The financial and economic pain grows. The increasingly desperate response of governments and central banks around the world grows with it. There is no sight yet of a turning point, and policies that were unthinkable are now trotted out by the day.
As far as the markets are concerned, a few canny investors have managed to get on the right side of the plunge – read the interview with hedge fund boss Crispin Odey– but for most of us with savings, it has been a dismal time. A huge amount of wealth has been destroyed.
As for the world economy, there is no bottom in sight, nor will there be until there is reliable evidence that the pandemic has been brought under control. So there will be a recession.
There will be a recovery but until that is clear it won’t be possible to see how badly companies have been hit, says Hamish McRae
Of course, there will be a recovery but until that is clear it won’t be possible to see how badly companies have been hit.
Profits this year will be savaged, and we are just starting to get the profit warnings and dividend cuts coming through now. Companies are in survival mode, for what is happening is beyond any of their experience.
Marks & Spencer issued a profit warning and many other household names such as Next, Burberry, Autotrader and National Express all came out with troubling statements.
The Next comment was telling. Online sales were better than shop ones, but even online were down. People do not buy a new outfit to stay at home, it said. Well, quite.
If all this sounds profoundly gloomy, even frightening, it is important to remember that the faster the plunge, the sharper the rebound tends to be.
The problem for equity analysts is how to price this in.
If you take American data, the fall so far in the S&P 500 index is about 30 per cent. The decline has been very fast, but less than the average peak-to-trough fall of the ten previous bear markets since the Second World War. That average decline was 35 per cent. The deepest, over 50 per cent, was in 2009.
We can be pretty sure of one thing: low rates
Unless you believe that what will happen is worse than the collapse of 2009 – and I don’t think this will be as bad because the financial structure is much more robust – we are a decent way towards the bottom. In four of those bear markets the fall was less than the one to date.
So from a business perspective what is happening has never happened before in living memory, and that is scary.
From a market point of view, however, this is within our experience and not as scary as 2009. Equities can take a huge beating, but over a very long period they produce better returns than bonds.
What to look for next?
From a London perspective, the question is when does sentiment towards the UK turn up? The mood perked up a bit when Boris Johnson won the Election in December but is now back to being profoundly negative.
The pound has taken a real beating and it is not quite clear why. As Andrew Bailey, the new Governor of the Bank of England, acknowledged, it was probably a variety of factors including a flight of safety into the dollar. But it is worrying nonetheless. We have a current account deficit that we have to finance.
We have had, in the public perception at least, an uneven response to the crisis. And there is the hangover of negative publicity in the foreign media about Brexit.
We are not quite down to the all-time low of $1.052 ahead of the Plaza Accord in 1985, the international agreement that capped the dollar. But we are uncomfortably close to it.
If you want to be cheered, the pound recovered in the months after that to top $1.80. The foreign exchanges are not known for their calm and measured demeanour.
There is something else that we have to face.
All around the world, governments are piling in support. Interest rates are on the floor, or in the case of Europe, below it. There will be more action in the coming days. All this carries costs. It is the right thing to do in an emergency, for we have to get the recovery pumped up.
But these are real resources and someone has to pay for them. That someone is all of us. There may eventually be some increases in taxation in the longer term, but meanwhile we can be pretty sure of one thing.
When governments borrow a lot of money, they want to keep the cost of borrowing down. So rates will remain on the floor for a long, long time.
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