An occasion for change

Two months ago it was generally accepted that shares on the stock market were overpriced. This was explained by the very low or negative interest rates that were the consequence of central bank interventions on the short term (repo) and long term (QE) lending markets. As dividends and interest are alternative forms of profit, they always keep more or less in step with one another. And even the smallest of dividends is better than negative interest.

The pandemic is savaging supply and demand, and countless businesses are on the verge of destruction. The market’s first reaction was to sell. The rush for cash resulted in most share indexes losing a third of their value, and interest went up a few decimal points. But holding cash does not generate revenue so, as soon as governments and central banks promised hand-outs of hundreds and thousands of billions, buying started up again. At present the Standard & Poor index is only about 17% below its peak and interest rates have sunk lower than ever.

Market gamblers are betting that industry, commerce and finance will weather the storm and regain their previous splendour. They seem to have forgotten that the past glory was built on sand, and was already showing severe signs of strain. The return of market exuberance seems premature, as nobody knows when or how the pandemic will end. All this commotion cannot fade away without a trace. Tomorrow will not be like yesterday. It could be better and it could be worse. In the second case, it might be just as well that Boomers are no longer around to see the mess they made and cry over spilt milk. But the first case would mean that same generation - who owns most of the world’s wealth and decides how it is governed - has radicalised suddenly and remembered its rebellious and carefree youth, or has mostly died off with respiratory symptoms.

The idea that the epidemic will go away just as it came: quickly and quietly, is presumptuous and most certainly wrong. The repercussions will be long lasting, measured in years not months. A different way of life will emerge, more centred on essentials and more localised. Travel and tourism will be the worst hit, in what could be a permanent trend. Sea cruises and sight-seeing plane flights may never start up again, and the makers of cruise ships and passenger planes will have no more customers. In which case, providing them with financial assistance is pure waste, especially Boeing with its parking lots already full of 737-MAXs. The countries that host tourism, and all do to some extent, will lose a more or less important inflow of foreign currency, with a direct impact on their national finances. The fall in travel miles equals a drop in fuel consumption, which means excess production and shrinking prices. And cutting off that surplus will be an unprecedented and massive reversal of the growth trend and its ideological monopoly. There is talk of a reduction in global demand of 25 million barrels per day, more than twice US production and over a quarter of world consumption. Agriculture is also in trouble. Especially industrial farming that employs large numbers of seasonal labour, lodged and fed in often sordid conditions with no social distancing, and many have been stopped by closed borders. A lot of these industries sell their crops and meat to fast-food and restaurant chains that have largely closed down. Small farms that employ family and neighbours, and sell their produce locally may fare better than the mega ones. The fashion industry is crashing and the production of cars and trucks is on standby, but so far the military-industrial sector does not seem to be complaining.

Exceptional life-changing events are occurring in every domain. The fundamental processes of expansion and growth have gone into reverse. Everything is shrinking, production, consumption and space itself has dwindled to domestic proportions. As this is likely to last a year or more, until widespread vaccination has occurred, it could be a time for thought. Humanity has been hurtling towards financial, environmental and climatic chaos, so the global lockdown could be an opportunity. Having almost come to a standstill, a complete change of direction becomes possible. For the time being all talk is about getting back to “normal”, the normality of poisoning the atmosphere, soils, rivers and oceans, of desperate poverty and of wanton mayhem with high-explosives. The desirability of such a norm is questionable, and what better time to question it than now, as it is forced into slow-motion. 2020 could be the year 01 of a cooperative, durable future, or of heightened violence and destruction. The outcome will depend on how many people are convinced that a different world is possible. And the disruption of the coming months will decide the balance.