Earlier this week we told you not to automatically buy on the dip. We’d hang on to some of that sense of caution. We don’t yet know how serious Covid-19 will turn out to be. But we do know that the disruption it has already caused is going to take some time to play out. The obvious casualties of the nasty combination of supply and demand shocks are all around us – anything to do with travel or anyone working with a complicated supply chain, for example. Who wants to go on a cruise, take a tour of Italy or fly to France for a three-day property investment conference right now?
But second-round casualties are beginning to appear too. The Hollywood Reporter points out that the global film industry is, for example, facing a possible $5bn loss as film release dates are pushed back and venues shut. Cinemas have been closed in China for months, but the virus is now “heavily impacting” movie-going in Japan (the world’s third-largest film market), South Korea and Italy. Ticket sales in China over the New Year period came in at $4.2m. Last year they were $1.76bn. In South Korea, box office takings were down 80% year-on-year last weekend. In Italy, that number is 76%.
Cinemas usually do well in bad times (inexpensive movie trips replace more expensive outings). Bad times in which they do appallingly badly are not in most people’s models. Nor can they realistically be solved by sharp cuts in interest rates. If you didn’t want to see the new Mulan movie badly enough to take the risk of sitting in a crowded cinema for going on three hours with rates at 1.75%, I’m pretty certain you also won’t fancy it with them at 1.25%. It is also worth noting that the virus also creates new political risks that monetary policy can do little about: will power structures in Iran, China and even the US be the same post-virus as pre-virus? See this week's magazine for more on the US election.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Still the obvious uselessness of monetary policy is unlikely to be a barrier to central banker grandstanding, or indeed political grandstanding. It is entirely possible, as John points out in this week's cover story, that Covid-19 turns out to be the trigger for the introduction of helicopter money (new money printing for immediate spending) in the eurozone at least. Fans of this say it comes with no downsides. They reckon that governments will spend the lovely new money productively; that it will create wealth; and that it won’t lead to inflation. Having never seen a fiscal or monetary policy that didn’t come with a downside, we doubt all those things.
On the other hand...
On the plus side western economies are excellent at adapting to suit change (see Matthew Lynn’s thoughts on retailers this week) and there is also much talk about how the crisis could change behaviour long term. Perhaps it would be a good idea if the US was finally jolted into creating a proper healthcare system. Perhaps we should travel less. Perhaps we all do far too much kissing anyway. And certainly an awful lot of people could do worse than to keep washing their hands properly long after Covid-19 is vaccined away. Finally, on the subject of travel, here’s a thought: who needs to be physically available or even alive to appear present? See this week's magazine for how, if Whitney Houston can be replaced with hologram, odds are you can be too.
-
Water companies blocked from using customer money to pay “undeserved” bonusesThe regulator has blocked three water companies from using billpayer money to pay £1.5 million in exec bonuses
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
UK wages grow at a record paceThe latest UK wages data will add pressure on the BoE to push interest rates even higher.
-
Trapped in a time of zombie governmentIt’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debtThe downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
UK economy avoids stagnation with surprise growthGross domestic product increased by 0.2% in the second quarter and by 0.5% in June
-
Bank of England raises interest rates to 5.25%The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK wage growth hits a record highStubborn inflation fuels wage growth, hitting a 20-year record high. But unemployment jumps
-
UK inflation remains at 8.7% ‒ what it means for your moneyInflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
