Thread by @CMcgarraugh

1/5

2008 #GFC was a balance sheet (liquidity) crisis.

2020 #COVID19 is an income statement (earnings) crisis.

Bad balance sheets can be fixed with financial engineering -- monetary policy helps.

Bad income statements require re-working of business models and supply chains.

2/5

The problem in 2008 was all about too much *financial* leverage in the system.

But the problem now is too much *operating* leverage in the real economy with over optimised supply chains, data-driven pricing management, customer acquisition funnels etc.

3/5

All data-driven optimisation relies on a simple assumption, that past data points are indicative of future results.

But in a world with #COVID19 potentially defining new on-the-ground realities, that's not a great assumption to be optimised around.

4/5

So this equities selloff is justified, can get worse, and won't end until the uncertainty around the pandemic is clarified, and we know which business models have been reworked for resilience under the new conditions as they end up unfolding.

5/5

Until then, any rallies should be sold, including (especially!) any rally induced by a monetary policy flex from the authorities, as that is not the right cure for what's ailing the market right now...