Global stock markets rose last week on news of potential virus treatments and a relaxing of lockdown measures in some European countries (including where I live) and less horrific numbers from the worst impacted countries, the USA excepted. Any ‘less bad news’ is being taken as a buying signal by markets, as I expected.
Is the medical progress positive enough to conclude that we can now see the end of the economic damage that is well underway? Pretty obviously not, with every global economic forecaster of repute predicting the worst slowdown in recorded economic history.
But there is a remaining question of how soon and how rapid a bounce back will be.
Many think that it will be quick and dramatic. I am not so confident.
I tend to think of the likely outcome being rather like what happens in those computer survival games: if your health/food level is only slightly dented by an adverse encounter, you usually get to play on with full health restored pretty quickly. But if your health is damaged by multiple adverse encounters or overly long fights, you become a weakling and need to hide to rebuild your resources.
With the USA and Russia, as well as other large population areas like Indonesia and Turkey still some way from getting on top of the virus spread and the numbers of critical cases (to a degree even in the UK), the length of the fight might damage the finances of consumers and businesses to an extent that makes a quick recovery impossible.
The elimination of a large block of businesses plus the handing out of vast sums of debt funded cash by governments can be expected to cause inflation. No growth plus inflation equals stagflation, the zombie state for economies. In such a climate, the momentum that even now pushes share prices along on the whiff of good news may actually splutter out.
I am not rushing to invest all my reserved cash, but just as when markets were over-valued, I am happy to make small ‘side bets’ on the short term momentum. That is not an appropriate tactic for the cautious and requires daily monitoring, so I am not recommending it.
For those who think they have too much cash, some small phased purchases into funds that are tactically logical whatever happens would be prudent.
I am happy to discuss my research into what I think are safer bets with subscribing readers in more detail and will in due course add some material to the members only area of the site.
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