“But of I’m right and we can stop this thing…Lenny, you will have saved the lives of millions of registered votes”
Dr Peter Venkman, to Mayor Lenny, Ghostbusters 1984
Like more than 99% of the people commenting on the Covid 19 virus, we are not expert virologists, but we are ‘humble students of the markets’ which means we are interested in the psychology of crowds as well as the behaviour of state and other actors. It seems to us that the last few weeks has seen the enactment of what we would refer to as the full Venkman Protocol, based on the technique that the Bill Murray character Dr Peter Venkman used to persuade the Mayor of New York to try his solution for the menace (then) affecting the city in the 1984 classic, Ghostbusters. In fact, it’s really a variation on a theme, it’s more “Do what we say otherwise you will be blamed for every death from now on”. As such, politicians with one eye on getting credit have an even bigger concern to avoid blame and thus most of the world has effectively been put on pause. This is particularly true where they are facing elections, which may explain why the UK government resisted the calls from social media for so long, before finally giving in last night to announce a three week lockdown.
There is an old saying that when a bar fight starts, you don’t hit the guy that started it, you hit the guy you always wanted to hit, a variation perhaps on the adage of ‘never let a crisis go to waste’ and certainly the reactions have involved a lot of latent or prior ambitions. For example, the more easterly European states, Austria, Poland, the former Yugoslavian countries were quick to close their borders – something they have been wanting to do for years, while Germany, the biggest proponent of open borders since it suited their economy quickly shut them when it did not. Spain, Italy and France imposed what approximates to martial law, with the ‘useful’ side effect of shutting down civil protests. The UK, as noted, adopted a more pragmatic approach until the combination of social media and the Venkman protocol pushed them further. The US, as personified by President Trump, appears to be searching for ‘a solution for Americans’ highlighting their increased isolationism, while China of course started with full authoritarian lockdown and now is trying to use humanitarian help as part of a re-integration process. Meanwhile, every lobby group is using the crisis as a way of advancing its cause, greens, Universal Income proponents, fans of big government or Modern Monetary Theory are all clamouring for space, while more alarmingly people like the DOJ in the US are arguing for the suspension of Habeous Corpus and police forces around the world are assuming the power to detain people’ on suspicion’.
As previously noted, the blame culture is well under way, which doesn’t bode well for US sino relations between now and the Election, since blaming China is probably the one bipartisan thing there is in US politics at the moment. President Trump’s, now almost constant use of the term “China Virus’ Perhaps not too surprising as 86% of US senators are over 50 and almost half of them would count as ‘retired’ in any other job (for what its worth, almost half of them are also listed as Lawyer, somewhere on their occupation).
So if we follow this behavioural logic, then the crackdowns will continue until that balance of credit over blame shifts sufficiently for Politicians to seek to avoid blame for killing the economy rather than killing the elderly – apologies for the bluntness. Here we have an early indicator from ‘The Donald’ that the 15 days announced will be ‘enough’, which means the end of March will be our next key date to watch. The UK meanwhile is on lockdown until after Easter.
In the meantime, markets struggled badly with the March options expiry and there is no doubt that the risk parity models are causing huge volatility at the moment. It is likely however that the margin call induced selling is probably over for now. Investors with the need/desire for income and the ability to withstand short term mark to market hits, should be looking at equity dividends on a long term view, while recognising that at some point a healthy capital gain is also likely to come.
