Send some of that free cash our way

22 March 2020 - 00:21 By KEVIN DAVIE



When markets get a little spooked, money quickly moves to where it feels safest. Think gold and the treasuries of countries seen as being least likely to default on their debts. This can mean borrowing costs for these safe-haven countries fall to zero. They get free money, a handy thing in a time of crisis.But the coronavirus-infected markets are more than a little spooked: they're in full fear mode. Tons of money did initially flow out of higher-risk investments, including emerging markets, into gold and US treasuries, but as the crisis intensified, these investments also came under pressure. The preferred safe haven became cash, specifically the dollar.This may have you wondering, especially if you are working from home, if you have a job, that maybe the safest haven is under your mattress where you can keep an eye on what is left of your investment. But this would go against the best advice, which is that this is a really bad time to be cashing out of markets.It is nonetheless extremely painful to watch the markets yo-yo up and down - mostly down - as the virus chomps our hard-earned retirement savings. In SA's case, the JSE has lost 25% of its value this year, a collective loss of wealth of R4-trillion as even deep-blue chips have been mauled by this virulent pathogen.Are markets overreacting? Some pundits, mostly associated with Trumpism, have equated the coronavirus with flu and have argued that mortalities are low. But check in with the intensive care units of Lombardy or Wuhan, and you'll see this is no flu. It quickly overwhelms health-care capacity, threatening to collapse social order.China locked down and is yet to emerge from it. Italy has also locked down, as has much of the rest of Europe. Lockdowns, which typically include self-incarceration at home, are beginning in the US, with California on Friday announcing that all 40-million of its residents have to stay home and will only be allowed out for essential shopping. Businesses not deemed essential will be shut.This global economic shutdown, based on the Chinese experience, will last for months. China is now reporting no new domestic infections, but will a return to pre-virus life allow Covid-19 to begin circulating again? Not surprisingly, Bloomberg's commodity index is at 1976 levels. Some analysts predict depression-level economic contractions of up to 10%.Central banks in developed economies have slashed their key interest rates and re-started aggressive quantitative easing programmes, buying assets such as government bonds to ensure the financial system as a whole remains liquid. Such monetary easing is in cases supported by aggressive fiscal support; the US, for instance, considering a $1.5-trillion programme to bail out the worst-affected of its industries, support small business and send a $1,200 (about R20,000) cheque to every American. For SA it would be good to have access to R1-trillion to support the hardest hit, but the billions siphoned from government coffers during state capture means the kitty is empty. This leaves the fiscus in a really tough place. We are yet to learn the government's plans to reshape SA's fiscal space now that we are in a state of disaster that was not envisaged when finance minister Tito Mboweni tabled his budget in February.The Reserve Bank cut the repo rate by 100 basis points on Thursday, and other measures, such as to improve liquidity, have been introduced. TreasuryONE's Andre Botha said the Reserve Bank appears to be front-loading its easing due to the impact of the Covid-19 pandemic on the economy and a lower inflation outlook. Said InceConnect: "While the interest rate cut will provide a little support for consumers, it is a double-edged sword for banks, which will see a decrease in interest income as a result. They have also come under significant pressure over the past couple of weeks due to the prospect of customers losing their income and battling to repay loans." The virus is here, as it is everywhere. It undoubtedly needs a global response. Will the developed economies, awash in free money, find a way to send some of it to emerging markets to help ease some of this virus-induced pain?

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