The Pandemic Is Not Over
The government’s effective response to the outbreak of COVID-19 is as much a beacon of success as it is an unfortunate reality of timing. Whereas significant numbers of countries that had been stemming the tide of the virus now again face explosive numbers of deaths and hospitalisations, New Zealand weathered the initial storm substantially better than most.
The result of this early success has influenced an odd tendency among some of our leaders to put the pandemic behind us, as if it is already relegated to history.
Many of these leaders insist on using the rhetoric of a time past -- the days of old, where fiscal tightening, reserve bank monetary measures, and optimistic press statements to encourage voting constituency were successful and valuable.
The current global state of the pandemic, as well as the state of the economy paint a more tenuous picture.
Three major factors weigh against the potentially unrealistic ideal that New Zealand is ready to return to normalcy:
1. THE PANDEMIC IS MANY MONTHS AND POTENTIALLY A YEAR FROM ANY RESOLUTION
Firstly, any resolution to the expanding COVID-19 epidemic is likely to take at least until mid-2021. This is not a short term crisis that is nearing completion.
Factors including the vaccine development cycle, the antigen tests that have demonstrated limited efficacy for long term immunity, and the unusual manner by which COVID-19 is mutating, weigh heavily against any near term resolution.
Moreover, due to the very nature of this global pandemic, some epidemiologists predict not just a potential second wave but that our circumstances, the issues of the human immune system constraints and the globally undermined social factors are playing a part in potentially setting loose other novel viruses, for example Viral haemorrhagic fevers (VHFs).
It is reasonable to conclude that the impact of this pandemic is not close to completion.
2. THE NUMBER OF STAFFING CUTS IN NEW ZEALAND IS INCREASING
Secondly, the global economy was already seeing contraction in early 2020, before the compounding pressure of the pandemic.
Many recent staffing declines headlined in the news are related to international pressures influencing job stability here in New Zealand. It is the global macro-economic climate that is forcing corporations to reduce numbers of staff here in New Zealand to better manage their international financial outlook. One of many examples includes the announcement from Rio Tinto regarding the Tiwai Point smelter closing down and causing over 1,000 job losses.
This issue has been ongoing since the beginning of 2020. It is also important to point out that recent staffing cuts even eventuated in April and May during the government wage subsidy scheme. A substantial part of these cuts impact smaller, local businesses not just larger corporations.
It is therefore disconcerting that some of our leaders are encouraging the idea of return to norm in the midst of worsening job numbers. Some leaders have incorrectly chosen to emphasise a return to open borders and expanded travel in order to help a specific industry, while missing the point that many job declines are across multiple sectors and caused by international economic conditions.
Simply trying to improve a single sector such as hospitality cannot reconcile the overall contractions impacting broader sectors. Moreover, by fixating on such a narrow perspective, these leaders are potentially opening New Zealand to greater instability. It is instability and negative sentiment that can drive strong market declines.
It is far better for leaders to diminish their rhetoric and instead focus real effort on methods for protecting jobs across sectors.
3. EXACERBATING ELEMENTS IN OUR CURRENT ECONOMY
Thirdly, there are some quite exacerbating elements driving the reactionary values in both stocks and housing.
Many corporations are severely leveraged with debt, undermining any real value. Investors are forgoing old market maxims such as value investing for short term profiteering.
Few stock prices actually reflect the stability or strength of corporations, as many are now over-leveraged in debt. Little of this growth is based on any actual value, instead driven by speculative investors. These investors have chosen either to play the market timing or have simply run out of alternative options as investments in bonds, commodities, and banks offer no real yields.
At the same time the market dynamics no longer encourage value investments, housing has skyrocketed. Housing values are increasing specifically because they are underpinned by substantially low interest rates which have historically pushed residential housing growth. In conjunction with this driver, housing has also received a boost by extensive capital flight from the instability of stocks and the very low yields from conservative instruments including bonds and bank term investments.
To add a third fuel to this fire, housing is seeing momentum from the COVID-19 negative impact on new builds. Very low inventory continues to push housing prices up. The result is that a mini-housing boom has occurred while investors run out of options in all these overvalued markets.
Both small investors, such as pensioners, as well as investment firms including Berkshire Hathaway are caught in a very difficult paradigm as entire market dynamics are polarised -- and reflecting further extremes.
Most of the markets are in a state of confusion, and any minor catalyst has the potential to push them into another significant correction. This is not explicit to the financial markets, but includes housing and bond markets.
THE STORM IS NOT OVER
New Zealand has weathered the early storm of this pandemic better than most. It is indeed something to laud the leadership. Moreover, it proves that the next storm can be managed if founded upon proper assessment, planning, and prompt intervention.
But the storm is not over.
The pandemic remains, the global economy is contracting, and the overall market dynamics are making nearly all investments untenable.
No matter how much some politicians want to paint a picture that New Zealand is looking ahead to better weather, the impact of the pandemic is not yet finished.
The estimated path to a vaccine, if mutations of the COVID-19 continue to exist and antibody efficacy remains low, may be longer than most initially observed. Some predict it will be available in 2021, others doubt sufficient efficacy can be gained without more trials, and some report the likelihood of new viral strains occurring.
Moreover, the impact of the pandemic is best understood and addressed in the context of the macro-economic climate. The global economy was seeing contraction even prior to the pandemic.
Therefore any substantial improvements require forces well beyond the superficial monetary interventions and low interest rates. Simplistic and overzealous solutions such as opening borders during an ongoing pandemic do not suffice.
Serious consideration must be made by leadership regarding the prospect of fiscal intervention and direct government job creation that may be required well into 2021.
It is imperative that our leaders, especially during this approaching election season, stop regurgitating the optimistic rhetoric that appeals to voters, which has no real basis for improving New Zealand health, safety and stability going into the next 12 months.
Instead, every leader should re-focused on the potential need for a PLAN B.
Regardless of their political affiliations, our leaders need to ask what needs to be done to ensure that the economy and the health system of New Zealand do not fail, should the crisis worsen.
New fiscal models, fundamental rethinking of private vs. state roles, and substantially more proactive planning and financial preparation for a possible turbulent future can ensure that New Zealand remains stable.
Mark Rais is the creator of the think tank Trend Analysis Network, writer for the technology and science industry and volunteer senior editor for an on-line magazine. He has published several books and written numerous articles on the topics of macro-economics, technology and society.