I think it's good to organize our thoughts about the potential downside from COVID-19, and the positive risks of its resolution. By doing so, we can grasp a wider range of potential impacts and influences, and perhaps identify a point at which we should lever up our market exposure - or not. Please add your own risk/opportunity ideas to the following organized brainstorming list:
Direct COVID-19 Related
If millions get sick, the workforce contraction would negatively impact GDP.
Healthcare systems and insurers could be bankrupted. Emergency government measures enacted to keep the system afloat (e.g. emergency Medicare for all).
Markets could rebound on news of a vaccine or treatment such as Gilead's remdesivir, which has seen success in Japan.
Markets could rebound if classic public health measures such as social distancing and postponing large social gatherings slow or reverse the expansion.
If tens of millions of elderly people die, the population curve could shift younger, causing less stability but more economic growth potential.
Government deficits will exceed 2 trillion in 2020 and 2021.
Consumer Spending / Social Isolation Related
Drastic quarantine measures reduce consumer spending and production.
Forced closure of businesses causes widespread small business bankruptcies (restaurants, cosmetics, retail).
The shift toward online purchasing, even of groceries, accellerates.
Entertainment habits shift even more away from in-person events, and toward streaming.
Deflation will occur, with the US potentially going into a deflationary spiral.
Unemployment will rise from 3% to at least 10% by the end of 2020.
The U.S. savings rate could skyrocket in the short term.
Auto repossessions, credit card defaults, and foreclosures could increase as people go without paychecks.
Everything Bubble Related
Real estate prices could collapse as people hoard resources instead of buying homes.
The collapse of mortgage assets could tank a few large funds, causing a panic and liquidity crisis.
Near-zero percent mortgages could become a reality.
Zero percent interest rates could force retirees to further curtail their spending, accelerating deflation.
Thousands of BBB/Baa bond issuers could be downgraded one notch to junk, causing forced selling by investors and index funds, causing liquidity to freeze, leading to a panic followed by government intervention.
Stocks could find a floor with P/E ratios in the single digits, as occurred during the Spanish flu pandemic in 1918 (current PE is 18.7).
The spread between expected returns on risky assets and safe assets could increase.
Cultural Impacts
If the COVID-19 pandemic persists for over a year, In-person meetings, such as churches, concerts, and theaters will fall out of favor, and new online traditions will emerge.
Paranoia, conspiracy theories, and a general decline in population mental health could occur as people have less interpersonal contact and more media exposure.
People whose job skills depend on in-person interaction (waiters, salespeople, clerics, etc.) may have a hard time maintaining employment.
Work-from-home could become the norm for office jobs. Lots of overbuilt office real estate may go permanently vacant.
Politics could shift more socially conservative, as concerns over bodily contamination expand to a broader xenophobic, fear-of-death, and threat-oriented mentality.
Touching another person's cell phone could become taboo.
If the virus wipes out a large enough percentage of the world's elderly leaders, they could be replaced by younger leaders with more radical politics.
Democratic traditions such as meeting as a legislature/parliament, voting, and protest could lose public support.
High savings rates (>20%) could become the cultural norm, as it is in some Asian countries.
So many underlying assumptions there. So much would have to line for all of that to happen. That said, everyone seems to be buying off on it. I am awestruck.
This is media driven drivel. Sp we essentially collapse the world for something that might happen (didn't do this for a host of other threats) but what really worries me is next year. What "new" disease is lurking around the corner? What other threat threat will emerge to shut us down hari kari style.
Look how easy it has been. We all just rolled over......
We are giving something up, you just haven't realized it yet.
