An Early Vaccine Probably Keeps Us In an Economic Deep Freeze.

We saw a burst of hope on Monday around Modena’s vaccine being ready in volume by early 2021.  That news will change people’s individual economic calculus.  The collective impact of those individual choices probably keeps the economy limping along in a self-imposed lockdown until the vaccine is widely available.

Absent hope for a vaccine, people would have slowly adjusted to a “new normal” and acquiesced to the risk of the virus.  “We’re all going to get it anyway I might as well get back out there.”

Hope for a vaccine changes that calculus to “I don’t want to be the last person to die before the vaccine comes out.  I’ll just hunker down and wait until I get my jab.”

Individually, that is the right thing to do.  Collectively, that means we likely stay in a self-imposed semi-lockdown for the duration.

A Fast Vaccine Probably Keeps Us In an Economic Deep Freeze:  Hope for Modena’s vaccine being ready in volume by early 2021 changes people’s personal economic calculus.  The collective impact probably keeps the economy in self-imposed lockdown until then.

Absent hope for a vaccine, people would have slowly adjusted to a “new normal” and acquiesced to the risk of the virus.  “We’re all going to get it anyway I might as well get back out there.”

Hope for a vaccine changes that calculus to “I don’t want to be the last person to die before the vaccine comes out.  I’ll just hunker down and wait until I get my jab.”

Individually, that is the right thing to do.  Collectively, that means we likely stay in a self-imposed semi-lockdown for the duration.  Anything that can be put of until “after the vaccine” will be put off.  No CEO wants to be the guy who pushed his people back to work in the face of a temporary and ultimately avoidable danger.

  • Companies will feel compelled to extend WFH “until the vaccine is available.”
  • NBA, Baseball and other athletes might push to start seasons “after we have the vaccine.”
  • Conventions, events, etc…  will do the same.

Economically, that shifts the calculus to “who can hold out until 2021.”  The market seems to be pretty rationally pricing in those odds for a lot of companies.  .  Atlassian, Cloudflare, Amazon, etc will do just fine.

I am less convinced the market is pricing in the full impact of a 8-12 month economic deep freeze.  Absent a debt holiday, a lot of “Main Street” sources of wealth that depend on steady flow income (McDonalds franchisees, car dealers, strip mall owners who rent to restaurants, etc…) might not be able to hunker down for that long.  A debt holiday makes a lot of practical sense, but can it get done in an election year?  Absent that, we’ll see a cascade of Main Street bankruptcies.  A scenario we haven’t seen before and that no-one seems to have been able to model (as far as I’ve seen).  I have no idea how levered those Main Street folks are.  Or how their likely liquidation of personal assets/portfolios might impact their lenders and the markets (they presumably have decent-sized stock portfolios).  With roughly 40% of some regional banks loan books anchored on Commercial Real Estate, I am also concerned about the impact of a wave of defaults in a previously stable sector.  I haven’t seen any useful analysis on those questions so far.  Partly I think because that sector’s stability has been taken for granted (so no-one has gathered the data or perspective to do that analysis).  We’ve got lots of regulators watching things like derivatives, but I’d guess the Fed never asked banks to model in a total collapse of retail rent payments (until a few months ago, which may be why Powell is sounding so glum).  So it remains to be seen if that is a localized crisis or if it spins up into something uglier.

That said, 2021 probably sees a bacchanal of spending on travel and etc.  Those who have kept their jobs will have a year of enforced savings and a lot of cooped-up frustration to blow off.  So people who can hold on will do well.  I’m a tech analyst so figuring out who wins and loses is above my pay grade and/or expertise.

The operative term for me (and concern) remains that phrase.  “Those who have kept their jobs.”  My gut tells me there are a lot HR departments waiting to NOT be the first company to announce mass white collar restructuring – never let a good crisis go to waste.  Which means there are a lot of dead men walking out there in the WFH class.

Anything that can be put of until “after the vaccine” will be put off.  No CEO wants to be the guy who pushed his people back to work in the face of a temporary and ultimately avoidable danger.

  • Companies will feel compelled to extend WFH “until the vaccine is available.”
  • NBA, Baseball and other athletes might push to start seasons “after we have the vaccine.”
  • Conventions, events, etc…  will do the same.

Economically, that shifts the calculus to “who can hold out until 2021.”  The market seems to be pretty rationally pricing in those odds for a lot of companies.  .  Atlassian, Cloudflare, Amazon, etc will do just fine.

I am less convinced the market is pricing in the full impact of a 8-12 month economic deep freeze.  Absent a debt holiday, a lot of “Main Street” sources of wealth that depend on steady flow income (McDonalds franchisees, car dealers, strip mall owners who rent to restaurants, etc…) might not be able to hunker down for that long.  A debt holiday makes a lot of practical sense, but can it get done in an election year?  Absent that, we’ll see a cascade of Main Street bankruptcies.  A scenario we haven’t seen before and that no-one seems to have been able to model (as far as I’ve seen).  I have no idea how levered those Main Street folks are.  Or how their likely liquidation of personal assets/portfolios might impact their lenders and the markets (they presumably have decent-sized stock portfolios).  With roughly 40% of some regional banks loan books anchored on Commercial Real Estate, I am also concerned about the impact of a wave of defaults in a previously stable sector.  I haven’t seen any useful analysis on those questions so far.  Partly I think because that sector’s stability has been taken for granted (so no-one has gathered the data or perspective to do that analysis).  We’ve got lots of regulators watching things like derivatives, but I’d guess the Fed never asked banks to model in a total collapse of retail rent payments (until a few months ago, which may be why Powell is sounding so glum).  So it remains to be seen if that is a localized crisis or if it spins up into something uglier.

That said, 2021 probably sees a bacchanal of spending on travel and etc.  Those who have kept their jobs will have a year of enforced savings and a lot of cooped-up frustration to blow off.  So people who can hold on will do well.  I’m a tech analyst so figuring out who wins and loses is above my pay grade and/or expertise.

The operative term for me (and concern) remains that phrase.  “Those who have kept their jobs.”  My gut tells me there are a lot HR departments waiting to NOT be the first company to announce mass white collar restructuring – never let a good crisis go to waste.  Which means there are a lot of dead men walking out there in the WFH class.

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