The current escalating global health crisis is now shutting borders, and collapsing markets wrote Nadero Wealth Management in a recent note to clients. Along with investment companies like Nadero Wealth Management, the situation is naturally a major talking point among grandstanding economists and politicians, and none more so than the acclaimed Dr. Nouriel Roubini.
In their note, Nadero Wealth Management remarked that major markets around the world had seen their biggest percentage drops since 2008 on fears that the coronavirus will put a toll on some of the world’s biggest names, primarily those that are linked with the Chinese markets either through consumption or supply-side [just in time] industries.
If we are to take it from doom & gloom economist Nouriel Roubini, in an interview with Germany’s Das Spiegel, the perennially pessimistic doctor who predicted the bursting of the housing bubble alongside the 2008 financial crisis, and the one who also called out Greece is giving his fearless forecast again. The coronavirus could lead to a global economic disaster/depression, and as a result, Trump will likely lose re-election according to Nadero Wealth Management. Let’s face it, in a worldwide pandemic affecting the USA, free health care is a powerful vote catcher.
From that interview, Dr. Roubini asserts that this crisis is much more severe for China (where Nadero Wealth Management operates from) and other countries than investors have realized on four counts. First, that it is not an epidemic exclusive to China, but a global one. Second, it is far from being over with the worst yet to come. Third, its massive consequences are not yet realized by politicians, and their lack of urgency and decisiveness will take a toll on domestic matters, ergo closing of borders which they would rather not. Lastly, if you are looking at a V shape recession with a turnaround somewhere, think again as this time – economic collapse can spiral down.
Roubini further explains the EU’s complacency on the matter – Europe remaining adamant about not closing its borders is a huge mistake. He later pointed out that by keeping European borders open with this epidemic, it is going to be much worse than 1 million refugees coming to Europe.
Roubini explains that if the Chinese economy shrinks because of this outbreak – the Chinese economy can only grow by 2.5% to 4% this year, which means a recession in China dragging the entire world with it.
Hence, he does not see a V shape recession but an economic collapse that goes down the rabbit hole. Even the ECB, World Bank, and the IMF can’t do anything about it. Look, most economies were praying for a stimulus package even before this coronavirus reared its ugly head. So, no amount of QE is going to make it any better – because its biggest economic partner, China, is not buying at all.
This crisis will be a setback for globalization, and politicians like Trump will encourage US companies to abandon production overseas and come back home, Roubini added. Of course, an opportunist like Trump will make it an issue about him. BUT if the coronavirus hits the USA with force – it is going to be the same scenario as in those affected cities. Just imagine a busy place like New York, with hardly anyone dining out – no tourists, no locals spending money, no high-end shoppers strutting around Macy’s.
What happens next?
Roubini predicts over the time of this virus without a definite ending, cure or conclusion then markets could halve from recent all-time highs. In the meantime, just stick to cash or government bonds. The equities market is contaminated by fears of where this virus might go. For now, better safe with your cash than sorry.