The Coronavirus crisis, the most serious event since the Global Financial Crisis (“GFC”) of 2008/2009, has set in motion a series of governmental policies whose unfortunate effect is to choke both demand and supply in the global economy. These policies - prudential measures taken by governments united in their desire to appear to be “doing something”- are likely to be worse, economically speaking, than the disease itself. Relief comes only with the passing of time or the finding of an anti-viral remedy, the latter a distant prospect at this stage.
Earnings news, monetary news, fiscal news and pandemic news are all following the disheartening course that we feared. An emergency Fed meeting last Sunday, slashing rates to near zero, failed to reassure. The next day, Wall Street produced the second of 2 record points drops in a week, falling -13%. Equity markets have fallen by an average of about -30% from their January highs.
Equity markets are now oversold and distorted by panic. The market finds it hard, if not impossible, to “price” risk when an end to the crisis is undefined and earnings unknown. And what discount rate should one use in a global panic when rates are near zero? Many stocks trade under “fair value” on “normalized” earnings. But the risks being taken by governments are such that there may be worse to come: bankruptcies in directly affected sectors like leisure, hospitality, airlines, hotels and “bricks and mortar” retail. There may even be nationalizations in troubled sectors. On the other hand, other sectors, also hit hard by the same waves of panic selling, may emerge as new long-term leaders in a changing world where personal safety, health fears, depersonalizing technology and e-commerce may enjoy further and more widespread adoption.
Millions of people just lost their jobs in the retail and restaurants sector. Weekly jobless figures are reported with a two-week lag, so today’s 281,000 increase is reflective of the week ending March 7th. Most cities in lock down made the decision over last weekend so next week’s figure will be higher but the release on April 2nd is likely to take jobless figures to new highs. The only limiting factor is the ability of people to sign on for benefits given the system’s capacity restraints.Click HERE to subscribe to Fuller Treacy Money Back to top