Summary

Helen’s analysis of the concept, Velocity of People, leads her to the sombre conclusion that the worst recession of our lifetimes cannot be stopped as fear casts a long shadow. She drew on evidence which included an ONS survey suggesting continued caution about social consumption, and polls taken by Morning Consult indicating that around half or more of all Americans will not feel comfortable resuming normal activities for 6 months or longer, leading Helen to believe the Velocity of People is permanently impaired. She noted that while Italy and Germany had seen pent up demand in activity after tough lockdowns, this has now petered out, rapidly in the case of Italy. Interestingly, she observed no such pattern in Singapore where activity continues to speed up. Helen posited that size of an economy, homogeneity of people and past experience of pandemics might be explanatory factors here. A 2nd wave or another lockdown will have no bearing on her thesis as data is plentiful showing people react and change absent government restrictions. After analysis of previous market moving “events” Helen concludes this pandemic has all of the downside of a natural disaster, but none of the upside and that shifts in behaviour will be long lasting as will the negative impact to the economy. Some point to policy makers coming to the rescue with huge monetary and fiscal stimulus. Helen’s riposte is that “it will all come to less than naught” with interest rates actually less than nought. A liberal democracy cannot credibly commit to the vast scale of what is required (more money for longer) and even if they could it would not work due to cultural and phycological elements. The Dallas Fed's, Kaplan, summed it up when he said, “what we are doing is relief, not stimulus”. Powell says that they have lending, not spending powers. Ahead of the election neither party can agree on fiscal stimulus at a time when US personal disposal income is falling. Further support for Helen’s argument came from modelling done by MIT which showed economic scarring due to impairment of the velocity of people which reduces the potential future growth output of economies. Quantified, it found a huge loss in year 1 of 6% to 9% of GDP, but more ominously, and because of what they termed belief scarring, the longer term impact is 10 times the year one cost due to capital obsolescence. Helen concluded that investors should pay little attention to unemployment and inflation figures as they are difficult to measure because of government intervention and volatility in CPI with the regular changes in categories. The huge demand shock will result in disinflation for the next ten years. That said, focus should be on sectors that require fewer people to interact physically; Facebook being the stand-out here. Economies should be judged on their broadband infrastructure and online interaction to see which is best set-up for a virtual world. Fiscal fire power will be extremely important. Which country has the fiscal headroom and the institutional set-up - here in the UK we have a government with a large majority and a new bank governor, who together, look well placed to coordinate fiscal and monetary stimulus.

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