Blain’s Morning Porridge – May 7th2020
“This is not a victory of a party or of any class… ”
What to say about markets that hasn’t been said already? Stocks go up while the economy craters.
We’ve got market sages warning about everything from stagflation to hyper-deflation (first time I’d heard that one.) Taxes are going to soar. Earnings will continue to stagnate. Corporates around the globe are slashing investment plans, drawing down cash, and planning production and headcount cuts. How unreal is this: Tesla is the best selling car in the UK??? Yep.. Elon deserves his $700 mm stock bonus… Central banks are creating a shortage of kitchen sinks as they load up on what to throw at the virus next.
That’s the new normal for you….
Meanwhile, on a small island at the unfashionable end of Yoorp….
The UK’s blonde mop-top Boris Johnson, (officially elevated to “national treasure”), has had a deservedly good crisis. He brushed with death – and told it “Not Today!” He’s got a new baby. On Sunday night he will be announcing rules to ease Lockdown, while maintaining social distancing.
Compared to the recent crop of failed UK politicians, Boris has excelled himself because he’s demonstrated leadership. In an extraordinary contrast to his predecessors, he actually made decisions. He listened to the experts, considered their advice and changed policy in light of what he was told. He threw himself behind the new policy, rammed it down our throats, and forced his recalcitrant cabinet of Tory wannabees to follow him like the flock of sheep they are.
And it worked. The virus sombrero (the curve) was crushed. The NHS was saved. It was not overwhelmed!
The cost? The destruction of the economy, growth prospects and jobs are not trifles. Years of slow recovery, and a demand shock like we’ve never ever seen before lie ahead. The Bank of England predicts a 14% collapse in GDP this year. Unemployment will rise to 9%. Poverty kills the young and the old and destroys lives with even less compassion that the virus. Yet government is already talking about tapering the furlough scheme.
As the economy struggles to awaken, there will be questions. Was it worth it? It’s not Boris’ fault the leading pandemic expert advising him; Dr Neil Pants-Down Ferguson has now been exposed as a hypocrite – meeting his married lover against his own official advice, or that the Imperial College model the policy was based on has proved wildly over-pessimistic.
I’m sure they did their best, creating models around incomplete information, limited data and very thin testing. No one is going to admit they got it wrong. But… it looks like they got it wrong. It now looks like the Imperial model was amateurish in the extreme – described as SimCity without the graphics by coders!
In fact, the embarrassment is now so obvious that even the BBC has noticed. This morning there is an article (yep, from the Website, I just can be ar**d to watch BBC news anymore), by a health correspondent asking.. “Is it time to free the healthy from restrictions?” Heresy! Burn the witch!
If even the BBC can see past its own agenda to ask: “How much actual risk does coronavirus present?”, then you know its over..
Somewhere in Downing Street there will be very angry politicians who want to Hang, Draw and Quarter Ferguson. Welcome to your next role Dr F – national scapegoat. How did he get it so wrong? We sacrificed the country for this? That’s why the next stages are likely to be determined by political imperatives rather than science.
Of course, there is little point going back to play a blame game. Boris made the call based on the evidence presented to him. Decisions were taken and acted on based on what the scientists told him. At its simplest – it was a gamble.
From an economic perspective – it looks certain the UK economy will be spiked. It will take till the end of 2021 to recover.
There was success – the death count was lowered. But, the reality is less than 400 people under the age of 45 have died of coronavirus in the UK. The reality is we don’t propose we should ban cycling because 100 people die every year, and thousands are left with lifechanging injuries? Someday we will know how many lives we saved – comparing Sweden and the UK and factoring all the many differences such as underlying health, population concentrations, etc, might be worth doing.
Boris’ success was dragging the country behind him to address the perceived threat. Perhaps too successfully.
The virus has become overly emotional.
Failure to appear on your balcony at 8.00 to clap the NHS will have some local busybody reporting your name to the Thought-Police who will be visiting you shortly for some attitude adjustment and light waterboarding.
Government propaganda has been frighteningly effective. We are now so scared of the virus you will receive a murderous scowl if you pass within 99.9 cm of any other fellow human being. Be seen sitting on a park bench and you will be branded a traitor to the NHS. Around the country lonely, sad, scared people are stoically agreeing with the talking heads telling them lockdown discipline remains necessary. Despite their pain, they think it should continue: “we wouldn’t want to lose the battle now, just when we look like winning.”
And that’s another reason the next stage will be guided by the evolving political narrative – along the lines of: we’re doing our best to restore growth and jobs while keeping you safe. Trust us.. Lockdown will lifted – BUT gradually. The economy will be reopened gradually. In ways that don’t make it look like our leaders over-reacted.
Does the end of lockdown mean we’ll get a mini-boom? Unlikely. Studies by my old university, Heriot-Watt, show consumer spending in the UK crashed 32% during the 6 weeks of lockdown. The internet accounted for spending, but supermarkets reaped the bulk of that money as the 40% of food spending that Brits currently pay for restaurants, take-aways and across the counter at coffeeshops evaporated.
The boom isn’t going to happen unless shops reopen quickly. If we wait then the chances of a boom recede as the unemployment queues lengthen, wages fall, and discretionary spending crashes. Better to act swiftly than to dither.
People are going to remain scared. It took weeks for Chinese workers to go back to work. It will take longer here as we spend money on plastic screens between desks, one-way directions arrows on office floors, 2 passengers per carriage.. ARE YOU SERIOUS? Our local pub counter is less than 2 meters from the front door. I’ve been told the authorities are unlikely to let us start sailing again, worried about crews in close proximity, or what happens if we have an accident that might put rescue crews at risk!
We need to strip out the emotion out of reopening the economy. Let’s just do it properly. Let the country use its common sense. Maintain social distance from the vulnerable. Give them priority. Open shops and factories. Use that uncommon resource of common sense.
The saddest part of this… if economies reopen without a repeat crisis.. Donald Trump will have got lucky again…
Five Things to Read Today
BBerg – A Win-Win Moment Dawns For a New Bond Market – UK Local Authorities
WSJ – SilverLake Makes Big Tech Bets While its Rivals Sit Coronavirus Out
ZH –Biblical Wave of Bankruptcies is About to Flood the US
Torygraph – Four Ways Rishi Sunak can defuse the Furlough timebomb
Gruaniad – The UK Governments changing Coronavirus Strategy
Out of time, and it’s the VE Holiday Tomorrow! Have a great weekend. Full Service on Monday!
Bill Blain
Shard Capital