Gearing to a New World Order
The world has changed and changed ‘tremendously’ to coin the hyperbole from Trump. After this pandemic, the world will have to brace itself for the time and opportunity loss – with markets looking unimaginably bleaker than they were three months ago.
With most major cities worldwide now in quarantine, the world will have to wake up to this with a different perspective, and no doubt a lot of finger-pointing and blame will follow. Politicians will continue to score points and bicker on what should or could have been done; businesses will complain that they too are feeling the crunch, and everyone will still be waiting for clarity from every government's rescue package. More so, a lot is expected from a central bank’s liquidity program – and all eyes are wide open to any sign of contagion and a financial disaster.
With the IMF formally declaring last week that the world is in recession, the global economy is indeed sinking, and everyone else is on the lookout for a life-saving rescue package to keep oneself afloat. Now, these circumstances come at a most opportune time when the market is reaching new bottoms, bouncing then bottoming again as the world is demanding more from established institutions. Yes, a rescue package, as promised.
Our prognosis is that the next few months will create immense noise and argument, probably deafening, with parties from here and there rationalizing the economic and political implications of COVID-19 with a set of recommended actions for recovery – this way or that way. With that said, here are some highlights worth noting as the world races to survive from this disaster:
China, with a spillover to other Asian economies, will bounce back quickly, but only in so far as domestic demand dictates. At the same time, Europe and the US will be badly hit by the economic effects of this flu damage and will take many months to stabilize.
Some sectors, like aviation, travel, and tourism, will go down. They may recover to levels, but a great deal depends if a cure or vaccine to this flu is immediately provided. While most assets will bottom out within the next three months, Alternative assets such as gold and silver can only offer relative returns because of illiquidity and volatility. Cash for the moment is still king.
The European Union will face another sovereign debt crisis. Italy and Spain might start bolting, and the Euro Project faces very dim prospects
The pandemic will define the campaign rhetoric for the US election this November. That’s assuming the election goes ahead, and the USA does not succumb to some catastrophic infection [unlikely] in the next few weeks. It is still in all probability a second term for Trump, as Biden and the Democrats present no better options or solutions. Trump’s base seems as solid as ever despite the misquotes and false optimism.
Our reading is that there is still a lot that we don’t understand or know about COVID-19, ergo the rate of infection because testing has been minimal, particularly in the US. The disease can still go exponential as what happened to Italy and Spain. This ‘unknown’ will define the course of action in the next few weeks. The more that we are in the know, the more we can contain it and life moves forward. The more we don’t know, the more that disaster is ahead and that is part of the new world order.