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Home Smart Commentary Smart Thought Of The Week: Long Road

Smart Thought Of The Week: Long Road

It’s time for another quote from one of my favourite movies of all time, namely, the award-winning docudrama Apollo 13.

In one pivotal scene, side-lined astronaut Ken Mattingly is tasked with developing a procedure to solve the problem of conserving power during the command module’s re-entry to Earth….

…. He tells EECOM Arthur how much power is needed. But Jon Aaron replies: “Ken, you’re telling what you need. I’m telling you what we have to work with at this point. I’m not making this stuff up”.

If only some government leaders around the world would just stop talking and listen to what health experts are saying. These leaders want to open their economies as quickly as possible. But in some cases, they are behaving recklessly.

It is understandable why that they want their economies to grow again. They also want their unemployment levels to fall. But those things are not going to happen overnight.

Sure, there is a lot of pent-up demand from locked down citizens to venture out, to dine out, and to spread out. But the demand is unlikely to return to pre-pandemic levels immediately. It could take ages….

Significant uncertainty

…. Fed chair, Jerome Powell has said that there is still “significant uncertainty” about an economic recovery in the US. He added that the level of output and employment remain far below their pre-COVID levels, which is why it is continuing with its open-ended bond-buying programme.

The Fed forecasts a long recovery for the economy with unemployment likely to remain high for many years. Consequently, despite all the rhetoric from some quarters, the global economy is unlikely to bounce back – not in China, not in America, not in Europe, not anywhere, anytime soon.

We need to remember that this is a health calamity that has turned into an economic problem, that, in turn, has created a social dilemma for many governments.

Each country will need re-examine their economies to find out what they have to work with at this point. It will be different in each case. The is no one-size-fits-all.

As investors, we need to face reality, too.

We need to accept that the global economy just got a whole lot smaller because of the coronavirus. There will be fewer opportunities for many businesses because demand will be lower or not there at all. It could also mean that investment returns could be lower.

There is nothing wrong with that. As Warren Buffett said: “Be content with moderate gains”.

So, let’s dial down our expectations, and put aside any thoughts of get-rich-quick schemes. It is going to be very long and bumpy road to recovery.

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Disclosure: David Kuo does not own any of the shares mentioned.

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