Rudi's View | Mar 23 2020
On Sunday, FNArena Editor Rudi Filapek-Vandyck communicated the following with FNArena subscribers:
Dear Subscribers,
When the dust settles about 2020's Global Covid-19 Crisis, or GCC, experts will conclude the size and impact of the pandemic could have been infinitely smaller if only governments around the world had put in place appropriate responses.
Firstly, let's be brutally honest about this: we ALL underestimated how important this aggressively spreading virus was to become. But once the numbers started spreading and ticking up, most governments still did not act swiftly enough, and once they did, they chose a path that was to lead to maximum economic destruction.
As proven by small town Vo near Venice in Northern Italy, and by success stories in Asia, the most efficient and effective containment policy is to roll out rigorous, if not excessive testing. If you think about it, that's the most logical way to identify who is carrying the virus and who is not.
Next step is to separate the two groups. Those with the virus go in isolation, or to hospital depending on the severity of the illness. All others can go on with their lives. The ultimate impact of such a rigorous policy on society, the medical system and the economy as a whole is many times over less severe than what the world is facing now.
Also: it effectively stops the virus from spreading.
In Australia, we are more than two months out from when the world was shocked to learn about a virus that was causing mayhem and destruction in China, and authorities are still not rolling out rigorous test programs. Cruise ships are unloading people onto Sydney shores without one single test. Overseas travellers have been arriving through airports and encountered no testing.
Meanwhile, the population at large doesn't genuinely know how best to respond and act responsibly. Is it about not panicking and go on with life as much as is possible? Or should all bunker down behind war-like defences and fear the worst? Whatever the reasons, the motivations, the policies and strategies, it is already obvious the alternative ways to combat covid-19 -other than rigorous testing of the population and of visitors- is the least effective way, and it causes maximum damage to the economy.
Because ultimately we have to shut down significant parts of the country, as we still don't know who carries the virus and who doesn't unless they experience symptoms or get sick, and ultimately we might even have to shut down the whole country. Temporarily, but with immense economic damage as a result.
So today's fall-out is as much to do with governments failing us as it is about China trying to cover this up initially, as well as substantial parts of the population not taking any of it too seriously. As a community, we no longer read and we certainly no longer listen to authority, be they in science, in media, in the medical profession or in government, hence in many ways this covid-19 virus is exposing what we have become anno 2020.
Governments learn, of course, so I think it's fair to say next time, and there will be a next time, we most likely stand ready to test everyone who enters from abroad, and that's just defence shield most obvious number one. Schools, offices, public spaces; they can all become hot spots to test the population, quickly and efficiently.
Society doesn't have to come to a stand-still every time a new virus shows itself.
That's next time. Right now we are still in the here and now, and the virus-related numbers are still accumulating in Australia, as they are in the US and in many other countries. And we still aren't testing, which means the path we are on still leads to ever more Draconian measures to limit the population from interacting, and thus to larger and larger economic impact.
Viruses spread along a bell curve, meaning at some point total infection must reach a saturation point and we can all look forward towards the end of this misery. I reckon governments can still do the right thing by shifting containment policy towards testing, testing, testing. The sooner the better, I'd say. That's when I believe financial markets might get an early sniff of optimism too.
Meanwhile, as I suggested on Saturday, the course of action in Australia is to still enforce further limitations on the population interacting. This morning, the NSW government announced it will shut-down all non-essential services over the next 48 hours. The government in Victoria is planning to announce the same shortly.
Forget about testing in Australia. That'll be for next time. All hail to the bell curve.
Yours truly in extraordinary times,
Rudi Filapek-Vandyck
Editor FNArena
On Saturday, the day prior, he sent out the following message:
Dear Subscribers,
Last weekend I assured you: this crisis is not over yet. One week later and I feel compelled to repeat that same message: this crisis is not over.
What has happened in the meantime is that central banks have gone all-in to prevent this crisis from turning into another global liquidity shortage and credit freeze, just like what happened back in 2008. But as you have noticed from share price action over the week past, it is not enough to solve or even stabilise this crisis.
This is because the economic damage that has already occurred, and that will continue to occur, is larger than anyone among us has seen during our lifetime. Tens of thousands in Australia have lost or are about to lose their job, including small business owners that no longer have any customers, and in the US this number runs in the millions.
Those numbers will start showing up in economic data soon. The sad side of this story is this is still early phase. The news flow is about to get a lot worse. And I mean: a lot worse.
This is why governments around the world are increasingly offering fiscal support, including here in Australia. That's a good thing. Governments are now an essential part of the ultimate solution. But they are still underestimating what needs to be done, including here in Australia.
This can still be easily fixed. Governments can up the ante. Do more of what is required. And they will, hopefully soon, but surely eventually.
The sad news is, I think it still won't be enough.
The crisis we are experiencing right now might have started off as the unwinding of investor exuberance in a world flush with liquidity and carried by low bond yields and constant central bank support, but that quickly became a major liquidity and credit event, and has now become a never before seen Grand Stand Still global recession which ends Australia's dream run of 29 years of uninterrupted economic growth.
But the origin of this crisis, the factor that made the house of cards collapse this quickly, covid-19 is still not being contained in Europe, the US, or here in Australia. I believe as long as this remains the case, it will be extremely difficult, if not plain impossible, for financial markets to settle, let alone have a sustainable rally to the upside.
Talk to anyone inside the financial sector these days and chances are they are waiting for that relief rally that has remained so elusive since mid-February. No doubt, many among you are keeping your fingers crossed too.
Let me explain as to why I think the news flow is only going to get worse in Australia. Next I will address the USA.
Covid-19 is a new global threat, but the experiences internationally thus far firmly suggest it can successfully be contained in a relatively short time if governments start testing early and aggressively, and if their population cooperates vigilantly and diligently. This is why countries like Taiwan, Singapore, Hong Kong and even South Korea are so much better off than countries in Europe.
Most countries, including Australia and the USA, have adopted a different approach. They do not nearly conduct enough testing, and they rely on their citizens to do the right thing. The way this works is as follows: on the same day as NSW recorded its highest increase in covid-19 cases, authorities had to close down Bondi beach because it was packed with people just like on any other ordinary sunny day, despite the official edict there should be no public gatherings involving more than 500 people.
I can cite many more examples, but the bottom line is this: the current measured and gradual approach is not working. The spreading of covid-19 contamination throughout the main cities and the rest of Australia is about to hit another exponential boost. It is difficult to draw any other conclusion.
Also, don't get too hooked up about paying attention to official statistics. Australia is not testing nearly enough to have an accurate insight into how many people have been infected already. Anyone who has travelled back into the country, be it last month, or last week or last minute on Friday, can confirm this. There is no testing upon arrival.
As a matter of fact, one person I know has been sick at home with all the symptoms of covid-19 and has been isolating for two weeks, but he won't show up in any of the statistics because he was never tested. The GP simply told him go home, isolate, weather it out. Last time we spoke he was still feeling quite ill.
The national number of registered covid-19 cases has now exceeded 1000 in Australia, of which 436 people live in NSW. That doesn't sound like an enormously threatening number in itself, but overseas experiences teach us this virus spreads exponentially. Most people instinctively have difficulties to grasp what exactly exponentially means.
This is why investors often don't understand why a fast growing company can see its share price double or triple, and still not be expensive. Or why a company in trouble can see its share price fall by -80% and still not be a bargain. Exponential adds a whole new dimension to forecasts and projections, similar to the story of one single grain of rice on the chess board doubling with every move.
Bottom line: the number of covid-19 cases in Australia is about to take off, reaching for the sky. And the only way to stop it is to effectively put a stop on social life in public and grind the economy to a hard stop instantaneously. If anyone wants to know what life looks like under more Draconian government rules, last week I received an email from my sister living in Belgium.
Belgium is effectively in what they call "lockdown light". It involves the government closing all shops and public places that are "non-essential". People are no longer allowed to congregate. Schools are closed. Every household is allocated 30 minutes for essential grocery shopping. Inside supermarkets there is a strict limit on one customer per four square metres, which means keeping a distance of at least 1.5 metres is obligatory.
As my sister wrote to me, once you are inside the supermarket, aisles are empty; there is no toilet paper, soap, potatoes, rice, pasta, and whatever is available has gone up in price.
I have no direct contacts inside the government, and neither do I have any special power of foresight, but I think Australia is not that far off from the same conclusion drawn by authorities in Europe: we have to shut everything down in order to get this pandemic under control.
The economic impact of all this is absolutely enormous.
But I worry most about covid-19 in the USA. The more information one gathers about the situation over there, the more a picture emerges of a disaster waiting to happen. The country is simply not well-prepared. There has hardly been any testing. And Australia has already felt the repercussions of it: where did Missy Higgins' father pick up the virus? While travelling through the US. Where did the minister for home affairs Peter Dutton get infected?
The thought that the world's largest economy is still only in the early stage of what will likely not be a short, sharp negative news flow is keeping me from joining others who have been keeping their fingers crossed, while watching all kinds of (supposed) technical support levels.
Can anyone of us truly imagine what a world economy looks like when the US goes into lockdown, even if it's only the Belgian style "light" version?
The optimists might say but that's when share markets might take the view this will all be over in, say, one more month. Buy. Buy. Buy!
Maybe, but we're not there yet. Far from, at this stage. I sense there is still too much uncertainty about how and when this disaster story can turn positive. My best advice remains thus: remain vigilant and cautious. Don't try to be a hero. If you are managing your own money, do make sure you can sleep at night.
Cash generates no return as such, but it also doesn't fall by another [fill in your own horror scenario].
For those who can stomach the latest scandal in American politics, check this out: https://www.nytimes.com/2020/03/20/opinion/trump-republicans-coronavirus.html
(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)
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