The Real Cost of this Virus on the Economy: This is Just the Beginning

Dear Reader,

It was a tough weekend in Melbourne…it rained for most of it. The coronavirus blues…

There was, however, a brief window of opportunity on Saturday afternoon, so I got my girls (aged 11 and seven) out for a bit.

I said, ‘let’s go for a walk along the Yarra’.

They were hardly impressed, but I pushed them into the car anyway. I needed to get out as much as they did.

We drove towards the city, and parked between the Botanic Gardens and the Yarra. We crossed the road and walked towards the bank of the swollen river. Overnight, the rain was torrential. I can’t remember seeing the river that full.

Almost immediately, I saw two black swans on the bank.

Ahhh, the symbolism…

We walked towards the city, past the famous sporting precinct on the other side of the river, past the private school boatsheds, under the Princes Bridge and onto the Southbank Promenade. There was hardly anyone around. Australia’s most vibrant city (sorry Sydney, but it’s true) was comatose.

As an introvert and someone who isn’t a fan of crowds, I liked it. But there was something very melancholic about it as well.

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The first time we’ve shut down the economy

I realised the enormity of what is going on. This is the first time in history we have shut the economy down. We have taken away people’s livelihoods. We have destroyed businesses, families and relationships to fight this virus…

A virus that we are told came from bat stew but could well be something far more sinister.

Who really knows the origins of this thing?

We do know it’s deadly though. Italy, the worst hit country so far, has suffered over 15,000 deaths.

That is horrendous.

But keep in mind the media don’t usually keep a running tab on society’s most lethal killers. A daily tally of road deaths, heart attacks, or cancer victims is morbid. It’s not a ratings grabber.

For perspective though, did you know that Italy suffered 68,000 deaths from flu epidemics between 2013/14 and 2016/17?

With one of the oldest populations in the world, Italy is very susceptible. And the fact they let COVID-19 get out of control early means it’s been so much worse for them.

Now, I realise that influenza isn’t as contagious as this nasty bat flu. And if we hadn’t shut things down, deaths could be so much worse.

But in our haste to absorb data on infections, deaths, testing and curve flattening, are we forgetting the ‘other’ costs?

What will be the societal impact of a prolonged economic shutdown?

According to the Black Dog Institute, 3,000 Australians died from suicide in 2017. What will these numbers look like in this year and next, with an economy in ruins?

What about divorces and domestic violence?

The cost of this virus is so much more than the daily stats being fed to you by an eager media.

Yes we need to stay at home and stop the spread. But at what cost? There needs to be a cost/benefit analysis to all this.

Thankfully, the government, who has managed this crisis very well, understands this trade off. From today’s Financial Review:

The more we are locking down, the more we are slowing the spread. The other side to that is that it prolongs the extent of the economic shutdown.

The government, which has already rolled $240 billion out the door for stimulus, income support and health measures, knows the finances are finite and there is very little left to spend.

In that sense, after having arrested the rate of growth, it believes its task from here on in is to try to find a managed rate of growth for the virus while not imperilling public health, and at the same time enabling the economic engines to begin cranking up in six months.

Take the alternative extremes to their logical conclusion. If you lock everyone and everything down and reduce the rate of the spread of the virus to zero, it will remain that way for 18 months until a vaccine is developed. By then, you will have no economy left and a great deal of civil unrest.

Conversely, do nothing and let the virus rip and the whole episode is done and dusted within months but you have hundreds of thousands dead, if not more, and society in chaos.

Put simply we need to find a balance.

Australia has slowed the growth rate of the virus. For now at least, we have avoided burdening the health system.

What will the new normal look like?

While the lockdown will continue for sometime, we must also look to open the economy up again. Get people back into work. As the old saying goes, ‘idle hands are the devil’s workshop’.

The longer the shutdown goes on, the greater the risk that jobs won’t just miraculously return.

Right now, the market is hopeful. Despite Wall Street’s decline on Friday, the local market looks set to rise today. That could change quickly. There is still so much uncertainty about.

But the fact that isolation is working, and the infection growth rate is low, means we can at least look with hope towards getting back to some sort of normal.

But what will ‘normal’ look like?

As a reader of Rum Rebellion, you’ll get a couple of different views on this. I’m in the more optimistic camp. I think we get back on our feet quicker than many expect. But there will be flare ups as we transition away from ‘lockdown’.

Fellow editor, Vern Gowdie, on the other hand, sees this as just the start. Economically, he thinks our debt burden is just too great to escape this virus with only a 30–40% decline in the market.

In his view, we’re only halfway there.

You’ll be hearing more on this from Vern soon…

In the meantime, you can check out an interview Vern did recently with our own Bernd Struben. Click here to view.

Regards,


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Greg Canavan,
Editor, The Rum Rebellion

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Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own.

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