A crisis of demand, not supply, has dented my hopes of a swift recovery

Linda J. Dodson

Half as many tables means sharply lower turnover will not cover fixed costs – and that’s before you’ve worked out how to run a kitchen with two metres between your staff. This means the crisis is about solvency, not liquidity. The prompt, massive and unprecedented Government and central bank support packages that gave investors hope in April may be fighting the wrong battle. 

Providing a low-cost loan or paying staff costs in the short term is a sticking-plaster solution for a company whose customers have disappeared. Of the three concurrent crises afflicting markets today, it is not the medical or financial but the economic one that investors have underestimated.

The bond market gets this. Equities, as is their wont, have been slower to catch on. Superimpose a chart of the S&P 500 over the yield on the US treasury bond since last summer and there is a strong correlation up until a month ago. Then the two lines diverge, with bond yields remaining on the floor, where they signal pessimism about the outlook, while share prices have risen strongly. 

The next few weeks will test which set of investors is right because, on both sides of the Atlantic, a deluge of company results is starting to fill the gaps in our knowledge. The initial signals from last week’s results were not encouraging. From an investment perspective, what is more interesting than what happens over the next year is what permanent social and economic changes the corona-crisis may trigger. 

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