How Bad Can the Coronavirus Crisis Get?

Dear Reader,


The coronavirus (COVID-19) crisis is in full swing. Whole countries like G7 Italy are getting shut down.

How bad can the coronavirus crisis get? Basically, it could lead to a new Great Depression. Huge companies and banks could get wiped out/cease to exist. Once businesses like restaurants, cafes, bars and hotels go out of business it would be vey difficult to bring them back when the coronavirus crisis is over. Such multiple failures could bring loan delinquencies and ultimately threaten the health of the financial system.

The major US, European and Asian stock market indices could go down by more than 40%. The Nasdaq composite could fall more than 60%. All cyclical sectors of the economy like banks, construction, industrials, transportation, commodities, consumer discretionary, technology etc. could be hurt horrendously. Even essential meal restaurants like McDonald's, Burger King etc. could suffer, since people would avoid proximity to each other.

Even the functioning of the government bonds market could get impaired due to liquidity concerns. Thus structurally important countries for the world  with large outstanding government debt amounts like Italy, Germany, Japan and even the USA could find themselves in the situation where they cannot refinance their debt and ultimately could go bankrupt.

So in short, the coronavirus crisis could evoke a new Great Depression. It is not out of the question that such an economic malaise could be followed by wars.

Will it come to a new Great Depression? No. I think the global economy has built up enough resilience to withstand a large economic shock. Most of the froth from markets will be taken off. Stock and fixed income bubbles will be pricked. In the end, however, human spirt will triumph. It will take, however, 6-7 years for the global economy to recover the lost ground if the coronavirus remains around for 1 more year.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".

Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.

Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Respectfully yours,

Petar Posledovich