Many global data points appear to be carving out a V-shaped recovery. This is deeply misleading, merely reflecting the depth of the economic decline, rather than the success of the rebound. Leaders are already preparing to add yet more stimulus.
The most important message coming out of the markets is not the overall severity of the economic crisis, but rather an indicator of the already in place fragile market structure that is being exposed
U.S. government debt has grown to +$26 trillion today and for the first time in history, total debt to GDP will rise above 100% in 2021 (potentially 2020 depending on continued COVID response)
We’ve seen a huge amount of new retail investors joining the financial markets, with the ambition of finding opportunities to “buy the dip”. Whilst they have benefitted from the rebound, we question how much longer can this last.
The future could see both an increase in bankruptcies and an increase in zombie firms.
We are witnessing one of the largest divergences between the financial markets and the real economy, in history.
We can expect to see some level of inflationary bottlenecks, especially in heavy industries which are easily switched off but take time to switch back on.
Looking past the “Bailouts are the end of capitalism” debate, we focus on the fundamentals of what drove the airlines, and the broader market, to allocate capital in a very reckless way