Sam Quawasmi on the Covid-19 Decade - Part 2
What’s next? And how to deal with the 4 crises?
Thanks to the Global Financial Crisis (GFC) in 2008, we have learnt how to deal with financial meltdowns - and fast. Central Banks would be able to effectively print money and issue more debt to bail out the collapsing industries.
In 2008 the US (being the largest economy in the world) stepped in to bail out the banks and automobile industries as demand fell off a cliff. I recall TARP of $800 billion going through Congress, followed by QE1 and QE2 – all different terminologies to navigate away from words like – ‘we are printing money.’ In 2020, we expect more of the same, but on a much bigger scale. Initially, Trump was talking about an $8 billion
stimulus, and I was telling everyone there is no way this amount would cut muster with the markets. That number went up to $200 billion a couple of weeks ago, and I was repeating the same message, and now the number is $1.2 TRILLION, and I still repeat the same message – it is not enough.
I anticipate the US Treasury Secretary Mnuchin will announce significantly higher numbers before markets open on Monday. The Federal Reserve have been quick to slash rates to zero – and rightly so.
These measures, in addition to much more, are taken to avoid an economic depression. Indeed, the estimation to reach a depression were the worst case scenario, just a few weeks ago. Now, a depression is the base case scenario i.e. no longer the worst case. This is taking place in the midst of an election year when the Trump Administration will do anything to be re-elected, even if it means to borrow vast amounts from the future (that our kids would have to pay for), to avoid an economic depression, which would take the world decades to recover from. Therefore, this substantial stimulus is the right call, in my humble opinion.
The UK’s Chancellor was brilliantly quick in announcing bailout packages worth hundreds of billions of pounds, signalling the right narratives for companies not to shed staff that could lead to an imminent recession. The Government is prepared to pay staff salaries of the battered industries, in addition to tax cuts and plenty of other measures. I still think Chancellor Sunak will go even further and higher in terms of amounts and steps to contain the cascading economy.
The theme for Finance and Treasury Ministers in developed markets right now is how to solve for two of the crises listed above i.e. Economic Crisis and Financial Crisis.
Standard Corporate Bailouts as well as Helicopter Cash - which is a live discussion right now – that entails governments to deposit cash into one’s bank account to keep the cycle moving. In addition to another list of measures that include:
Tax exemptions
Holidays on loan payments
Holidays on mortgage payments
Free rent
Water, electricity and Gas bills subsidies
And the list goes on… Point is, developed market countries such as the US, UK and Europe will save their economies by handling the above two crises in the short term. That will include printing vast amounts of money, and printing they will…
By tackling the Economic and Financial Crises, in a quick manner, with vast amounts of stimulus, Governments would be able to reduce the magnitude of crisis number 4, which is the retirement crisis. The simple rationale is, if those corporate bonds do not default as the Governments picked up the bill, then pension funds should somewhat not feel too much of a pain – for now.
So, the only one left now is crisis number 1, the sad and inevitable health crisis.
Expect more rhetoric surrounding Retro-Virals versus vaccine
Given that the Governments’ aim is to pump quite a lot of capital into the markets, it is only natural that some of the money finds its way to an important element of these crises – which is a to find us a cure.
Rather than have 1,000 scientists focusing 10% of their time to find a cure for another virus e.g. The Zika virus. Money would allow us to have 10,000+ scientists focusing 100% of their time to establish a cure that would solve our issues.
So far, there’s been some relatively promising news from the US, where two drugs are currently being tested and seem to have had somewhat effective results when dealing with the Coronavirus.
The first one is called Remdesivir that has been used by doctors in Seattle in attempts to treat patients suffering from the Coronavirus and seems to have had effective results – more tests are still being conducted right now.
The second drug which is showing signs of efficacy is called Hydroxychloroquine, a 50+ year-old drug that is normally used to treat malaria. The FDA of the US are slightly cautious of going out there and announcing its effectiveness before conducting further tests but some Korean doctors reported back that it has been very effective in fast tracking the period of recovery and therefore shortening the period of spreading the virus to others.
The good news is that – if confirmed – the drug is widely available already in other less developed markets such African nations with larger populations. Expect more positive news as the days unfold as the best scientists on this planet are working around the clock to find us a cure.
That is not guaranteed of course, but at least, the stimulus will allow the developed nations to spend more capital on widely needed resources to deal with the sick i.e. beds, facilities etc. Therefore, for crisis number 1, with the injection of capital and as time elapses, the pandemic will find its way to descend again. At worst, and in the
absence of a cure and/or resources in less developed markets, the disease will start to diminish but will take a few weeks longer and an astonishing number of mortalities – sadly.
The Bounce
The Chinese Communist Party’s (CCP) grip on power in China is only as effective if the economy is in good shape. Therefore, a very quick ‘V’ shaped economy bounce back is the CCP’s top priority with aims of full recovery and factories going back to work around mid-April time, once they have emerged from the peak of the virus. News emerging from China is that they seem to be on track. China, be it the 2nd largest economy in the world, and is vital in this jigsaw puzzle.
The two biggest factors of the global economy bouncing back with strength are:
The incredible amounts of unprecedented stimulus that’s about to find its way into the economy, and faster than ever – given our 2008 learnings.
The behavioral fatigue! I am not sure about you, but I personally cannot wait until life is back to normal and we can enjoy holidays in the Bahamas, Maldives or Barcelona. I aim to be doing things that I postponed doing in the past and will for sure appreciate matters that I took for granted such as walking down to the local café to purchase a croissant with no mask on. I am stating this just 4 days post self-isolation.
Imagine what the fiestas will be like on the streets of Madrid, Milan, and Rio once this siege is removed. Which will be removed once we surpassed the peak.
To be clear, global markets react to good or bad news considering what the implications of the news would have to the average person’s behaviour and spending patterns. It is more probable, than not, post this siege and government fiscal guarantees that our spending would remain robust. Hence my argument for a bounce.
Anticipate the above for developed markets, as for less developed and less fortunate markets e.g. Egypt, India, Nigeria etc. Below is my last paragraph, the only way I see them getting through this ordeal.
COVID > OCD
Could it be coincidence that the very three letters that describe Obsessive Compulsive Disorder (OCD) happen to compose a bulk of Covid acronym?
We all came across a friend or two that suffer from OCD, the very germophobes that used to wash their hands repeatedly, avoid touching or handshakes, not place their laptop bags on the floor etc. We used to look back at them and perhaps think those measures were extreme, and now we find ourselves doing exactly what they used to do.
The last time I was told to go and wash my hands was by my mother many years ago, and now I hear Prime Ministers like the UK’s Boris Johnson and Presidents such as President Donald Trump asking me to wash my hands! My brain is not used to hearing such messages from these very people, but as the messages are essential, we must adhere.
The whole world will need to adapt to a new threshold of conducting our daily lives. We must become a population of OCDs for us to get through this, and we will. But also, I feel for my friends that used to be OCDs, as they now must elevate to a brand-new level of UOCDs(Ultra OCD). They would naturally feel, that what they used to do is not enough, and they will feel the urge to take it to a more extreme level – saw a couple of those on the plane recently who were wearing the entire hazmat suits that the hospital workers treating the sick usually wear!
We will not be able to mitigate the risk of getting infected completely, but we need to take measures to reduce the risk of getting infected. Becoming an OCD for a temporary period of time until the vaccine finds its way to market, is a very good deal. I would take that any day, and I would urge all of us to take it as well.
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.