(Photo illustration: Dado Ruvic/Reuters)

The vaccine injects some hope, but lockdowns may take it away, and much, much, more.

At the time of writing (1:50 p.m.), the Dow, S&P and even the tech-heavy NASDAQ Composite are up and, in the case of the former duo, look like ending in positive territory for the second consecutive week. The NASDAQ, however, has had a rougher time. The announcement of Pfizer’s COVID-19 vaccine encouraged investors to move out of pandemic plays, many of which, such as Zoom (at the time of writing, off around 20 percent since last Friday), are tech based. Equally, the argument that the high valuation of some of the top tech names could be justified by the defensive qualities they had shown during the pandemic looked a little less convincing to investors now focused on the fact that the economy might soon benefit from a literal, as opposed to metaphorical, injection. To take just two examples, Amazon and Google are currently down on the week.

But it is well worth remembering that rescue is a way off yet. The Economist published a useful piece on the Pfizer vaccine (more accurately, the vaccine is the product of a partnership between Pfizer and BioNTech, a German biotech company), which also contained this piece of encouraging commentary:

Richard Hatchett, the head of CEPI [the Coalition for Epidemic Preparedness Innovations] says Pfizer’s positive results increase the probability that other covid vaccines will be successful, too. They show that an MRNA vaccine can work, which is good news for Moderna [another company with a possible vaccine in the works]; they also show that targeting the spike protein pays off . . .

But a lot of questions remain. As The Economist points out, there are still safety trials to be completed (even under the current accelerated regulatory regime) and there are a lot of questions still to be answered. Does the vaccine offer “sterilizing immunity” (in other words does it combat the disease in a patient and render him or her non-infectious)? Does it provide long-term protection? How well does it work with the elderly, who tend to be less responsive to vaccination but have proved to be dangerously susceptible to COVID-19?

There’s also this:

The Pfizer, AstraZeneca and Moderna vaccines all require two jabs weeks apart. A one-and-done vaccine, which is what J&J hopes for, makes setting up a vaccination programme far simpler. It also means a given number of doses will go a lot further.

The next hurdle is regulatory:

[Pfizer] says that no serious safety concerns have arisen during the trial. But the vaccine will come with side-effects, at least for some, and the company will only be in a position to request approval for the vaccine on an “emergency use” basis after it has two months of safety data showing such effects to be manageable. That requirement looks likely to be met in time for an application in the third week of November.

But in an era when the precautionary principle runs amok, I couldn’t help noticing this:

Marcus Schabacker, the boss of the Emergency Care Research Institute, an American organisation focused on the quality and safety of medical practices, thinks six months of follow-up data ought to be scrutinised, not just two, before final decisions are made on deploying the vaccine.

Under the current extraordinary circumstances, two, I think, will have to do.

Roll-out of the vaccine is, inevitably, going to take some time:

Pfizer says it will only be able to make enough vaccine to inoculate 25m people in 2020. Up to 1.3bn doses are possible, in theory, next year—enough for another 650m people. If other vaccines are approved then the supply will increase. In even the most optimistic scenarios, though, [CEPI’s] Dr Hatchett expects demand to exceed supply throughout 2021.

And then there are logistical challenges.

Axios:

The vaccine news airlines have been waiting for arrived this week, raising hopes for a recovery in passenger air travel — but only if the crippled industry can muster the resources to deliver billions of life-saving doses to the world.

The challenge is enormous: Just providing a single dose to the world’s 7.8 billion people would fill 8,000 747 freighter planes, says the International Air Transport Association (IATA).

  • If half the needed vaccines are transported by land, it would still be the biggest single challenge the air cargo industry has ever faced, IATA says.

The problem: Most cargo flies in the belly-holds of passenger aircraft — not on cargo planes — and one in four airplanes have been grounded during the pandemic because people aren’t flying.

  • The majority of those parked planes are wide-body jets typically flown on international routes — precisely the ones needed to distribute vaccines.

An added complication: The Pfizer-BioNTech vaccine (and similar ones) would require ultra-cold temperatures throughout the supply chain.

  • Few airlines are equipped to maintain shipments below -25°C, reports Skift, a travel industry publication. Germany’s Lufthansa is an exception, with cold-chain capacity in 35 markets . . .

For all that, the darkest nightmare will be the political, social, and economic consequences should something prove wrong with this vaccine. I would rather not contemplate that possibility for now, as it does seem reasonable (particularly with other vaccines advancing in the pipeline) to think that we can borrow Churchill’s words and dare to hope that while “it is not even the beginning of the end . . . it is, perhaps, the end of the beginning.” The Economist (and I would recommend reading the whole report: for all my grumbles about the magazine’s Davos-turn, it does still occasionally turn out remarkable pieces of work, and this is one of them) is somewhat more optimistic: “a more normal form of life looks unlikely to be too long delayed.”

That, I think, depends. There is a danger that the arrival of this vaccine may encourage governments to adopt even more draconian policies than those they are already considering in response to the pandemic’s current resurgence. After all, if there are just a few more months to wait, why not lockdown hard?

The answer to that is that, for the vast majority of people (even if everything goes well) there will be many more months to wait, and even just “a few” months will be too many. As I remarked in yesterday’s Capital Note:

To be sure, the news that a vaccine is on the way is immensely encouraging, but telling locked-down businesses that all they have to do is wait for its arrival is akin to telling a drowning man to hold off on his drowning until the lifeguard eventually arrives.

Let’s look at a few indicators. Yes, jobless claims are coming down and the number of job openings has been rising, but (via Axios):

A staggering number of Americans continue to fall into a troubling labor market category: out of work for so long that regular unemployment programs have expired. And, that number is rising.

What it means: People are falling off the state unemployment rolls and likely getting work. But that’s being offset by people who are falling off because they are simply no longer eligible to collect state unemployment.

  • They’re transitioning to the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides 13 extra weeks of support.

What they’re saying: “The decline in continuing claims exaggerates the improvement in total employment,” Conrad DeQuadros, an economist at Brean Economics, wrote in a note.

By the numbers: Roughly 160,000 more people moved onto PEUC in the week ending Oct. 24, bringing the total number of claimants to 4.1 million, according to the Department of Labor.

  • Remember: PEUC expires on Dec. 26, which will rip financial support out from right underneath millions of people (unless it’s extended by Congress, which appears unlikely).
  • The same is true for Pandemic Unemployment Assistance, the program for gig and freelance workers, where 9.4 million people are said to be collecting benefits.

What to watch: Over half a million people are tapping Extended Benefits, an option for eligible unemployed workers in most states that have exhausted regular state and PEUC benefits — 21,000 fewer people than last week.

Just about everywhere we look there are other signs of strain, whether it is the mounting crisis in commercial real estate (something that we have discussed before), or indicated in stories such as this one (from The Wall Street Journal earlier this week, my emphasis added):

Big banks also have more deposits than they know what to do with—a more consistent catalyst for deposit-rate cuts this year, analysts said.

Deposits began flooding into commercial banks in the spring, when the economy shut down to battle the coronavirus pandemic. Loan demand at many banks stalled at the same time, meaning banks have fewer and less lucrative opportunities for putting their deposits to work . . . 

The level of reserves kept by lenders at their regional Fed banks has ballooned alongside bank deposits. Banks stash deposits at the Fed when they have more than enough to fund operations including lending . . .

“Deposit growth has been off the chart but there’s not a lot of loan demand out there…”

Already-low deposit rates at bricks-and-mortar banks have trended downward along with those at online banks. The average rate on savings accounts at U.S. banks stands at 0.08%, down from 0.1% in early spring, according to Bankrate.com, a personal-finance website.

“Banks are trying to get rid of deposits,” said Gary Zimmerman, founder of MaxMyInterest, which matches bank customers with higher-yield accounts. “The only way they know how to do that is lowering rates and hoping people go away.”

That doesn’t look like a sign of confidence to me.

While, as noted above…



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