• Christian Armbruester

The Morbid View


Why the Coronavirus may be immensely conducive to higher equity prices.

Remember the great financial crisis of 2008? Global equities were down more than 65%, the world as we knew it was coming to an end as over speculation, greed and utter panic played out in a perfect storm. Yet, a mere three years later, markets were making new highs and from there the S&P 500 went on a relentless climb that saw the index more than double by the time the coronavirus started to rear its ugly head in February 2020.

By all fundamental and macroeconomic measures, none of this made any sense and very few people bought into the rally. Everyone was worried about overstretched valuations, as businesses were going bankrupt, unemployment was going through the roof and quantitative easing was seen as the devil reincarnate by many financial market pundits.

If all of this sounds eerily familiar, then maybe there are some lessons we can draw from history as regards the current crisis. Foremost, there’s no point in trying to make sense of it all. We all know we cannot predict the future in the best of times, so why think we can somehow analyse our way out of what is clearly the biggest period of uncertainty we have ever experienced? Maybe the virus will just go away as the great oracle with perfect hair has repeatedly told us, maybe we will find a vaccine, or maybe we are on the cusp of a zombie apocalypse. The thing is, we do not know, so let us simply move onto much more pertinent issues, and what to do with our money.

The S&P 500 has now retraced every last point of the great collapse of March 2020. So, do we buy the market here or do we sell before it all goes to naught? If the last financial crisis is any guide, we should all pile in here and in 10 years’ time, the market will stand at levels twice as high as they are now. If that sounds ridiculous, consider this: The coronavirus does not discriminate as to who gets infected, but most certainly regarding who will die.

Overwhelmingly, the statistics tell us that it is predominantly the weak, the vulnerable and those with previous illnesses that are dying. That is terrible, horrible and utterly reprehensible that we as a civilised society allow this to happen. It is also natural selection, and hugely productive in the grand scheme of things. For every 10,000 of the sick that die, it is estimated that the health care system, insurance companies and pension funds save more than $1billion every year. Extrapolating that to the millions that are expected to perish from the direct and indirect effects of COVID-19, equity markets may do very well out of the current crisis.

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