This Eye on the Market is about all the things that can be true at the same time. The collapse of the political middle in Congress should not be an excuse for everyone else to abandon the ability to believe things that may appear contradictory, but which are all part of a more complicated reality.
Line chart showing the decline in political moderates in the Senate and the House over time
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Good afternoon, everybody, and welcome to the late January 2024 Eye On the Market. This one's called "Medical Complications." First, I want to make a quick introduction. This is Hobie, the dog. So hello, everyone. OK
So just a few quick things this time. First, in terms of why oil prices are so well-behaved, despite what's going on in the Red Sea, I would just quickly point out two things. Number one, over the long run and the short run, oil prices tend to be much more determined by the economic cycle in terms of growth, equity markets, and the strength of leading indicators than they are geopolitical risks, however you want to measure them. So I'm not surprised to see oil prices reasonably rangebound, despite what's going on in the Red Sea.
And the second thing to remember is the oil intensity of growth at this point, the oil intensity of GDP in the United States and other developed countries, is down 70% from what it was in the early '70s. And so every time there's a geopolitical issue, people immediately transport themselves back and remember the disaster in oil markets in the 1970s, but remember, in a slowly but gradually decarbonizing world, and more importantly, a world with greater energy efficiency of devices, furnaces, and combustion engines, the world is much less reliant on oil to grow.
Then real quick, I went on a trip to the West Coast. I went to San Francisco to participate in a VC gathering and to Salt Lake to present to some real estate clients. And real quick, the-- what I thought was interesting to share on the comments from the VC community was, first, on the '20 to 2021 vintages of investments, the comments were similar. There's a lot of losses still to come. There's a lot of dead money there and a lot of write-offs pending.
What's interesting is in the same breath, that was almost a universal belief that the next five years of VC investing was going to be the golden era for the VC community due in large part to AI, large language models, and things like that. So I thought it was interesting to see those two things juxtaposed with each other.
And then the third comment that was quite frequent was some frustration with Wall Street for dropping its coverage of so many small cap companies, which has made it more difficult for a lot of those VCs to exit through the IPO market.
And then in Utah, in a presentation to a national group of real estate developers, there was general consensus that office-to-residential conversions are an interesting topic to think about, with work from home still stuck at about 30% to 35% of workdays in a lot of large metropolitan areas, but that they're very difficult, very expensive. And we wrote about them in some detail a couple of months ago in our New York City study. And there was general consensus that you need some really big discounts in order to make the economics work. In other words, somebody acquiring an office building to do a residential conversion would really need a steep discount.
Interestingly enough, last week, a building on 55th and Broadway in Manhattan that was owned by one of the big institutional real estate companies-- its appraisal is now down 70% from 2014 levels after one of the big tenants vacated 60% or 70% of the space. So while some of these conversions are complicated, they take a long time, they're very expensive, if we start seeing 60% to 70% sales discounts on some of these downtown office buildings, that could make some of the conversions work.
And then one last comment about Utah. I had my first-ever chicken-- Chick-fil-A chicken sandwich, and-- you know, I'm 61. And I had my first-ever Chick-fil-A sandwich. And it was actually pretty good. I liked it a lot.
OK. So the main topic of today's podcast is about all the things that can be true at the same time, even though they might seem contradictory. And I started the discussion in the Eye in the Market with this chart about how the political middle in Congress has disappeared and is at its-- basically, its lowest level since the beginning of the republic, or close to it.
And in an-- when members of Congress really can only see one shade of any color, that doesn't absolve the rest of us. The rest of us need to be able to look at things, evaluate them for what they are, and believe certain things to be true, even if on their face some of them might seem a little bit contradictory.
And the reason I'm bringing this up is because of where we stand in the COVID pandemic and some of the broader issues related to vaccines, vaccine safety, and things like that. So I'm just going to give you the taglines. I really want people-- if you're interested in this topic, read the piece. Everything I'm about to tell you is deeply substantiated and researched in the piece itself, but here are the taglines.
The cost of COVID lockdowns in the United States is going to linger for years, and maybe decades, specifically as it relates to school-aged children, whose math and reading scores were set back 20 years from lockdowns. The FDA has recalled major drugs and has issued black box, which are severity warnings, on others. You've probably heard or have taken many of these drugs.
On top of that, drug company unlawful activity, whether it's kickbacks or bribes or illegal marketing or things like that or the opioid epidemic, have eroded public perception of the industry, which is a shame, because it tends to result in less confidence in drugs and vaccines, less participation in clinical trials, and even things like less adherence to people taking their proper medications.
You wouldn't know it by listening to sports talk shows or reading Twitter, but vaccines have had amazing success over the last hundred years in reducing their frequency of preventable diseases, many of which have either been eradicated or the incidence of people getting them and dying from them is down 95% to 99% compared to where we were 100 years ago. And despite that, vaccination trends have been declining in the United States a little bit, leading to an increase in measles outbreaks.
The original-- now let's talk about the COVID vaccines. The original COVID vaccines, and then the Omicron boosters, were very effective in 2021 and 2022 at preventing serious illness. That protection waned over time as the virus mutated. This virus happens to mutate, I think, 2 and 1/2 times faster than the flu and 7 times faster than other coronaviruses. And those mutations have now rendered the protection that you would be getting from the original vaccine and the Omicron boosters as not being that different from being unvaccinated.
Now, the good news there is both of those cohorts still benefit from some degree of immunity, which is why hospitalization rates right now are pretty low. In other words, if you had been unvaccinated but also infected, you have what's called acquired immunity, or you could have vaccine-induced immunity, or you could have both.
So the good news is despite lower protection from those original vaccines and boosters, hospitalization rates are down because of that lingering immunity benefit. That said, the latest booster, right now, the XBB booster, is not really protective at all against infection, but is highly effective at preventing serious disease and more protective than being unboosted.
So all of these things are true at the same time. And I find it kind of remarkable that there are so many people in the public arena and in particular in social media that can't seem-- they just can't seem to grasp the reality that all of these things are simultaneous true and that you can't just grasp onto one of these factoids and say, well, therefore, that's the entire picture.
The other thing to keep in mind is the COVID vaccines and boosters reduce the risks of getting long COVID, which you do not want to get. And one of the things that we have in the piece is an explanation of what tends to happen to you if you get long COVID.
Now, to be clear, the mRNA vaccines are not riskless. There are risks of myocarditis and pericarditis, and right now, they're-- the percentage risk of those things is very well established. And the Trojan horse vector vaccines, whether it was AstraZeneca or J&J, they're not riskless, either, and then the very rare condition that has resulted from those is even more serious, and the J&J vaccine is not even available anymore in the United States because of it.
But to be clear, the blood clot risk from getting COVID is a lot greater than the blood clot risk from receiving the vaccine itself, another factor which is pretty well established. And then as it relates to all of these reported instances of cardiac arrest and sudden death, they-- every time they get evaluated in autopsies, they're not attributed to COVID vaccines, despite all the stuff that you read on Twitter and in books that are published by Children's Health Defense and other opponents of vaccination.
And the last point I would make on this topic is in either February or March of 2020, there was a paper called "Proximal Origin." It completely dismissed out of hand the possibility of COVID lab origins barely one month into the pandemic. I think at this point, it's pretty clear that based on all sorts of problems with its production, its assumptions, and its biases, that paper should be officially withdrawn by the journal that published it, or even better, by the by the people that wrote it.
But anyway, if you're interested in any of these topics, we go into them in some degree of detail in this week's Eye on the Market. And so that is all for now.
We've got a piece coming up on what's next for artificial intelligence, if you're interested in things like subquadratic scaling, which could render transformers less important at some point in the future. And then, of course, our energy piece comes out in early March. Thanks, everybody, for listening, and hope and wish you all a great week. Bye.
(DESCRIPTION)
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Title, Podcast: Medical Complications, Michael Cembalest, Chairman of Market and Investment Strategy, J P Morgan Asset and Wealth Management, January 2024. The speaker appears on an inset screen at the top right corner.
(SPEECH)
Good afternoon, everybody, and welcome to the late January 2024 Eye on The Market. This one's called Medical Complications. First, I want to make a quick introduction. This is Hobie the dog.
(DESCRIPTION)
He holds up Hobie, a dog that has floppy ears and light, wiry fur. Then he sets Hobie down.
(SPEECH)
So hello, everyone.
OK, so just a few quick things this time. First, in terms of why oil prices are so well-behaved despite what's going on in the Red Sea, I would just quickly point out two things. Number one, over the long run and the short run, oil prices tend to be much more determined by the economic cycle in terms of growth, equity markets, and the strength of leading indicators than they are geopolitical risks however you want to measure them. So I'm not surprised to see oil prices reasonably rangebound despite what's going on in the Red Sea.
And the second thing to remember is the oil intensity of growth at this point, the oil intensity of GDP in the United States and other developed countries is down 70% from what it was in the early '70s. And so every time there's a geopolitical issue, people immediately transport themselves back and remember the disaster in oil markets in the 1970s. But remember, in a slowly but gradually decarbonizing world, and more importantly, a world with greater energy efficiency of devices, furnaces, and combustion engines, the world is much less reliant on oil to grow.
(DESCRIPTION)
Text, West Coast trip, VC comments on 2020 to 2021 vintages, the next 5 years of VC investing and Wall Street coverage of small cap companies. Office to residential conversions. Chick Fil A
(SPEECH)
Real quick, I went on a trip to the West Coast. I went to San Francisco to participate in a VC gathering and to Salt Lake to present to some real estate clients. And real quick, what I thought was interesting to share on the comments from the VC community was first, on the '20 to 2021 vintages of investments, the comments were similar, there's a lot of losses still to come, there's a lot of dead money there, and a lot of write-offs pending.
What's interesting is in the same breath there was almost a universal belief that the next five years of VC investing was going to be the golden era for the VC community, due in large part to AI, large language models, and things like that. So I thought it was interesting to see those two things juxtaposed with each other.
And then the third comment that was quite frequent was some frustration with Wall Street for dropping its coverage of so many small-cap companies, which has made it more difficult for a lot of those VCs to exit through the IPO market.
And then, in Utah, in a presentation to a national group of real estate developers, there was general consensus that office-to-residential conversions are an interesting topic to think about with work-from-home still stuck at about 30% to 35% of workdays in a lot of large metropolitan areas but that they're very difficult, very expensive. And we wrote about them in some detail a couple of months ago in our New York City study. And there was general consensus that you need some really big discounts in order to make the economics work. In other words, somebody acquiring an office building to do a residential conversion would really need a steep discount.
Interestingly enough, last week, a building on 55th and Broadway in Manhattan that was owned by one of the big institutional real estate companies, its appraisal is now down 70% from 2014 levels after one of the big tenants vacated 60% or 70% of the space. So while some of these conversions are complicated, they take a long time, they're very expensive, if we start seeing 60% to 70% sales discounts on some of these downtown office buildings, that could make some of the conversions work.
And then one last comment about Utah, I had my first-ever Chick-fil-A chicken sandwich. And I'm 61, and I had my first-ever Chick-fil-A sandwich, and it was actually pretty good. I liked it a lot.
(DESCRIPTION)
A line graph appears. Text, The middle, Source, J,P,M,A,M, Voter view dot com, data through 117th congress ending in 2023. Moderates defined as Nokken-Poole Voter view scores from minus 0.25 to plus 0.25
(SPEECH)
OK, so the main topic of today's podcast is about all the things that can be true at the same time even though they might seem contradictory. And I started the discussion in the Eye On the Market with this chart about how the political middle in Congress has disappeared and is at basically its lowest level since the beginning of the Republic or close to it. And when members of Congress really can only see one shade of any color, that doesn't absolve the rest of us. The rest of us need to be able to look at things, evaluate them for what they are, and believe certain things to be true even on their face some of them might seem a little bit contradictory.
And the reason I'm bringing this up is because of where we stand in the COVID pandemic and some of the broader issues related to vaccines, vaccine safety, and things like that. So I'm just going to give you the taglines. I really want people if you're interested in this topic, read the piece, everything I'm about to tell you is deeply substantiated and researched in the piece itself, but here are the taglines.
(DESCRIPTION)
Text, Medical Complications
(SPEECH)
The cost of COVID lockdowns in the United States is going to linger for years and maybe decades. Specifically, as it relates to school-aged children whose math and reading scores were set back 20 years from lockdowns.
The FDA has recalled major drugs and has issued black box, which are severity warnings on others. You've probably heard or have taken many of these drugs. On top of that, drug company unlawful activity, whether it's kickbacks or bribes or illegal marketing or things like that or the opioid epidemic have eroded public perception of the industry, which is a shame because it tends to result in less confidence in drugs and vaccines, less participation in clinical trials, and even things like less adherence to people taking their proper medications.
You wouldn't know it by listening to sports talk shows or reading Twitter but vaccines have had amazing success over the last 100 years in reducing the frequency of preventable diseases, many of which have either been eradicated, or the incidence of people getting them and dying from them is down 95% to 99% compared to where we were 100 years ago. And despite that, vaccination trends have been declining in the United States a little bit, leading to an increase in measles outbreaks.
The original-- now let's talk about the COVID vaccines. The original COVID vaccines, and then the Omicron boosters, were very effective in 2021 and 2022 at preventing serious illness. That protection waned over time as the virus mutated. This virus happens to mutate I think 2 and 1/2 times faster than the flu and seven times faster than other coronaviruses. And those mutations have now rendered the protection that you would be getting from the original vaccine and the Omicron boosters as not being that different from being unvaccinated. Now, the good news there is both of those cohorts still benefit from some degree of immunity which is why hospitalization rates right now are pretty low. In other words, if you had been unvaccinated but also infected, you have what's called acquired immunity, or you could have vaccine-induced immunity, or you could have both.
So the good news is, despite lower protection from those original vaccines and boosters, hospitalization rates are down because of that lingering immunity benefit. That said, the latest booster right now, the XBB booster, is not really protective at all against infection but is highly effective at preventing serious disease and more protective than being unboosted.
So all of these things are true at the same time. And I find it kind of remarkable that there are so many people in the public arena, and in particular, in social media, that can't seem-- they just can't seem to grasp the reality that all of these things are simultaneously true and that you can't just grasp onto one of these factoids and say, well, therefore, that's the entire picture.
The other thing to keep in mind is the COVID vaccines and boosters reduce the risks of getting long COVID, which you do not want to get. And one of the things that we have in the piece is an explanation of what tends to happen to you if you get long COVID.
Now, to be clear, the mRNA vaccines are not riskless. There are risks of myocarditis and pericarditis. And right now the percentage risk of those things is very well established, and the Trojan horse vector vaccines, whether it was AstraZeneca or J&J, they're not riskless either. And the very rare condition that has resulted from those is even more serious and the J&J vaccine is not even available anymore in the United States because of it. But to be clear, the blood clot risk from getting COVID is a lot greater than the blood clot risk from receiving the vaccine itself, another fact which is pretty well established.
And then as it relates to all of these reported instances of cardiac arrest and sudden death, every time they get evaluated in autopsies they're not attributed to COVID vaccines despite all the stuff that you read on Twitter and in books that are published by Children's Health Defense and other opponents of vaccination.
And the last point I would make on this topic is in either February or March of 2020 there was a paper called Proximal Origin. It completely dismissed out of hand the possibility of COVID lab origins barely one month into the pandemic. I think at this point, it's pretty clear that based on all sorts of problems with its production, its assumptions, and its biases, that paper should be officially withdrawn by the journal that published it or even better by the people that wrote it. And but anyway, if you're interested in any of these topics we go into them in some degree of detail in this week's Eye on the Market. And so that is all for now.
We've got a piece coming up on what's next for artificial intelligence, if you're interested in things like subquadratic scaling, which could render transformers less important at some point in the future. And then, of course, our energy piece comes out in early March. Thanks, everybody for listening, and Hobie and I wish you all a great week. Bye.
(DESCRIPTION)
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For J.P. Morgan Wealth Management Clients: Purpose of this material: This material is for informational purposes only. The views, opinions, estimates, and strategies expressed herein constitute's Michael Cembalest's judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. J.P. Morgan is committed to making our products and services accessible to meet the financial services needs of all our clients. If you are a person with a disability and need additional support, please contact your J.P. Morgan representative or email us at accessibility.support@ipmorgan.com for assistance. J.P. Morgan Wealth Management is a business of JP Morgan Chase & Co., which offers investment products and services through J.P. Morgan Seccurities LLC (JPMS), a registered broker-dealer and investment advisor, member FINRA and SIPC.. Annuities are made available through Chase Insurance Agency Inc., (C.I.A.), a licensed insurance agency, doing business as Chase Insurance agency Services Inc. in Florida. Certain custody and other services are provided by JP Morgan Chase Bank, N.A. (JPMCB), JPMS, CIA and JPMCB are affiliated companies under the common control of J.P. Morgan Chase & Co. Products not available in all states. This material is intended for your personal use and should not be circulated to or used by any other person, or duplicated for non-personal use, without our permission. If you have any questions or no longer wish to receive these communications, please contact your J.P. Morgan representative.
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