If equity markets don't make sense in terms of direction, it is because we are still at a stage where there are enough bulls to counter the bears, the bulls believing all the bad news have been priced in and having the belief that we will hit plateau in cases within a month. And we still have FOMO so that signifies that the bear market has not ended just yet.
And instos are buying, but that does not mean they are right too. But then you have the camp that believes you cannot ever time the market- you can't ever find the bottom and anytime is a good time if you have time. Of course, we have heard that all the time from mainstream financial. And it serves me repeating that the same camp believes this is just an event led crisis- i.e once the virus is defeated we will back to where we were before.
Perhaps they are right but perhaps they could also be wrong. And to be right after another 10 years is actually wrong. Which is why now is the appropriate juncture to envision what could be the economic and investment landscape in the post-viral environment. The economy would be bad and so must earnings and consequently so must share prices. But the economy could be bad, yet the markets could be better than the economy.
As difficult as it is, it is probably best to think of coming out of this relatively unscathed. We have seen the failure of policies that had consequences on the containing the virus pandemic and its consequent economic fallout. The more protracted crisis could have been avoided with urgency and less denial, but that is now water under the bridge. Just as failure in containment policies has had its consequence, so must all the economic stimulus packages and economic efforts to date and beyond to address the fallout , it is unlikely to be a zero sum game.
The interconnectedness of everything is one woven complicated economic chaos that awaits us - an example of which is inability of tenants to pay landlords due to becoming unemployed and landlords, some of whom may become unemployed as well unable to pay banks and despite moratorium on loan repayments, there must surely be a finite limit to that before they turn into bad debts. Landlords may not evict their tenants but tenants that cannot find work in a contracted economy cannot sustain remaining in premise beyond a grace period, and yet landlords may find difficulty looking for new tenants in a market now flooded with new leases coming to market as a result of declining Air BNB prospects, so how would loans be repaid and with banks holding a sizeable residential loan portfolio, that must surely be a worry. And now you can imagine why there have been calls for banks not to declare dividends, a prospect that PM has not ruled out categorically.
The above example tells us the after effects of the contagion would most likely remain with us for longer and the probability of this is even higher the more protracted the shutdown due to our inability to arrest and check the growth of the transmission.
And yet with that all and all the payments promised and soon to be delivered, you would wonder why we don't take the painful step to undertake a more stringent and wider lockdown for a month or two to choke the virus out of existence, so that we can come out of this quicker and allay fears of remaining cases lurking when we begin to relax social distancing guidelines. Indeed, Bill Gates wrote over the weekend recommending a national uniform lockdown for the US in a short period to eradicate and choke the transmission capability of the virus. Isn't that exactly what NZ has done and isn't NZ been the first to subject all incoming passengers to a 14 day quarantine and now isn't it NZ again leading the pack (well almost it was the Europeans) in placing a stop to bank declaring dividends to preserve their reserves?
