need a strong song!