Monday 16 March 2020

2008 is going to feel like a picnic in comparison

The worst economic crisis of my life was the 2008 financial crash. As readers will know, we had long forseen a crunch coming in the credit markets due to lax Government regulations and arrogance of those in power both at the banks and the Governments.

However, 2020 feels like it will be worse. For one, those immidiately affected are the old, the poor (retiaers, coffee shop owners, airline workers etc) and the needy; not wealthy bankers losing their jobs in Canary Wharf at Lehman Brothers as the first stage.

Moreover, because this crisis is so visceral and real, the Fed last night dumping $500 billion into T-Bills and dropping interest rates by 100 basis points has made no difference. Markets are down about 6% at time of writing. Pumping more fiat money only helps the Banks and traders, it will not make people fly again nor can a coffee shop owner survive when the Government has ordered them to close.

The 3 to 4 month hiatus in the economy we are about to experience will be very hard to manage. I can see UK Government debt ballooning by £100 billion for this year and maybe next year too - there is just so much to subsidise and try to keep going. In the round, this in and of itself won't kill the Country financially (unlike Italy) but it does mean higher taxes will be coming in the 2020's to pay for all this - and who is to say this is a one off, quite the opposite, Covid-19 is a successor to H1N1, so is already not a one-time emergency.

We will have to see where things go but airlines and all forms of travels, sports and events and retail food (incidentally all amongst the big winners economically of recent trends) are all going to be smashed to pieces. Whatever world emerges by the mid-summer will look very different to the world as it was on Valentines day in the West.


Timbo614 said...

I've been thinking along the same lines. Posted this elsewhere yesterday:
The danger or the advantage, depending on your point of view in this is that if the lock-downs last too long (say 3 months) is that businesses and their customers will not return to the old way of doing things. Online shopping has already made big inroads in the retail sector, post crisis I can't see that diminishing again only increasing fairly rapidly.

Businesses will find a way to function across the planet by using communication technology. It is the only way to survive and they will see huge travel costs savings. Staff working from home will adjust and get used to the idea even if they unwittingly actually work for longer hours. Businesses will see their offices half (or more) empty and will question the need to resume the old way of people arriving at 9:00 AM each day and maybe move to smaller premises.

We have had the technology for years maybe this crisis will prompt us to make better use of it.
Things may never be the same again ...

Matt said...

Is this a Buy, Sell or Hold market then? Or different strategies in different segments?

Timbo614 said...

@Matt, I'm still buying but I'm a suicidal idiot! Given the thinking in my first post.. Networking Technology & corporate video conferencing shares today.

BlokeInBrum said...

Well, the real crisis is that they're shutting all the pubs down in Ireland.
Lets hope they reopen when I'm over there beginning of April.

Maybe this is a wake up call for Government and a lot of businesses. It can't be good when large percentages of the population in general, and that of industry are incapable of withstanding unexpected shocks like this. A little bit more resilience can only be a good thing.

We will see how this shakes out, but its amusing to see how the Europeans are slamming their doors shut to outsiders - so much for free movement, hah!

dearieme said...

"feels like it will be worse": Christ almighty, man. Feels AS IF it will be worse.

dearieme said...

Why not cancel HS2 now?

Nick Drew said...

And tell EDF they can whistle for Sizewell C

Sackerson said...

I suppose I shouldn't say anything about bail-ins.

E-K said...

Transport... I'm seeing it. Hence the gallows humour.

Timbo614 said...

@dearieme: It's how you know who writes each post before you get to the end.
Spelling errors: CU
French sayings in italics: ND
English like wot she is wrote: BQ.
But I've become so used to spelling errors, bad grammar, missing words, repeated word words etc. on even mainstream sites like BBC & newspapers that my brain is starting to just ignore them :(

Thud said...

I've been buying and selling as opportunities arise but more just so as I feel as I'm doing something rather than being at the beck and call of misfortune.

CityUnslicker said...

Hard to pick winners now, surely the only thing to do it pick the bottom of the markets. Goldman note I saw today said 20% fall by 31st December - basically a lot more now and then a decent recovery later on.

Timbo614 said...

@CU: Picking winners - I don't think there are any I've just seen the US numbers:

Dow Jones New York: -12.93%

Nasdaq New York: -12.32%

S&P 500 Chicago: -11.98%