Sam Quawasmi on the Covid-19 Decade - Part 1
Enhanced War Tactics Needed
For decades, we have been used to the same war combating strategies. We have built bunkers, stationed nuclear war heads in different continents, and ensured that our leaders are protected by the likes of the Secret Service, the Republican Guard and Air Force One.
In my humble opinion, this virus is a curse that is worse than an atomic bomb hitting our shores. With the atomic bomb, the damage – despite it being severe – is limited to a city or a geography. If you were to work out best, base, and worst-case scenarios for a country in a nuclear war. History tells us that the worst/best case would be a country deciding to surrender, and you’d assume that further carnage would cease to continue. For example, like Japan did during the Second World War.
Covid-19, however, proved to us that we need more enhanced war tactics. It is sneaking through from under our feet and we cannot see it, feel it, nor can we reason or negotiate with it. It also likes to play fair by not discriminating nor respecting security systems. It knows how to get to presidents, royal family members, government officials, A-list movie stars and religious leaders. Even infecting The Global Capital Markets by causing a complete asset class meltdown.
Again, the theme here for the virus is: no discrimination. The virus will get the poor and the rich, the weak and the powerful, and it also got the equities and the precious metals markets alike.
Unlike the 2008 financial crisis, this bug is leaving us with the midst of 4 crises:
1. A global medical crisis: where we cannot cater for the sick. Sadly, as is the case in Italy and Iran, it is getting to a stage where they’ve run out of places to bury the dead.
2. An economic crisis: where the service economy industries i.e. airlines, hospitality and B2C enterprises etc come to a complete halt as countries adopt ‘lockdown’ measures. Leaving those very industries with no choice but to layoff their staff. Most crises happen due to either the lack of demand, or the lack of supply. These lockdown
measures left us with unprecedented events, where there is hardly any demand, and hardly any supply.
3. A financial crisis: where trillions of dollars have been wiped out from our global capital markets triggering margin calls and further selling. Even safe havens such as Gold are getting hammered. Watch the Corporate Bond market on the verge of imploding as corporates such as the airlines etc struggle to pay back the debt amid
plummeting sales. The hunger for cash merely to service the coupons of the paper is evident with the recent Dollar surge.
4. A looming retirement crisis: The main purchasers of the corporate bonds - that are on the verge of default across the globe - are pension funds. If the corporate bonds were to default, this would result in significant losses to what our pensioners think they will be receiving upon retirement – assuming the bond market collapses. Our elderly will likely be receiving $0.30 - $0.50 on the Dollar. Approximately a 70% haircut
to their pensions.
So, what are the Governments anticipated to do? And what do we have to do ourselves to get through this growing list of crises?
The Peak
Make no mistake about it, every country that has witnessed a handful of cases or higher, will need to get to peak levels. That is just a scientific fact.
Governments such as Italy and Spain (and others) have initiated ‘lockdown’ measures in various attempts to contain it. But the reality is, they will not be able to. The pandemic would need to get to peak levels i.e. thousands of cases, and many fatalities, before the numbers start tapering off. Unfortunately, there is no avoiding that fact.
Peak levels need to take place before a country starts recovering. As with other epidemics, a lot of the time things need to get worse before they get better. Covid-19 is no different in this respect, in fact it is proving to be more stubborn.
Having said that, the world has witnessed a glimmer of hope out of China. After the peak of the epidemic, we are now seeing the rate of deaths amongst the infected, dramatically decline from thousands daily to dozens. Already we have seen news footage of people shedding their face masks and wandering freely through the streets of Wuhan. Factories in the South of China are back in operations, in addition to US
companies, such as Apple have re-opened their stores in China.
Therefore, we need to get to peak levels in various countries for this to start its descent to normality.
Some other Governments around the world such as the UK, are taking the contrarian view of not implementing such severe lockdown measures – as of yet - for which they are being criticized for. But once you dig in deeper into the rationale behind their decisions, you quickly discover that there is an element of genius behind those decisions, where other markets have failed to see.
Elements of Genius
Currently many countries are trying their best to contain the virus, whereas the UK is trying to delay the peak of the pandemic, knowing full well that containment is impossible. The reason the UK has moved to the ‘Delay’ stage without lockdown measures yet, are two fold:
To try and buy time to equip the National Health System (NHS) to deal with the sick at peak levels.
Attempt for the peak to take place in better and warmer conditions so it doesn’t spread as easily.
The UK has not imposed lock down measures yet because:
The UK scientists are advising the Government to allow the disease to spread somewhat, for the population to build a natural immunity system against the disease. The next phase after the ‘Delay’ phase is ‘Research’. This is when some of the best scientists around the world will be laser-focused on delivering a cure. This process requires a certain number of the population to be infected in order to find solutions to the pandemic.
The main driver behind a ‘no lockdown’ approach is something psychologists call behavioral fatigue. It is estimated that human beings will start to get to the ‘fed up’ stage of quarantine approximately 30 days after being asked to stay at home. When human beings reach this stage, they start to disrespect the boundaries of the lockdown and resist those measures. Moreover, scientists estimate it is vastly
more effective to time the quarantining approximately 10 days before the peak, and 10 days after. Hence, there is a fear that the quarantined worlds which are under lockdown – prematurely or otherwise - in countries like Spain and Italy will begin to capitulate. We saw signs of capitulation in Wuhan, China where the authorities were dealing with it in a pretty brutal manner. But that is China for you, would be interesting to see how the western world would deal with this matter.
To be continued…
Sam Quawasmi is the Co-CEO and Co-founder of Eureeca, a regulated equity crowdfunding platform that operates in the UK/ Europe, the Middle East, and SE Asia.