Research Publication – The COVID-19 Webinar v.3.6 – Musical Chairs

Radio Free Mobile updates its COVID / Economic / Technology Sector research with the publication of The COVID-19 Webinar v.3.6 – Musical Chairs.

Cases are rising very quickly but thankfully deaths are not. Studies of the first lockdown seem to suggest that it had little effect in reducing fatalities. This, combined with the fact that excess deaths in Europe are tracking broadly in line with seasonal norms, raises the question of whether lockdowns should be implemented at all. With no answer for this and a vaccine at least some months away, Western economies are locking down anyway which means more deficit spending and a worsening fiscal position. While there is still risk to the US$, Europe looks like it is in much better shape given Germany’s prudent debt reduction over the last 8 years.  The technology sector has remained strong and areas, where it was weak, have bounced back in Q3 2020 with the economy. However, the equity market looks as divorced from reality as ever.

• Pandemic or casedemic?: The case count continues to rise very quickly but fatalities, thankfully, are not. The global average fatality rate has more than halved since April 2020 and no one has been able to demonstrate any statistical correlation with factors such as health care spending, population age and so on to explain the change. The degree of testing remains a possibility, but there is still no reliable data to demonstrate that this is the case.
• Lockdown II: is unlikely to be as drastic as the first meaning that the hit to the economy witnessed in Q1 2020 and Q2 2020 will not be repeated. However, it will derail the fledgeling recovery and cause significant further economic and social damage. RFM has seen no data that demonstrates that lockdown is an effective tool to reduce fatalities. In fact, most of the evidence is to the contrary raising the possibility that the economic and social damage wrought by lockdown is providing little or no benefit.
• Normal 2021 respiratory virus season?: Excess death in Europe is currently tracking in line with the seasonal increases typically seen every year during the winter for all age groups and there has been no sudden spike in deaths yet. A bad respiratory virus season in Europe would cause around 185,000 – 200,000 deaths in ages above 65 which is what was seen in 2020 (including COVID) (30% higher than 2018). This is what the data is indicating will happen in 2021. This combined with lockdown studies raises the question: should any lockdown action be taken given its very negative economic and social effects?
• Vaccine: The data released by Pfizer and BioNTech is very encouraging but there are some caveats. The full data has not been released nor has it been peer-reviewed which are critical steps in the verification of scientific work. Furthermore, this type of vaccine is completely novel and has never won approval before or been used for widespread vaccination. The signs are good but sentiment and the market is already getting carried away.
• Debt and Inflation: In the absence of a good answer to this question, developed countries are going ahead and locking down anyway.  This means much more deficit spending and further erosion of the financial probity of Western economies. The spectre of high inflation continues to loom in the medium term.
• Europe: is best-positioned thanks to Germany which was able to reduce its national debt as a percentage of GDP between 2012 and 2019. This gives Europe headroom to borrow before the situation becomes unsustainable but the southern countries including France are in much worse shape and the appetite in the North for Southern bailouts remains poor at best.
• The technology sector in Q3 2020: was strong with cloud spending continuing to be strong in-home working and business continuity while smartphone shipments recovered from Q2 to post a decline if just 4% YoY. With an effective vaccine still quite far away and more lockdowns, home working and schooling will mean demand for productivity equipment will remain elevated for some time to come.
• Sharing economy: remains in a terrible state as no one wants to share assets while COVID-19 remains a problem. Ride-hailing, house sharing, office sharing, and public transport are the worst hit with demand down 50% – 80% across the board. Uber has fared the best of all of the players having been lucky to have had Uber Eats to fall back on. Uber is now a delivery company.
• The equity market: has very little basis in reality despite the small correction at the end of October. Easy money has caused cash to pour into the market with most of the buying being focused around the technology names who have a good story regardless of fundamental performance. This has many echoes of the 2001-2003 stock market correction when the Nasdaq fell by 78%.  The prognosis is not good.