"Only when the tide goes out do you discover who's been swimming naked." Warren Buffet
The markets are confused. This is not like the financial crisis: apparently it can't be fixed by the usual Central Bank toolbox - lowering interest rates is like pushing on a piece of string. It's both a supply and demand problem. On the supply side because the west has exported most of our manufacturing capacity (and green house gases) to China, China shutting down means the supply chain is disrupted.
Tankers don't sail, transporters don't transport and car manufacturers with just in time inventories run out of parts to built stuff the world buys. And like the new virus this effect spreads through the economy. Smaller businesses who supply bigger business don't so have to lay off people, have reduced income to pay bills including staff costs and go bust. And if businesses lay off labour that labour can't buy in the local stores etc and so the contagion spreads.
Also on the supply side where is the capacity in services to deal with the crisis. Wait for the popular press to switch from calling for tax cuts to more money being spent...on the health service, local government, social care, pot holes. Years of austerity has left the services we depend on working at near capacity. This bug, should it get a hold, will test those services to destruction. What now is a 5p in the £1 reduction in taxes if you die because of the cuts that gave you that tax break.
On the demand side. Where do you start. In China they recorded an 80% reduction in new cars sales in February. Italy looks like it might become the first European country to be completely paralysed by this bug. No tourists, no football, no people in the streets no nothing, no demand. How many businesses can cope with such a fall of in demand. This is likely to repeated to different degrees across the globe. Holidays abroad - forget it this year at least.
Preparedness. Reading the Washington Post accounts of the gaps in the American health system is horrifying. If those reports are half true - god help the old, infirm, and those without insurance. The US has only just started testing for the bug so the risk is its much more widely spread than the figures currently suggest. Just wait when the US public wake up to the real extent of the infection. Hence Trump's nonsense. In the UK we're into the second phase - containment lasted about a day. Now we're into stretching out the impact because otherwise our health system would buckle under the weight of demand.
Let's not forget the less "developed" world. We haven't heard much about Africa. Is it that the bug can't survive in hot climates or is it they just don't have the infrastructure in place to test for the virus. The World Bank and the IMF are worried enough to set aside £10 bn to jack up the services in these African countries.
Finally, the markets think/hope/prey this is a V shaped depression and the good old world establishment built on unsustainable consumption and debt will rapidly bounce back, but as the Economist points out Governments are in the handling demand phase which means reducing demand over a longish time so our social structures don't collapse. So there's a mismatch.
Just hope you have sick pay entitlement, you don't lose your job, you don't have an underlying condition and you're not old. Oh and the bug doesn't mutate.
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