While we are only at the beginning of the second phase of the Covid-19 sequence, that is, the deconfinement after the control of the pandemic and before an economic recovery that we all expect, we hear a lot of comments on “The world after”. Will we face structural changes in consumer behavior? Will the attitude of investors be radically changed? We could extend the list endlessly.
I admit that I have always been very skeptical about the lyric flights concerning the radical changes following crises, of which that of the Covid-19 is only one link in the long chain which affected the human species. We often tend to ignore too much its adaptability and / or to underestimate the importance of human nature!
This crisis is not yet over and its economic consequences will be major. Fortunately, this last point was quickly understood by both governments and big money. The massive tax support and the cash injected should reduce the cost of the recession we are going through.
Estimate negative effects
In the area of economic policy, the measures adopted are rarely perfect; in other words, they often induce negative effects that we must try to estimate. Thus, one can wonder about an inevitable crisis of the government debt, because of the vertiginous increase of the state indebtedness, or of a possible return of inflation in the medium term.
I leave everyone their opinion on these questions, knowing that the conclusions are not the same whether one thinks short or long term and depending on the assumptions that one poses on the disengagement of central bankers and governments. However, if the current crisis is not entirely comparable to that of 2008, there are similarities that emerge.
Thus, injecting liquidity was one of the preferred “remedies” for managing the post-Lehman era. A posteriori, we know that these measures have had an increasingly limited capacity to stimulate economic activity. A (good) part of the money injected has found its way to financial assets or the real estate markets, fueling what is sometimes called “bubble economy”.
Stronger than after Lehman
Unless you believe in “these major structural changes” that I mentioned at the beginning of this article, there is no reason why the post-Covid-19 should be different, especially since the current monetary stimulus is much more powerful than that which followed the bankruptcy of Lehman Brothers.
Therefore, to imagine that in the next world we will face an increased risk of a bubble in financial and real estate assets is not an absurd assumption; similarly, asset volatility is expected to be higher than in the past.
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As mentioned earlier, economic policies are never perfect. The economic consequences of the Covid-19 had to be limited and the actions taken were necessary. They will have a cost that will have to be managed over the next few years in an asset allocation.
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