Under the Cosh
Ask anyone — my view about the future and humanity is usually fairly optimistic. I believe that there is no conflict, no epidemic, no market correction humanity cannot recover from. Of course this is not to diminish the reality that each of these setbacks impacts the “haves” and “have nots” to a different degree, but that is an age-old discussion about economic and wealth inequality that I will not attempt to mull over in this post. The point I want to make here is that through difficult times emerges a more resilient global economy that births new innovation from healthcare to technology; but only after years of painful recovery for people the world over.
2020 was supposed to be a shining light for the next decade, yet we could not be farther from this flicker of hope. Predictions and forecasts for this year (and the years following) are being thrown out the window as the reality of this global health epidemic sets in. Human health cannot be recouped by governmental subsidies. Central banks cannot save a virus-prone population through quantitative easing. Health sits above all else and the progression of this epidemic is proving just that. The rich might have more resources to combat the virus through access to healthcare services but make no mistake — they are not immune.
I’ve read a lot — blogs, op-eds, front page news — perhaps too much for my own good. As the health epidemic makes its way to the West (a generally unprepared population — no offense) I feel my optimism slowly being hamstrung by the fear of what this virus (and those following) will do to humanity as a consequence of indifference. The need for prevention is unavoidable yet as I write this staring out the window of a London high street, things seem to be business as usual.
Headlines heard around the world
Let me give you a morning news roundup:
Freefall in Oil Sends Shudders Through Stock Markets (Wall Street Journal)
S&P 500 Plunges 7%, Triggering Market-Wide Stock Trading Halt (Bloomberg)
Europe told to act now as coronavirus locks down north Italy and markets plunge (Reuters)
Coronavirus Could Cost World $1 Trillion If It Becomes a Pandemic, Analysts Predict (Times Magazine)
These days, fear is the first thing we wake up to and the last thing we read before turning off the lights. These headlines will only intensify over the next few months if the world finds itself grinding to a standstill. But this is where we have to pause and assess the future of humanity. Are such viruses (and their future mutations) going to reappear on Earth every few years? Is this the new normal that millennials and the forthcoming generations face? Should I look at my health care benefits the way I meticulously comb through a brunch menu searching for the best/most recommended options? It is no joke to say that healthcare systems and infrastructure around the world are either broken or prone to serious shortcomings. In the U.S, increasing medical costs and, for some, lack of health insurance are preventing the sick from seeking proper medical attention. What’s worse, the U.S is the only wealthy country to not mandate paid sick leave, forcing sick workers to compromise personal health and that of others for a paycheck. According to the March 2019 National Compensation Survey, more than half of workers in leisure and hospitality industries — such as restaurant and hotel workers — do not have access to any paid sick leave at all [1]. This is an absurdity that Congress is now “reviewing” — whatever that means. While this remains the case, it should be highlighted that the general public is also put at risk. How are we supposed to trust that the food made behind the counter or delivered to the door was prepared under sanitary conditions by healthy workers? No wonder the CDC’s rudimentary health recommendations aren’t sitting well with Americans.
The global markets
Whilst there is no clean transition here, there is a point to all this I promise. Please read on.
As someone closely tuned into the global markets, I feel my worldview is heavily influenced (although not dictated by) changes in market performance. Here’s a quick snapshot of what’s floating around the news:
The credit markets are painting a rather topsy-turvy narrative a la widening corporate credit spreads and a historically flattened yield curve. Days like today really have market participants in a spin. The US equity markets triggered a circuit breaker overnight, halting US equity futures trading as it hit the 5% limit. U.S stock indices were all down around 7% at the open. MarketWatch reports that “the root of this equity downturn is an exogenous hit to earnings from the response to the virus, not in financial conditions that the Fed can readily walk-back by reversing policy” [2]. This time, ballooning the treasury balance sheet may not be sufficient. The Fed may have to consider something unprecedented — possibly buying up assets other than bonds. Remember, while other central banks like the Bank of Japan is able to purchase a broader range of securities (bonds and equities), the Fed is legally limited to government-backed debt, like mortgage-backed securities and Treasury notes [3]. To be fair, a lot has to be considered before the Fed triggers such a decision. In perhaps the most stunning downturn, oil prices took a -24% nosedive (the worst fall since 1991) leaving the oil market in a precarious position with a simultaneous over-supply crunch/ demand shock. This will result in crippling downstream implications to global supply chain and trade. The crypto markets on the other hand aren’t painting a particularly rosy picture either. Time will tell whether Bitcoin will indeed become a fiat hedge in a major market correction. At the time of writing, it’s looking like equity and crypto assets are more or less correlated with signs pointing to further losses across the board. It’s not looking good guys.
I say all this to show how easy it is for short term pessimism to transpire into a long term doomsday outlook. The Coronavirus has implications for society way beyond the financial markets, which I view as a general snapshot of short term sentiment /real time visualisation of global sentiment in the aggregate. Zooming out of the numbers, it is a reminder of the poor preparedness of the human race to such an epidemic. Even with all the warning signs for containment outside of Asia, the West was not ready. We are conditioned to think that if it’s “not in my backyard” we don’t need to take precautionary steps. In an ever globalising world where travel and trade dominate, the virus is proving that from the get go this should not have been treated as one country’s problem but instead as a global threat. I’ll admit, as a millenial I am in fear — not of the short term (again there will be an end to this virus) but of the long term and how we continue to live and grow up in an increasingly unforgiving world facing more frequent health and climate crises (as a result of modern societal problems). I agree — virus aside, we already allocate our worries to too many things in life.
Perhaps we should actually take “washing our hands” at face value as the best method for prevention. But make no mistake — there is no washing our hands of this one epidemic. Another one will come and we need to be prepared for a changing world in which everything from the financial markets to healthcare (and everything between) are testing unprecedented new normals.
Sources
[1] Washington, Jessica. (2020) The US Has No Decent Paid Sick Leave Policy. This Bill Attempts to Change That https://www.motherjones.com/politics/2020/03/the-us-has-no-decent-paid-sick-leave-policy-this-bill-attempts-to-change-that/
[2] Riquier, Andrea. (2020) Here’s how the plunging stock market could cause a recession https://www.marketwatch.com/story/heres-how-the-plunging-stock-market-could-cause-a-recession-2020-03-09
[3] Smialek, Jeanna. (2020) Bonds Hit Historic Lows, Prompting Fed to Ponder: What More Can We Do https://www.nytimes.com/2020/03/06/business/economy/fed-coronavirus-rate-cut-limited-ammunition.html
