Thread by @covidperspectiv

* ECONOMICS OF CORONAVIRUS - A THREAD *

Something not being discussed enough perhaps is the risk of a downturn or recession, that is caused (or catalyzed) by #coronavirus. We could be living with this thing for a while. If we're all staying home a lot, that would be bad...

2. We can look to the places that are furthest along with this - China, S.Korea, Italy... Few people are going out where there are known outbreaks. This is likely to happen in many more places within 1-3 months, as the virus spreads more widely.

3. Assuming people staying home is the only problem (it isn't...), there's a huge amount of business that relies on people going out. It's not just restaurants, entertainment, travel, ride-sharing & retail (itself a heck of lot).

4. Assuming you're spending much more time at home, will you get your hair cut as often, or your clothes dry cleaned as much? Will you send your kids to music lessons or soccer? Will you want workers or trades people in your home? Generally people will spend less.

5. It doesn't take much of a contraction to have large economic effects. Big businesses tighten their belts, companies make layoffs, people spend even less. Small businesses often fare worse. There's reports of restaurants seeing a 90% drop in trade. No business can survive this.

6. Does this mean we are facing a serious economic threat? Possibly. We have not experienced a situation like this in any of our lifetimes. The last contagious pandemic on this scale was arguably 100 years ago. So it is unprecedented, and unpredictable.

7. During the '08 financial crisis, a lot of economic activity continued. Most people were not hiding in their homes. Central banks were able to pump adrenaline into the system and help keep things afloat. This seems different. It's not a crisis directly of Wall Street's making.

8. But won't this all be over in a few months? It might. But it could take longer for economic activity to recover from such a large shock to the system. Worryingly, contagious pandemics have a habit of hitting in waves. The 1918 pandemic had 3 waves, over 18 months.

9. Can the government help? They will try. With ultra low interest rates already, central banks don't have much ammo in the barrel. Besides.. Lowering interest rates, or a tax cut, will not help many small business owners, if they are struggling to get customers through the door.

10. Many companies are already feeling the heat. Think about cruise ships, event companies, restaurants, the entire travel industry. Large companies are making contingency plans right now for a downturn. Small companies & self-employed should too - if they aren't doing so already

11. We've not discussed supply chains, availability of raw materials, or what happens if products we rely on run out. We've seen reports of drops in shipments from overseas, distribution centers running low on stock. These disruptions could take a while to recover.

12. A related issue is people's investments. So far the US stock market has held up pretty well. It's where it was in October. But if things get worse, if the USA epidemic becomes like China or Italy (and there's a strong argument it will) what happens?

13. If people's investments suffer, this creates a negative cycle in confidence, and depresses spending. If you're worried about your job, or self-employed business, you will spend less. In the US at least, consumer spending has been the engine behind the economy.

14. Don't just take our word for it. The world's most well known VC company, an early investor in companies like Apple, Google & YouTube, sent a letter to their portfolio companies Thursday. It's good advice for all businesses.

medium.com/sequoia-capita…

15. We realize this thread may make sobering reading, but being aware of the potential problem may hopefully help a few of our readers. As the Sequoia letter suggests, few people regret taking early decisive action in the face of an impending downturn.

UPDATE - We initially drafted this thread Saturday, before the futures markets opened. Since then, the markets for oil, equities and bonds are tumbling. This week is likely to be dramatic. Stay safe, and we wish all of our readers the best. We will get through this!