March 19 2020

The Covid Diary

For most people, there is this feeling that this-is-not-that-bad-after-all. The current pandemic gives the opportunity for most to share time with family, and feel safer within the walls of their home. We could even surprise ourselves dreaming about the epiphany the world will have on the consequences of reckless globalization, and all the unnecessary travels, relocations, and pollution that come with it. Yes you, I’m talking to you.

Indeed, this is very likely our species lives another day to see all these good things, but the short-term reality is quite brutal. Sectors such as auto/logistics, travel/tourism/offline gaming, consumer discretionary had overnight very little business left to speak of. Layoffs are coming thick, and unemployment has already jumped through the roof, with airlines such as Iberia laying off temporarily 90% of their staff.

Domino effects are quick to follow. Forcibly keeping home entire populations is equivalent to nuking down a great chunk of the global economy in one go. Apart from pharma, online entertainment & education, e-commerce, and fintech, virtually all sectors are hit. This is why the velocity of the market sell-off has been mesmerizing, and short of bazooka-like money injections, stress will soon entirely paralyze credit transmission.

What sort of antidote do we need? Old recipes won’t work. The Fed shutting rates down to zero, promising massive liquidity, were too redolent of 2008 crisis measures, which did little in the end to prevent asset inflation, inequality, and the mess we’re in right now. Making the same mistakes could lead to non-sensical situations where we lend to companies to buyback their shares.

We have a second chance to launch ambitious Keynesian plans, partly debt-funded partly wealth-tax funded, which benefit the grassroot. Not a paycheck to the layman, but the re-assurance of a long-term job he/she could work on to restore some perspective so quickly lost in the past week.

Until covid-19 is defeated fully and we hope to see some action on this massive infrastructure and development spending, I’m afraid we should write other pages of our diary and take good care of the people who most suffer from this isolation phase…way beyond the comfort of our homes.

360 Advisory – Markets