American businesses are notorious for being long-term foolish and solely focused on short-term profit in spite of talk to the contrary. Zero Hedge reports by way of Morgan Stanley that the investing giant is declaring that rushing any “re-opening” of the economy in hopes that COVID-19 has passed would be a major mistake.
However disrupted things may seem at the moment, they pale in comparison to what those in medicine, services and other fields at the front line of the response to the coronavirus are going through. So, this seems like a good time to emphasize a key part of our view: What’s best for fighting the pandemic, the health of the economy, and the market may be the same thing – making sure the reopening of the economy is done right.
As long as investors are confident that the next quarter is a little better, and the path from there is improving, we think markets will be more forgiving of poor data.
But this thinking is predicated on April and May being the low for US and global activity. Trying to reopen the economy before the four key prerequisites are in place would inject significantly more uncertainty over whether the worst for the economy is behind us by the end of 2Q. Such a scenario would pose a clear risk to our positive bias towards current markets.
In short, we don’t see a trade-off between what’s required to control coronavirus cases and a better long-run impact for markets and the economy. Fascinatingly, over 100 years ago, the same appeared to be true. In an article for Liberty Street Economics, Fight the Pandemic, Save the Economy: Lessons from the 1918 Flu, March 27, 2020, Sergio Correia, Stephan Luck and Emil Verner from the New York Federal Reserve looked at the response of different cities to the 1918 pandemic. The whole article is great and well worth a read, but the conclusion is striking: Cities that implemented stronger social distancing measures ultimately saw higher levels of industrial production. Fighting the pandemic and protecting the economy were one and the same (in 1918, the Dow Jones Industrial Average rose 10%). (source)
It is a very prudent measure to wait until any threats from COVID-19 pass before resuming major economic transactions and life.
The country and world was shut down for a reason. Yes, there was political manipulation, and also exploitation, but there is more at work than just this. Objectively speaking, one does not know what one is really dealing with, a point that I have repeatedly stated throughout my articles.
If the country is reopened quickly, the consequences will likely be a decline in virus cases followed by a mass explosion of them several months later. This is what major medical experts have warned about around the world, and they have noted it would likely begin in September.
This is no joking matter as it concerns one’s health.
For the next eighteen months, until this virus passes (as all illnesses eventually do), people need to pay close attention to their health. It is a precious thing to have good health, and it is not worth losing over a virus that can be for the most part easily avoided with good sanitary and social practices.