The COVID Plateau

Since it became obvious that COVID was not an internal China problem, there has been an ongoing debate on the shape of recovery. V-shaped - versus U-shaped - versus W-shaped - versus L-shaped. And this happened already! At least the stock markets have done it in a V-shaped style. Detaching themselves from the reality. There are many reasons for that, one is definitely the American stock recovery has been artificially driven by the FED-injected liquidity.

The reality though is, and will be, very different. It seems very few are prepared for a long journey with the virus.

People really started realizing this thing was serious when lockdowns were imposed. And the whole story behind the lockdowns was to flatten the curve. What most seem to have missed is the curve is not symmetrical. The more flat it is (yes, we managed to flatten it), the less steep the down slope becomes. And there may not be the down slop at all for several months to come... as the curve will transform itself into a plateau.

This means the impact to the economy and our everyday lives will remain enormous (are you ready to stay at home for the next 12 months?). Practically, there are three ways out:

1. A vaccine (we are told we will be lucky to have it in 12 months and then it will be a huge effort to have it in needed quantities)
2. A cure (probably no sooner either)
3. Herd immunity (no, we are not prepared to let millions die)

And unless a miracle happens, there is no other way.

At the same time it seems most decision makers are targeting the false assumption of a symmetric curve. Companies do not restructure, claiming they have "enough cash to survive". Really? Can you "survive" for a year? Or 18 months? And what about your business when this thing is over? Will it be back to normal? Or different?

One example here is the airline industry. They begged the governments for bailouts. And the government listened. This is wasted money. Air travel will take very long time (read: years) to return to pre-COVID levels. Major airlines now operate at 5% their previous capacity, and they quote "no demand" for months to come. The bailouts will prolong their existence for a couple of months, at maximum. While they need years. They should have cut the passenger operations back in March, leaving only the cargo business and start rebuilding in March 2021. Of course that would add significantly to the already unprecedented unemployment.

Unemployment (due to significantly reduced consumption) will become globally the biggest problem to address. In the USA people who lost jobs received the government checks and reading the reported stories I do not believe what I see. Most have already spent that money (while we have been only 10% through this...!). Many still do not realize the seriousness of the situation, complaining the checks are small, "leaving very little for entertainment expenses"...

The COVID plateau will be the toughest test for the developed 21st century civilization. If this will last as long as I see it, there will be despair, grief, disappointment, and even hunger. Money printed by central banks will not be a universal cure, as this does not help in a long run. And it spoils - why should I go to work for $800, while the government pays me $1200? Neither helping are impatience and reality-enchanting messages from political leaders. At the same time there are subtle indicators showing that many, even if not prepared for the long lasting depression, are at least not expecting the situation to improve quickly. One is the Bloomberg Dollar Spot Index. At 1250 it remains high, meaning there has been a significant dollar accumulation. I'll be watching it fall below 1220, as one of the clear signs of recovery.