A short answer to the question in the title: The Coronavirus is a real economic shock. COVID-19 destroys both demand and supply. This is a unique and huge blow to the economy. The global economy is grinding to a sudden halt.
Simultaneously, the coronavirus is a trigger which pricks the bubbles in the stock market, fixed income, credit and real estate. But I am of the opinion that without the COVID-19 shock, prices of the above mentioned instruments could have continued to go up, absent another economic shock.
The coronavirus crisis is real. Companies from the travel, tourism, leisure and transportation services are getting decimated. Other sectors that could prove affected are commodities, financials, consumer discretionary, real estate and all cyclical sectors in general. It should be noted that grain, meat, poultry and other basic food producers will benefit or lose less, while base metals miners will suffer horrendously. Companies from the healthcare, utilities, consumer staples sectors will fall less in this environment.
Amazon is a case in point. Facebook is off more than 30% from its peak. Microsoft, Apple and Alphabet from the big 5 IT giants fell circa 25% from their peaks. Amazon, however, fell "only" about 15% from its peak. I suspect Amazon will also suffer more in the future, since deliveries are not 100% safe either.
The coronavirus shock is very deep economic shock. It is very rare that both supply and demand basically evaporate. How to tackle this? The best way seems to be to work remotely, to control one's psyche so people do not freak out and go on consuming (almost as much) as before.
Every cloud has a silver lining. New industries will sprout from this crisis. Newly created transformational industries and companies are going to change the way we work and live. We have to survive this.
I have not doubt humanity will continue to flourish in the long-term(!)
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Petar Posledovich
1 comment:
The financial market has not priced yet the 40% stock plunge and the coming delinquencies on the balance sheets.
Albert Edwards and Harry Dent are right. We are nowhere near bottom. It is a severe deflation.
The huge debt and the derivatives in an environment of falling stock market and falling crude oil price - this is so deflationary.
The return, at least temporarily, to a gold standard, where gold is to trade between 25 000 and 50 000 usd range can stabilize the monetary system and return its credibility.
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