3 ms·
Losing 2 months of global GDP because of a virus which would reduce the earnings of most companies directly and indirectly seems like a pretty solid foundation
by raiyu 7y ago
Losing 2 months of global GDP because of a virus which would reduce the earnings of most companies directly and indirectly seems like a pretty solid foundation for a reduction in market cap.
It's like saying we believe that the market was overheated due to zero interest rates, but we were hoping to have the market head into a recession on it's own, rather than have an outside event cause the global GDP to stop for 2 months. But since that is so obvious, we won't accept it.
How many households have two months of savings. How many businesses can go for 2-3 months with 80% reduction in revenue and if they have the savings to cover that.
I think this event is much larger than a simple recession that would have occurred as a result of speculation and low interest rates.
This is literally stopping the world economy for 2 months and seeing how many households and businesses have enough savings to counter balance that while stress testing the governments ability to intervene, not at the top end, by providing funding to banks, but at the bottom end, of figuring out how to get all of the people who work as waiters and waitresses to go without revenue for 2-3 months and not get evicted or rack up debt that they can never escape from.
I think you are underestimating the impact of this.
- defterGoose 7y agoI think your argument is largely orthogonal to mine. The virus is simply acting as a catalyst to expose the shaky underpinnings we already have. I think the impact is going to be massive, but the virus is more like the snowball getting pushed off the top of the mountain, not the avalanche that ensues. If the middle class was on stable footing right now, lack of spending and consequently revenues wouldn't experience such a huge shock. It's a house of cards. If you think that speculation, debt, and interest rates aren't capable of causing a system wide collapse with far reaching effects, I'll go ahead and refer you to the 2008 crisis.
- raiyu 7y agoI'm actually arguing the opposite. The shaky foundation aside, if everything was valued appropriately, and there was no speculation, the impact of coronavirus alone would be enough to send the global economy into a recession due to lockdowns, change in consumer spending behavior, and the lack of income for million of people for even two months who are already living pay check to pay check.
- defterGoose 7y agoFair enough. We're still in the early days of this, so getting down in the weeds on causation is a bit premature. Your first comment made me think you were saying people were glib for downplaying the effect the virus specifically will have on this recession (depression?). I tend to think that's shortsighted, when prior to any knowledge of the pandemic, there were obvious, gaping holes in the reasoning used in shaping our economy in the modern era. Bottom line is, it seems to me that when the world's richest nation has to outsource the making of anything tangible to the place where the outbreak started, and so much of our economy is based on services of questionable value, we're in for a world of hurt. You can't fight this war with military hardware and social media VC.