The next stage in the Covid-19 crisis will see on and off lockdowns

A report predicts a period of on and off lockdowns later in the summer and until a vaccine is available. Markets are not even close to pricing in the implications of this, yet.

Article updated: 9 April 2020 1:00pm Author: Michael Baxter

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It’s horrible. I took my dog out this morning — I am quite lucky, I live in a rural area, social distancing is easy where I live. It was the most beautiful day, and I said to a fellow dog walker (from about ten yards away) how nature seems unaware that there is a crisis on at the moment. Somehow, it didn’t feel real. I felt a form of cognitive dissonance — enjoying such beauty in nature when things are so bad.

Talking of cognitive dissonance, I think the markets are suffering from a bad dose of it. The S&P 500 is actually up 19 per cent since March 23.

Hello. Is there anybody out there? I mean anyone at all sane? None of us really grasped how serious this crisis would be to begin with — but we did at least know it would be bad.

On February 3rd, I wrote here: “If new cases were to continue to increase by 30 per cent a day, that means doubling every three days, by the end of March everyone on the planet would have had the condition...

“It is because of this infection rate that authorities are likely to take extreme measures to try and stop the spread — and it is these extreme measures, however necessary, that pose the greatest economic threat.”

I had no idea how bad this would get, but if even little old me, with my pea sized brain, could work out that it was going to be pretty bad, why couldn’t the markets? Wisdom of the crowds indeed: downright stupidity, more likely.

And that brings me to on and off lockdowns.

You may know that back in on March 16th this year, a report from Imperial was published. To those who read, it made disturbing reading. I believe it was this report that led to a change in approach to the Covid-19 crisis from both US and UK governments.

But the report also looks at what will happen when the number of cases start falling significantly. As I am sure you have worked out, but the markets haven’t, there will be a risk that the virus will start spreading again and spreading exponentially. As I think everyone now realises, the implication of a disease spreading exponentially is terrifying. As I write in my new book coming out soon, Living in the Age of the Jerk, the same can be said when technology is changing exponentially— but in the case of technology it is both terrifying and exciting.

The Imperial report reasons that once admissions to ICUs from the virus in a territory fall below a certain level, then the lockdown can sort of end, subject to a South Korean level testing and surveillance. But once the number of ICU admissions reach a certain level, then social isolation begins all over again.


In other words, we get intermittent social isolation and lockdowns.

The economy

Let me turn to the economy. It is widely expected that US unemployment is set to hit its highest level since the Great Depression. 

Economies don’t recover from shocks like that rapidly. And if we get a kind of stop-go economy between now and when a vaccine is mass produced, the economy will continue to be awful. Companies can’t plan ahead, very easily, if they think another lockdown will be imposed after a few weeks.

I don’t know what will happen to the economy post Covid-19. Personally, I think the economy will be exceptionally weak for two or three years but will then enjoy a mother of a boom and will soon be bigger than if the pre-Covid trajectory had continued uninterrupted.

But that is my view, you may disagree. I certainly don’t think that the reason why markets have done so well over the last ten days is because they agree with my somewhat optimistic take about the world towards the middle of this decade.

No, the markets have performed well because they don’t get it.

What about investors?

Investors can be patient — remember the words of the wise man of investing himself, Warren Buffett: “The stock market is a device for transferring money from the impatient to the patient.”

Investors can also invest in safe harbour bonds, such as US or UK treasuries or corporate bonds drawn on especially secure companies, like Apple. Remember, bond prices go up as yield falls.

But I do think that this crisis will accelerate the move towards digital. Companies that provide digital services, or apply them with particular skill, will be the long run winners.

Find out more on who I think some of the winners could be.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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