We suggested a couple of months ago that relaxations of Covid-19 lockdowns would soon be reversed as inevitably, with the virus omnipresent, greater interaction would aggravate infection rates. We now face another national lockdown, representing a hammer blow to economic recovery. In our view, previous levels of output will take years to reclaim and the world faces not just a deep recession but an achingly slow grind back to the (relatively) sunlit uplands of a pre Covid world.
Of course, we should be grateful the great and good are on the case. Governments, central banks et al deploy ever more radical solutions to keep this show on the road. The Bank of England, for example, is currently consulting with financial institutions regarding the possible implications of negative interest rates. Everywhere one cares to look, sovereign debt stands at eye watering levels of valuation, yields are non existent and the idea of a balanced budget, laughably quaint. And, if levels of fabricated largesse prove to be insufficient, we have little doubt that more ‘stimulus’ will be just around the corner.
But how much is too much? How far can real resources be commandeered by those conjured out of thin air? Our gut instinct is that none of this will end well although we are likely not close to this juncture, yet. Governments and central banks are partaking in a giant experiment, the likes of which we have never witnessed before. Those placing their trust in such institutions are, in our view, likely to be disappointed because negative rates, spending more than is earned and non-repayment all eventually arrive at the same economic terminus. Prudence may have been abandoned but it remains key for us. When we can find good businesses at prices we believe make sense, we will act decisively. And when not, we will simply wait.