Oriens #195
Noise
On the virus et al:
Britain to start “human challenge” trials; i.e., paying young, healthy people to get deliberately infected to test vaccines and treatments in real time. This is the first human challenge to be ran in the context of the pandemic and we think it should have started a long time ago. We agree with Tom Ellis from Imperial College that this experiment will help advance the fight against the virus. We praise the courage of the volunteers and wish them the best of luck: their success is humankind’s.
Despite the relatively good news on contagions and deaths, Bloomberg argues that we can't really forecast anything about the pandemic for spring. New variants, people’s behavior, the speed of vaccination, and the still unknown seasonality of the virus create too much uncertainty. We agree with that assessment.
Above the Noise
Michael Batnick from Ritholtz has some charts showing the underperformance of bonds over the last couple of years. On the equity side, Josh Brown, also from Ritholtz, attributes the long-run bull to the low interest environment of the last 12 years and expectations that they’ll remain at zero for the foreseeable future. We have a slightly different opinion: while low interest rates boost some asset classes that are effectively yield curve and cash flow plays (for instance renewables or some form of venture capital), they have been so low for so long and expectations are so entrenched, that their impact on has been diminishing. And the fact that assets elsewhere (Chinese stocks just reached an all-time high yesterday) are also booming, makes us think that the risk-return profile of the investment community changed. A number of reasons may be behind this:
After 2008-09 and the market shortfall in March 2020, it’s clear that governments won’t let markets fall. Whether this is morally acceptable is contestable, but we’re not in a situation where markets can fall. There’s definitely a government put.
Retail is a growing force to be reckoned with. Social media, the Internets, pundits, zero commission trading, and just FOMO by people with some spare cash is pushing people to directly invest in the market. Finance was the last sector where intermediaries had any value to the eyes of the public, but no longer.
Speaking of asset overvaluation, the FT has an interview with the CEO of Total, who claims that renewables are overvalued, the ESG investor base is misguided, and the political debate about the cost of renewables is off. Read the whole thing (and the FT’s own follow-up analysis of the interview), and before you dismiss his opinions for being an oil and gas satrap, keep in mind that Total purchased a stake in Adani Green Energy for USD 2.5 billion and is developing the largest green hydrogen site in Europe. Our chart of the day comes from this piece. Last, the FT also has a dissection of the latest wind auctions in England and argues they may have been overbid.
The fate of Big Tech is being played in Australia, with Google reaching an agreement with News Corp. to pay for content and Facebook banning the sharing of content in the country.
Sun Ray
Over our lives we all change; and certainly Goya—who faced the deaths of his children, deafness in mid-life and a devastating war—changed.
Long Reads for the Weekend Stack
We strongly recommend this podcast (1 hour, 45 minutes) by Acquired on Virgin Galactic. Venture capitalism, SPACs, and the private sector’s space race are all included here. Great stuff!
The New Yorker has a piece on the aftermaths and consequences of pandemics and concludes that their impacts on society are indeterminate. We were going to write a very similar piece in two weeks, but we’re glad that they did it, so we won’t! You should definitely read this one to revise your scenarios and forecast for the COVID-19 World.