Unsurprisingly, global markets have remained volatile although they are now considerably higher than the lows reached in late March. Not that long ago, investors wondered when the next recession might strike. As the economic cycle had been artificially extended due to endless central bank intervention in the wake of the financial crisis, it was a sensible question. The economy had been expanding for a decade which, if not unknown, was exceptionally rare. Today, the question of recession is moot. We are, effectively, in recession and the question now being asked is are we facing a worldwide depression?
War time aside, depressions have been avoided since the 1930s because governments have taken action to prevent them. But, are they able to do enough this time when the cause of the problem is not ‘economic’ in the traditional sense of the word? If previous levels of demand were extant in 3 months’ time, there would be cause for hope but if too many businesses fail in between time, global unemployment will surge; especially so in Western developed nations. Markets are, therefore, attempting to predict what lies beyond the immediate. If it is recession, stock markets will likely not visit the aforementioned lows. If it is depression, then they very possibly will.
As we are always focused on the long term, it is a question we cannot exactly ignore but we can certainly ensure it does not distract us from what we should be concentrating on, namely, the acquisition and retention of worthwhile enterprises at prices that make sense. Our task is, therefore, to continue looking for opportunities in a panic stricken world because while the situation is extremely serious, we suspect it unlikely that a 1930s style depression will, ultimately, come to pass.