Best of All Possible Worlds?
Things could scarcely be better. That at least is the only sensible judgment to reach from the performance of stock markets around the world. In the U.S. the equal-weighted S&P 500 continues to surge to new highs, while the Nasdaq-100, representing the modern Titans of the tech industry, has risen by some 500% since the pre-global financial crisis peak, which came on the ominous date of Halloween 2007:
Even European stocks are showing rude signs of life. The contrast with the U.S. since 2007 is excruciating from a European perspective. In dollar terms, the main European stock indexes have never come particularly close to regaining that peak — but both the Stoxx-600 and the FTSEurofirst-300 are at their highest levels since then, and the Stoxx is within 10% of a record:
A number of assumptions are embedded in such strong markets. Most importantly, they are positioned for a potent recovery in earnings. The first-quarter reporting season begins this week, with banks the first to announce, so we will start to find out whether markets have this right. There is also an implicit belief in a “Goldilocks” economy that rebounds enough to bring inflation back up around 2%, but not by so much that central banks are forced to raise rates sooner and more aggressively. U.S inflation data this week, likely to show a sharp rise thanks to comparisons with the bottom of the Covid abyss 12 months ago, will therefore be closely watched.
But perhaps the strongest assumption markets are making is that we can assume the pandemic is now essentially beaten. Let’s take a look at how robust that assumption is.
In the U.S., people are beginning to move around more as the circle who have been fully vaccinated spreads. There is still a long way to go. Government data on the numbers using airports every day, however, are encouraging. Once international travel restrictions lift, we can expect the number to improve further:
In western Europe, it looks premature to conclude that Covid is licked. Going by Google’s mobility tracker, movement is actively decreasing in Germany, France and Spain, and is lower still, remarkably, in the U.K. NatWest Markets provided the chart. These numbers reflect actual mobility rather than the strictness of government controls; it may take a while for confidence to return even if restrictions are lifted.
Pockets of Despair
It’s also clear that the disease remains strong in certain geographical pockets. The most appalling example is Brazil. This chart shows daily deaths attributed to Covid-19:
Even in the U.S., where the picture has dramatically improved, the head of the Centers for Disease Control can still talk of a “sense of impending doom.” Thanks to the spread of variants, there are U.S. regions that don’t have the virus under control. Of greatest concern is Michigan, where the rate of infections (although not of new deaths) has surged:
Vaccines and Their Limits
The two countries outside the Arabian Gulf to have vaccinated most swiftly are Chile and Israel. At first glance their divergence is hard to explain. Israel has brought Covid impressively under control, while Chile has been forced to postpone elections scheduled for this weekend:
This may not be as worrying as it first appears. This is from Andrew Brigden of Fathom Financial Consulting:
Chile began reopening its economy late last year, and until recently there were very few restrictions on movement, with international travel permitted, and schools, restaurants and non-essential shops allowed to open. It appears that the authorities were relying on the vaccine alone to prevent transmission, even though it takes time for immunity to build. There are also doubts regarding the efficacy of the Chinese Sinovac vaccine, which accounts for the vast majority of doses administered in that country. Back in January, researchers in Brazil found that it was only 50% effective in preventing symptomatic infection. The situation in Chile needs monitoring, but for now we take the view that the pick-up in cases, to a level well below the peaks seen around the turn of the year in Israel, the UK or the US, is unlikely to signify the emergence of a new, vaccine-avoiding strain. Instead, it is probably the consequence of a country seeking to return to normal too quickly, protected largely by a vaccine that barely meets the efficacy requirements of the WHO.
The great beacon for vaccine hopes is the U.K., where a new variant emerged at the end of last year. The result was a terrifying increase in infections and deaths. Since then the U.K. vaccination program appears to have enjoyed remarkable success in making the virus less deadly. As Cathy O’Neil explained in Bloomberg Opinion, this is what a vaccination program should do. For a dramatic demonstration, look at the death tolls in France and the U.K, separated by only 17 miles and with virtually identical populations:
The emerging lesson is that vaccinations do indeed make the world safer.
Nothing guarantees an inbox full of emails like addressing Sweden and its approach to Covid-19. Last year, the view was widespread that Sweden had been almost uniquely far-sighted in avoiding lockdowns, and that this policy would not only avoid disruption but also actively help in dealing with the disease. The claim rested on the notion that letting the virus rip would allow Sweden to reach “herd immunity,” at which point the disease could no longer spread.
My interpretation of the numbers is that this simply hasn’t proved to be the case. My conclusion was:
only six months ago, many sensible people sincerely believed that Sweden had done something very clever and provided a uniquely positive model for the rest of the world. I think we can now say with some certainty that that was wrong.
That’s provoked plenty of responses. Some are a little silly. I was accused of bias for looking at the entire period since the pandemic started, and not ending at the close of 2020. I was also accused of being intentionally disingenuous by comparing Sweden to a combination of Denmark and Norway, which between them have almost exactly the same population, and not to Denmark alone. This is because Denmark’s record on Covid-19, while better than Sweden’s overall, has seen a serious spike, while Norway’s experience has been remarkably strong. To answer that, let me offer the rolling tally of new cases for the three countries. To make comparisons easier, I multiplied the numbers for Norway and Denmark to match Sweden’s population. Here is the progress of infections:
The pro-Swedish argument was that the country had saved itself from another spike in infections by enduring one early in the pandemic, while its neighbors locked down. This obviously hasn’t come true.
Here are the rolling death tolls:
Again, the lesson might be that it is Norway, and not Sweden, that has done something truly special. Sweden’s suffering did nothing to protect it in the second wave. The country’s latest wave hasn’t yet led to more deaths, and that’s encouraging. But it’s not the point; Sweden’s supposedly better policy for dealing with the pandemic in no way shows up in any of the most important data.
Disquietingly, Swedish admissions to intensive care units have risen to match their second-wave peak. The following chart is in Swedish, but I am reliably informed that that is what it means:
In terms of cases per million, the key metric of whether Sweden really achieved herd immunity, the country currently has the worst rate in Europe. It looks as though the optimal strategy to minimize deaths was social distancing until a vaccine arrived:
The claim that eschewing lockdowns would actively confer advantages later on just doesn’t stand up, at least in Sweden’s case.
This doesn’t mean that lockdowns were necessarily fantastic. One reader sent me this chart of total deaths in Spain, where the rise last year was horrifying despite strict lockdowns. Spain was the second country to be severely hit by the pandemic, and these numbers to an extent reflect the fact that it was blindsided. But the point remains that a lockdown on its own didn’t come close to guaranteeing success.
Other arguments in Sweden’s defense largely rest on questioning the data. It is popular to raise the issue that Covid often appears on death certificates with other comorbidities. I have always found this illogical. As an asthmatic, you can expect to live a happy life well into your 80s. If you catch Covid, you have an elevated chance of dying. The fact that you also have asthma and that it contributed to your death doesn’t alter the fact that without catching Covid you would have lived into a long retirement.
Slightly more valid is looking at total deaths within the population. Much was made last year of the fact that Sweden had a fall in its number of deaths in 2019, so the elevated number in 2020 may merely have represented a “catch-up.” Here, from the Statista website, are total deaths for Sweden, Norway and Denmark since 2011:
On examination, this claim also has less merit than it appears. In 2018, Sweden recorded its highest death toll of the decade, so the lower 2019 number may itself have represented a catch-up. The average of those two years is in line with the trend throughout the decade, while 2020 represented an 8.25% increase. That is a lot. In Denmark, where there was a less pronounced dip in deaths in 2019, the same calculation leads to an increase of 0.09% in last year’s total. In Norway, there was an outright decline.
There were complaints about the economic comparisons I drew, which showed that the two other Scandinavian countries suffered slightly less of a contraction. It was inevitable that all three would suffer; Norway would have been hurt by the falling oil price; Denmark is at least as integrated with the continental European economy as Sweden. A true “controlled experiment” is never possible in either economics or epidemiology, but the bottom line is that Sweden’s attempt to avoid lockdown yielded no obvious economic advantage.
That leads to a final issue. Sweden’s health record is undeniably better than that of many countries that did lock down. We know the lockdown lifestyle is miserable. It is likely to have done much damage to mental health. Obesity (one of Covid’s main comorbidities) is much more widespread than before the pandemic. Many children have been badly affected. In the long run, it is quite possible that many of us will recognize Sweden’s policy to have been more enlightened.
This is a profound moral question, and it may be decades before all the consequences are known. There may be an argument that Sweden negotiated the moral trade-offs better than others.
That wasn’t what I was arguing, though. My argument was about the attempt to achieve herd immunity via infection. Scientists now increasingly fear that true herd immunity will never come, and that Covid will become endemic. Six months ago, there was genuine belief that Sweden would show us we could have our cake and eat it. It is hard to see how that argument can possibly be sustained.
This is a crowd-sourced survival tip. Last week, I offered a list of great pieces of music inspired by gold. I admitted I knew of no songs about Bitcoin, and asked readers for help.
Thanks guys. Here is an entire Reddit thread on Bitcoin songs; here is Bitcoin Billionaire by Remy; Bitcoin Baron by ytcracker; Blame It On MT.GOX (to the tune of Rolling in the Deep by Adele), Liquidated (to the tune of Avril Lavigne’s Complicated) by Lil Bubble; a great video called Vibing with the FED and Bitcoin; Holding (to the tune of Billy Joel’s The Longest Time) by Zhou Tonged; and perhaps most popular, Satoshi Nakamoto by Gramatik. With great excitement I then realized that “Satoshi Nakamoto” would also scan perfectly to “Maria Bartiromo” by Joey Ramone. Come on, there must be someone out there who can do it. Please. Don’t let the fact that it was a Bloomberg columnist who came up with the idea put you off.
Have a good week.
Like Bloomberg's Points of Return? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close.