We are in uncharted territory. The Government, as of yesterday, has introduced three radical new measures:

  1. Leaving the home is no longer permitted, except for specified reasons such as shopping for basic necessities.

  2. The closure of all “non-essential” retail stores, hotels and many other premises.

  3. No more public gatherings of three or more people who don’t live together and aren’t meeting for essential work reasons.

The list of businesses required to close can be found here.

The main categories are:

  • Restaurants & cafes

  • Pubs, bars & nightclubs

  • Hair, beauty & nail salons

  • All retailers except supermarkets, health shops, pharmacies, petrol stations, newsagents, post offices, banks, and others.

  • Hotels & BnBs

  • Libraries, community centres, places of worship

  • Cinemas, theatres and concert halls

  • Bingo halls, casinos & betting shops

  • Gyms, swimming pools

It’s an extraordinary move, triggered by the extraordinary challenge of Covid-19.

And it’s going to last for at least 3 weeks, after which it might be relaxed.

We need to get ready for some gruesome economic statistics. With so many consumer-facing businesses closed, a recession looks inevitable.

The coming recession also promises to be global. Many other countries are on lockdown too, including the US where 158 million Americans have been ordered to stay home. That’s half of the population in the world’s biggest economy.

Also in the US, a senior figure at the Federal Reserve has recently warned that a 50% reduction in Q2 Gross Domestic Product might be on the cards. Shortly thereafter, on Monday of this week, the Fed decided that printing an uncapped quantity of dollars was the best way forward.

The Fed has also promised to start buying corporate bonds for the first time, i.e. lending to companies instead of only lending to the US government.

All this money-printing can help to maintain asset prices in general, but it can’t save specific companies whose business models are ruined by the “lockdown” approach and whose balance sheets can’t last the distance.

How long is the distance? That is the great unknown factor.

If economic life returns to “normal” in a month or six weeks, then it is clear enough that most companies will live to tell the tale.

On the other hand, several months without revenue for consumer-facing businesses (particularly in clothes retail and food retail) could mean that their balance sheet needs to be restructured, i.e. that their existing equity is worth little or nothing.

The government is…

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