Covid still has us under the thumb… That’s good and bad.
I’m starting to feel there’s a bit of confusion or some wishful-thinking in the way most people are reporting where we’re at with Covid.
Now, I’m probably talking market analysts more than the mainstream media here, since I read more market reports than I do newspapers.
But a lot of analysts seem to be talking like Covid is a done deal. That we’ll get a vaccine in a few months and job done. Hang a banner off a battle cruiser.
But it’s not looking like that to me at all. First, Covid is on the back foot, but it’s not out of the fight yet. Second, the damage to the global economy has been pretty brutal, and those scars won’t heal over night.
Let me show you what I mean.
First, the UK outbreak continues to look a bit scary to me. The numbers of infection and deaths is pretty ugly, and heading in exactly the wrong direction:
But it’s Covid’s ability to mutate and throw an entire economy off the rails in a matter of weeks that’s really scary.
And maybe a vaccine helps here, but if Covid keeps mutating, how long before it mutates beyond the reach of our vaccines? (That’s a technical question and it might have a simple answer, but I don’t know what it is and I’m pretty sure most economists don’t either.)
And this renewed outbreak in the UK (and China too I might add), is happening in an economy already punch-drunk on the first wave.
Take a look at global GDP. It’s down about 8 or 9%. Our major trading partners are down over 5%. That’s a depression-like contraction in output.
And large chunks of the world are still in lockdown. This is Goldman Sach’s “Effective Lockdown Index” which shows how much of the world is still in lockdown.
China is doing best, but still 10% of its economy is in lockdown. The rest of the world is worst (Australia is probably better), and some regions are going in the wrong direction. (Come back, Western Europe, come back!)
Like the RBA above, Goldman reckons Covid is still dragging the economy down about 9%…
The US is holding up, perhaps surprisingly well, but GDP is down a colossal 20% in the UK and Western Europe.
So I don’t know. I’m generally not a glass-half-empty kinda guy, but there’s not a lot to get excited about here.
This is a picture of a world still pinned down under the thumb of a virus. I don’t know how much hope we should be putting in untested vaccines, but even if they’re wonderfully effective, there’s a lot of healing that will need to be done.
I certainly don’t think we’re at the stage of looking through things to the post-Covid world, which is what a lot of economists seem to be doing.
Now, this is both a good and a bad thing, depending on how you look at it.
It is bad for our general way of life. It’s a pain, and the economy is going to take a long time to recover.
Perversely though, it’s probably a good thing for asset prices, as floods of easy money keep gushing into the system.
Take a look at the American Financial Conditions Index. It’s the easiest financial conditions ever.
That will light a fire under asset prices.
Let’s hope there’s enough of us left to enjoy it.