World markets soared on the news that Pfizer and BioNTech’s Covid-19 vaccine is 90% efficient (traditional flu jabs are around 50%). In addition, there are another 150 vaccines in development and 3,600 trials still being undertaken. It’s obviously great news although the organising of mammoth immunisation programmes means anything resembling normality is still some way off.
In the US, investors appear sanguine about Joe Biden’s victory. Taxes may well rise but the market is focusing upon fiscal expansion. We’ve commented previously on ever greater levels of unfunded (other than borrowing) expenditure and markets love the prospect of ever more ‘stimulus’. However, at the risk of sounding like party poopers, the debt loads and spending deficits of far too many developed countries have now reached the point where empirical evidence suggests future economic growth will be meaningfully compromised. Or, to put it another way, the law of diminishing returns ensures far too much of tomorrow’s output has been artificially brought forward, thus ensuring leaner times ahead.
Covid-19 offered logical reasons for massive governmental largesse but economic recovery is being seized upon to offer a seemingly endless continuation. There are some economic environments where the shares of mediocre businesses can do passably well and it appears investors believe this to be one of them. Taking the longer term view, as we always do, we doubt they’ll be proven correct.