At the moment, the world economy is in a position where no one quite knows what’s going to happen next; it’s an ordeal that no one has really experienced before. It really does feel like, at times, being dumped by a wave at the beach, and not knowing which way to swim for air. Lockdowns are suffocating the economy much like the wave to a surfer, the media that is presented is seemingly starkly different to what we see on the charts at times, which can leave many an analyst scratching their head.
The reality of the situation we find ourselves in is one where I do not personally see an up for some time to come. While we are seeing stocks seemingly soar at the stimulus response across the globe, we have also seen trading volumes decline, a reminder that many investors are sitting on the sidelines waiting, patiently for their opportunity. When the likes of Warren Buffett, and Sam Zell both billionaire investors in their own rights, say that they don’t see value in the market and that they are being cautious in the market, perhaps we should take notice.
It can be agreed by most economists that there is a lot of uncertainty in the market right now and that there is likely to be more economic carnage to come in the near term. But what about the long term? The chances are that this recovery is not likely to be a neat and tidy V-shaped or even a U-shaped curve. If we consider what happened during the great depression, and an extended time after, we did not have a quick recovery. At current, unemployment figures around the globe are starting to look pretty bad; consumer spending is down, trade is down, food supply is starting to struggle in some areas, all reminiscing of the great depression. After the great depression, it took nearly 22 years to recover, with the unemployment rate remaining above 14% for nearly a decade after.
We could certainly be facing a similar scenario for our own future in the modern-day. The U.S Unemployment situation has worsened consistently since the introduction of lockdowns, with the current estimates of unemployed well over 20%, and if the past is anything to go by, then our pandemic-caused economic recession in 2020 is likely to have a scarring effect for a long time to come.
Right now, the world is looking to break out of lockdown with aspirations of a roaring restart of the economies, but that scenario is hopeful. The worst-case scenario is a 2nd wave of infections which would decimate the already suffocated global economy, and even worse still is the level of debt that countries have taken on to try and combat this pandemic, which will result in the burden travelling downstream to us as the consumers and very likely taxation.
So which way is up? I’m not certain there really is an up at this point in time. Yes, the stock markets are rallying, but for how long can stimulus maintain a stock price when consumers aren’t the ones spending the money. Now is really a time to be patient, and careful with our investments, there will be an opportunity, and there will be value to be had in the not so distant future.