Then it’s back where you started, Here we go round again

Back where you started, Come on do it again.

— “Do It Again” by The Kinks

The markets like the fact that a vaccine is almost here. And investors are increasingly convinced there will be a smooth transition to a blue-and-red divided government because the media and most of the world declared Joe Biden president-elect over the weekend.

And so the people who sold and/or shorted lower are buying and/or covering their shorts today. Groups that depend on a reopened economy, such as airlines, venues, oil and malls, are on fire. Cloud stocks like Zoom ZM, -9.00% an DocuSign DOCU, -2.50% are being slammed lower.

So it’s “back where they started” and here we go round again: The question becomes, now that a very effective vaccine looks much more likely in the next couple quarters: Are we going to rocket on through these lows into a revitalized economy with strong corporate earnings next year, earnings that are so strong that it makes today’s elevated valuations look sane in retrospect?

I think the reason the markets have rallied so hard today is mostly off the vaccine news, as the 90% efficacy rate is really good for the world’s chances of getting to herd immunity in a year or two. A widely distributed and dispensed Covid-19 vaccine could get us out of The Coronavirus Crisis and back to a new normal in 12 months.

The vaccine looks safe too. There could still be a snag, of course. But at this point, it would be safe to say that the markets, at least for now, are pricing in that there’s an 80%-90% chance that we have an effective vaccine widely available to hundreds of millions of people in six months.

What could go wrong with this rosy scenario? First, there is a small chance there could be a safety issue. What happens if there’s an adverse event that happens in “only” one in 10,000 people? Statistically, you might not even see that show up in a trial of 30,000 people. But the problem with vaccines is that you’re not going to be dosing tens of thousands of people who have an underlying issue — it’s going to be put into millions and millions, if not billions, of people.

The second thing is that the tolerance for side effects when you’re testing it out on mostly healthy people who volunteered could be much higher than it is when this vaccine gets put out to the world’s billions of people, many with underlying conditions and existing health issues. Some side effects might take some time to emerge.

Three months, six months or even a year or two later? Will the vaccine react with the flu? Or even with a cold? There’s a very small risk of these things, I’d guess, but there’s a risk. And the longer we wait, the more people will die from Covid-19 complications, so there’s a reason to rush, and I think it makes sense to rush. Other issues could come up, including how long will it take to get manufacturing and distribution scaled up around the world.

On a longer-term economic and corporate earnings note, we should take note how The Coronavirus Crisis and the shutdown around it has allowed corporate (and even government and small businesses) to learn how to use cloud and delivery technologies — and other revolutions that are now mainstream — to increase efficiencies and profit margins.

My wife is an attorney, and she was telling me this weekend about how the judges she deals with have said they are not planning on going back to in-person court for most of the things that used to require in-person court because they are getting so much more done over Zoom. Even the number of people appearing before the courts has shot through the roof, since people aren’t scared to go into a giant court building to appear over a speeding ticket or similar reason. It makes sense, right?

And the fact that even a giant bureaucracy like the New Mexico court system can recognize and act to reset their system to create new efficiencies is anecdotal evidence of just how big this whole reset might be.

Meanwhile, let’s not ignore that the pandemic is out of control here in the U.S. and in Europe. The question here is, are we going to have lockdowns and/or are people going to shut themselves in and thusly, the economy craters again to a level that’s harmful before the vaccine can get out through the world?

In the meantime, why has the market decided Trump is going to just leave without a problem? Isn’t there a chance he digs in and won’t concede, and that the Republican Party stands behind him?

Also, might he be destructive before he leaves, even if he does leave of his own volition when the time comes? For example, would he allow a stimulus to happen before he’s supposed to leave, even if he does leave? So no stimulus until January?

If you were worried about Trump contesting the election, why have you decided there’s less risk to that today? He is indeed refusing to concede so far, isn’t he? And few Republicans in power have stood up to him about that so far, right? So isn’t the risk still about the same it was last week?

Is it because he needs a full four states to flip here and it’s not just one state with a hanging-chad issue this time, and so the markets are like, “Naaa, it’s over, Trump’s out and Biden’s in”?

Reminds me of another quote, this time from Lyncoln’s kindergarten teacher last year during simpler times when Lyncoln went to school in a normal way with lots of other kids:

“You get what you get and you don’t throw a fit.”

So what’s the upshot of all this analysis? The upshot is that there near-term risks remain elevated with valuations and geopolitical and economic risks, while the long-term trends remain incredibly positive, maybe even more than previously thought, for the Revolutionary companies we invest in.

Speaking of which, as for trading and the markets, I’m not doing much here. I’ll let things settle down a little bit. Might nibble a few more put hedges. Might trim a few longs. I’m going to nibble a little bit of SPDR Gold Shares GLD, +0.54%, which we sold higher.

Things are not fully going back where they started. And we know where some of the biggest, most important Revolutionary Trends are that we will be getting out in front of — I guess we can quote Mr. Davies once again because “we’ll do it again, do it again, do it again.”

Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.