On a price basis, the evidence is the US and European stock markets completed their peak on Thursday 30th April. Since then, we have been in the early stages of Phase 3. This means reality and the markets will have started to converge, but at such a slow rate that to many it is imperceptible.
In America, which is truly the land of the deluded investor, markets last Friday rallied again, unperturbed by the latest unemployment report showing the most severe collapse in employment in recent US history. The detail showed that there will be no rapid bounce back. You might ask why? Because of unprecedented liquidity flooding markets, as a result of monetary intervention, making the disconnect between Wall Street and Main Street even wider. We are witnessing a disconnect between the two that has been building for years. This has been compounded by the magnitude of the collective denial associated with the Wuhan Pandemic. This is a mechanism that we have discussed at length before. For those questioning their sanity, remember that in the end, there will be only one winner and that is economic reality.
A cornerstone in our impending reality, is that through a misguided self-imposed lockdown, we have shocked our global economy into collapse whilst creating the rainbow concept that we can suppress the spread of the Wuhan virus. This is false and will prove very costly, as this virus cannot be suppressed, but only slowed down at best, to allow us to mitigate its worst effects. The evidence is there for all to see.
Asian nations that previously seemed to have constricted the virus, now face a powerful second wave. As we have pointed out, without a vaccine, this pandemic will only accelerate in waves until we reach the critical point of herd immunity.
Having shocked our economies to a standstill, and without any end in sight, we now must breathe life back into the economies as the virus continues to spread unabated in a multi-type pandemic. I fear that however bad we think the situation is now, it will become a lot worse in the months ahead as the limits of government support are exceeded and the true economic distress worsens. Equity markets will fall dramatically from here. The world we once knew will slip further into the rear view mirror.