I’ve mentioned the white label low cost dealing share dealing platform Drive wealth before in this blog. Their technology and transactional platform powers a number of free share dealing services including Freetrade and Revolut here in the UK. In effect, they are a white label direct competitor to Robin Hood in the US.

Thus their platform data is always revealing. Last week they announced their global Q2 numbers, with the topline being that despite a slowdown in trading volume in April and May, DriveWealth saw a 20% increase in AUM for the second quarter. Interestingly that growth is still being powered by younger investors: “Investors ages 20-29 fuelled net new account growth in Q2, helping drive a 15% increase in total accounts in 1Q21.”

But here’s the most revealing bit of data to me: “DriveWealth saw 95% of trades on the platform with a fractional component, showing how fundamentally important it is for retail investors to buy just dollars worth of stock to build a nest egg.

Sure low cost or free dealing is important but being able to own parts of an expensive share is almost as important – it’s the silent revolution that is powering the democratisation of investing.

CoVid redux

You might just have noticed that Covid is rampant again – we are now into the third or fourth wave (I’ve lost count – does the Oct/Nov one count as number two and thus separate from January). I spend a fair bit of time looking every day at the government stats and the message is grim. The national maps are all going deep blue (bad news) and even in rural New Forest, the stats on positive tests are alarming. The good news is that hospitalizations and deaths are much much lower but if we assume that over the next few weeks a million people (or maybe more) will contract the virus, then its not unreasonable to find thousands of extra people in hospital and maybe hundreds of deaths.

But for me the real risk is that the Delta variant is now going global and is about to hit the US. On this subject – with a hat tip to Marginal Revolution – it’s worth reading through an excellent Twitter stream from William Hoenig although the libertarian blog Astral Codex has got a similar thread echoing these thoughts here.

The big message is Covid is back as a worry for investors: here’s the bottom line from Hoenings cogent feed:

  • The Delta Variant is really, really transmissible and going to get worse before it gets better
  • Its going to sweep the UK pushing up levels of those who either a) have caught it and or b) are vaccinated to over 85% in effect pushing us ever closer to 100%
  • Its about to break in the US and mainland Europe and no one can do that much about it
  • Even the double vaccinated to get it but the impact is mostly mild. The few who do have problems tend to be older and/or have com morbidities i.e they do end up in hospital but hospitalisation rates are massively lower
  • Even if we get to 100% vaccination rates – unlikely but possible – the virus will still lurk around
  • In effect we are pursuing an increasingly less covert herd immunity strategy. At some point even those of us who are double vaccinated stand a good chance of getting it, even though in most cases the impact will be mild
  • We are at a real risk of new variants crossing the vaccine barrier and causing mayhem in the not too distant future. Its not a guarantee but a distinct possibility

There are I think a number of very important implications that fall out of this cogent analysis. The first three are public policy ones:

  1. The idea we can get to zero covid is now an illusion. It can’t work because this incredibly transmissible variant will find a way in. The prognosis for countries such as Australia and New Zealand is I think very grim indeed. They might need to keep the barriers up for many years unless they vaccinate like crazy now.
  2. All those bleeding heart scientists and liberals saying that we should speed up vaccination of the rest of the world are spot on. A small – relatively speaking – of a few billion to getting vaccines into third world arms is absolutely the right thing to do now. Not tomorrow or next month.
  3. You can slow down the spread of the virus to herd immunity but it’ll be damned difficult. But that’s not a good reason for abandoning all the rules.

There are also some very important INVESTMENT implications:

  1. As the delta variant breaks in the US we could see a deflationary shock as investors suddenly remember that they do need to worry about the virus. I’d give this a few weeks or months to play out
  2. We’ll also see a sizeable proportion of the population refuse to take the vaccine and thus be hit hard with the full on Delta hit. One doesn’t have to dwell on the political implications here
  3. All those investors worrying about inflation and making big inflationary bets might be punished quite hard in the short term
  4. I also think there will be a substantial number of people – probably around 20% – who will still leave in fear of the virus even after vaccination. They’ll refrain from excessive consumption, avoid restaurants and especially airlines and cruise lines for the immediate future. That’ll probably mean that in some sectors we’ll remain well below pre 2020 capacity. It will also mean that we’ll see continued capital accumulation in the near term as those savings reserves carry on increasing
  5. Go bearish cyclical stocks for the short term

In effect, as I say above, we are groping towards a form of herd immunity in a rather haphazard way, especially in the UK. In effect we are all being prepared to accept that we may get the virus, even if we are vaccinated, and that it’ll be just like a nasty cold or nasty flu (I’m not sure that that comparison is valid but what do I know).

The problem is that this realism is being mixed in with high-faluting talk about Freedom Day and such nonsense. Better to accept that we are NOT out of the woods, that we might need to batten down the hatches at some stage for a short while and accept that the position is fluid. But government messaging for businesses and the markets is all over the place and frankly inept. I confidently expect a reversal of policies within a matter of weeks, pissing off ever more smaller businesses.