The World’s stock markets – Not just numbers on a screen

THANK YOU TO TRUTH REPORTER FOR SUBMITTING THIS ARTICLE.

Today’s activities on world stock markets signal that the markets have woken up to the potential damage to the economy that the COVID19 outbreak could bring. Concurrently the long and bitter wrangle between the USA, Russia and Saudi Arabia to control oil markets has almost overnight turned into a full-scale trade war – cratering oil prices for both WTI and Brent crude by 20% or more. 

For many, these reports have little meaning and life goes on as normal, but these are not normal times. Production in China is still nowhere near resuming, vast tracts of the industry that produce all the little things we take for granted are producing nothing. All the products that get built or assembled have smaller components in them that are made in China.  These cannot be completed without those components. 

If you dig into fringe blogs and comments sections you’ll hear anecdotal evidence from people running small businesses that can no longer buy the parts they need from suppliers in China, they don’t even have any idea on when supplies will resume. 

Globalism is a great idea if you’re a huge corporation, outsourcing the dirty and dangerous elements of your production to the countries with the lowest wages and weakest workers rights provisions means you can cut your costs way below that of a smaller enterprise that operates nearer to their market. Problem is you then become dependent upon those foreign suppliers being able to operate. 

COVID19 is being described as a ‘black swan’ event in the financial press, essentially an event that changes the entire environment in a way which could not have been planned for or mitigated against. When you start cancelling flights, quarantining whole regions or banning large gatherings the knock-on effects are going to start to eat into every aspect of the economy. 

All this would be bad enough but what makes it worse is that since the 2008 crash, the central banks have been trying to keep a system that essentially died during the subprime mortgage crisis alive using increasingly desperate monetary measures – injecting vast amounts of illusory money into the system to keep it going. The legitimacy of the fiat currency system has been tested to its limits with endless quantitative easing and low interest rates.

Instead of forcing the toxic assets to be marked to their actual value – which was zero, the central banks instead bought these assets with money they created from thin air. Since 2008 a huge debt bubble has been inflating trying to paper over the cracks in a system that should have been forced to come to terms with the fact it had bankrupted itself, dusted itself down and then started again. Problem was that the globalists were too much in love with the rows of digits on their balance sheets and had the lobbying power to influence governments to bail them out. 

Now we are facing true adversity the central banks have nothing left to tackle the crisis, they can print money but the credibility and consequently the value of that money are in serious doubt.  Markets have been pushing higher and higher in recent months with little in the way of fundamental economic strength to support them. With all the trades crowded into one space – the panic to find the exit will kill many in the stampede.

COVID19 is not just an illness, it is a catalyst that will force markets and corporations to come to terms with the fundamental links between the productive economy and the value of the financial markets. These links have previously been stretched or ignored completely – the reckoning will be painful.

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