Wednesday Briefs – 23 December 2020

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This week: 2020 Philosophy; The Biden Realism; Tesla; Virus Update.

2020 Philosophy

2020 shows no sign in its final ten days of letting up on its odious ways. The latest assaults on normality have come from a new more contagious strain of the coronavirus in the UK and a cyberattack now attributed to Russian hackers. These events on the tail end of a bruising year turn the often voiced “how much worse can it get?” into something more than a rhetorical question or resigned chuckle.

The conventional wisdom would answer “clearly not much worse”. We have been conditioned for decades to see every downturn, every recession, every setback as temporary pauses in a very long climb towards a better standard of living, both individually and as a society. Reversion to the mean is a deeply embedded expectation for an economy that has been mostly successful since the early 1980s, not for everyone but for a large majority of people.

But being philosophical is a rediscovered virtue in 2020, part necessity as philosophy can be a useful companion in times of social confinement, part convenience as it can help make sense of circumstances that have not taken place in a hundred years. So an answer can also be “much worse”. To borrow from the investment markets, until you hit zero, the downside is always 100%.

No need for such alarmism however. As the calendar turns, there will be a new spark and new wind that may not jump start the country from January 1st but that will inevitably push us towards a better spring, summer and fall. There is no doubt that we will defeat the pandemic in all its strains, whether by design (vaccines and therapies) or by attrition (herd immunity). As to cyber warfare, even the experts do not fully understand yet the scope of the most recent attack. This and others are likely to make for ongoing intrigues and conflicts in years to come.

The Biden Realism

President-Elect Biden on 22nd December: “One thing I promise you about my leadership during this crisis: I’m going to tell it to you straight. I’m going to tell you the truth. And here’s the simple truth: Our darkest days in the battle against Covid are ahead of us, not behind us.”

New presidents try to compensate and correct what they and their followers perceive to be errors of their predecessors, be they in style or action. This explains Biden’s commitment to ‘straight talk’ and ‘truth’. Tough love and hard news are the new communication ethos in the White House. They will be a welcome tonic for constituents who feel that the exiting President was not as scrupulous with the facts as he should have been and that he should have shown more alarm and urgency in his handling of the pandemic. Realism may be just what the country needs now as it will soon grapple with year 2 of the pandemic. Camus had written in The Plague that the only way to beat the pandemic is through honesty.

Yet too much realism could eventually filter into the economy and markets and could dampen the optimism and vigor needed to keep investment and innovation moving forward. Getting down to brass tacks is a great idea, but only for a while.

In this vein, Biden’s realism could also be problematic for overcompensating. Just as there are benefits to being a cheerleader in bleak times as Trump tried (if mainly to help his reelection chances), there are drawbacks to being a hyper-realist when looking at the same crisis. The opposite of open sky optimism is not just morbid pessimism but also down to earth realism.


Tesla joined the S&P 500 this week, an achievement that caps an exceptional year for the auto/tech company. Its stock has risen over 700% since last December giving it a higher market value than the entire non-Japanese auto sector. Shorts have been bloodied along the way and the short interest measured in percentage of shares is now at its nadir, having fallen from 32% in July 2019 to a mere 5% now (see chart in this WSJ article).

However, the bears don’t appear to be giving up. Tesla remains at $32 billion in short positions one the most shorted stocks in history. Mounting competition and a rise in longer duration treasury yields may put the brakes on 2021 gains, even if temporarily.

Virus Update

The number of confirmed daily cases in the US has leveled off near 220,000 (7-day average). Daily deaths occur with a 21 day lag and are still climbing but they will similarly peak near 3,000 (7-day average). However winter has just started and the current plateau may only be a temporary pause on the way up to new highs, whether the new UK strain fuels a new wave or not. Counteracting this dynamic is the rollout of vaccines which should reduce the fatality rate starting in a few weeks. We are in a race against the clock to accelerate the impact of vaccines in order to avert an even higher daily death toll.

MORE on the new UK virus strain >>> How Dangerous is the Covid Mutation?

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