Hi Theo. Thanks for your thoughtful response to the interview. One of the problems with verbal communication is the difference between (what I thought) I said and (what you thought) you heard. That’s my problem and I will try to be clearer in the future.
Let me address your points one by one:
1. I did not mean to say that the markets are overvalued based on vaccine hype that is still a few weeks out. What I meant to say is that the first applications of a new vaccine are still a few weeks out.
2. I have not heard that these vaccines become partially effective after the first shot. It makes sense but neither Pfizer nor Moderna have made that claim. Their vaccine is a two shot regime with the second shot 3 – 4 weeks after the first.
3. I agree the market looks approximately six months out - May 2021 give or take. Given the markets are at or near their pre-pandemic highs, I don’t think the economy will be in a comparable (normal) pre-COVID position by May 2021.
4. The number of vulnerable people in the U.S. alone with a population of 328 million is almost 200 million or 60%. This is an “official” estimate and includes persons over 65, people with chronic health problems, doctors and healthcare workers, first responders and persons with jobs described as “critical.” I think we are talking at least until May 2021 until all these people have been inoculated.
5. There is also the problem of people who refuse vaccination. I am not being judgemental about people’s individual choices but in the U.S., based on election results this could be up to 48%. I don’t think it’s that high but I think it is a meaningful number of people.
6. There are also those who do not want to be a “guinea pig” for a vaccine that was rushed through the FDA approval system. The record time for development of a vaccine before this was for mumps and that was a four year process. It looks like these COVID vaccines will be in use in well short of one year. In note the U.K. has approved emergency use of the Pfizer vaccine and is boasting about being the first to approve it. The decision seems to contain more politics than medicine.
7. For things to “normalize” requires the world’s 7.8 billion people to attain “herd immunity” which is 70% immunity as I understand it. Our world is truly international in terms of trade and travel and life won’t be “normalized” until we feel as confident hopping on an airplane with recycled air; or on a cruise ship with 2,500 of our most trustworthy friends; or eating food imported from (fill in your country of choice).
8. Next we have to consider the consequences of the vast amount of liquidity that has been pumped into the system over the past nine months and there is more to come. We have already seen a move up in the price of gold and move down in the value of the U.S. dollar. What remains is inflation is out there just waiting to happen. I think we will see these trends continue in the months ahead.
9. You state that a lockdown is off the table. The third wave of the virus is still intact and, in western Canada where I live, lockdowns are very much coming back in play. Some U.S. states ae moving in this direction as we speak.
10. The other thing that concerns me is people will abandon the COVID protection protocols too soon. I think people should continue to wear masks, maintain social distancing and continue to use hand sanitizers or regular washing. The vaccines will not help you if you contract COVID-19 first.
Conclusion: With the financial markets at or near all-time highs, the implication is that things will normalize in the next six months or so. I don’t think so. I think in three to six months we will start to realize how much longer it’s going to take. In rereading my response to your comments, I may come off as being more negative than I am. I am more cautious than negative. So if the markets were to correct 50% of their gains off the lows I wouldn’t be surprised. The one thing we do agree on is when you say, “…should there be any serious disruption in the execution of the projected process, then of course all bets are off.” My experience is projects this massive are rarely early and most often late.
P.S. – thanks again for your comments. It is always beneficial to exchange good ideas and expose both sides of the argument.
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