The Coronavirus Market
Expect a wide ‘w’, not a ‘v’…
The virus has an incubation of weeks, which guarantees its pervasiveness. And, while industrialized countries have the resources (to test rigorously, with massive quarantine, stocking medical supplies, roadside testing, testing until patients show a consecutive pair of negative tests,…) I fear that poorer countries will not be equipped to halt this. And, because our world structurates toward a core-periphery model, the foundation of our global supply chain will be hit by a slowdown as the virus adds a risk, lag, and a cost to everyone’s day.
Wealthy, well-stocked nations will see their own recovery as a sign that markets are set to rebound, year-long recession has been avoided, and businesses will return to profitability — their core capital has not been destroyed, thus, they earn a similar valuation after the disease passes. ‘V’-shaped rebound, done.
Yet, that rebound will be on the heels of those same nations’ governments’ generous ‘plague-loans’, and the companies there will be living off the fat of their last years. The market rally will presuppose that normalcy will arrive before famine. It won’t.
Cobalt from the DRC, and dozens of other commodities, will see a delayed impact, and their pressure on input prices will be the final straw for a real recession. That will cause the knock-on bankruptcies and lower spending, capital investment, etc., for which we have little ammunition. I’m not claiming global collapse — just a double-dip, as emerging markets’ supply shock hits corporate margins. We’ll see.
