This is a tale of two famous quotations, both of which have a bearing on how the developed world will come out of its self-imposed lockdown; whether the re-emergence will be sufficiently confident to justify the resilience of the world’s equity markets these past six weeks (especially that of the US), or whether it will be so cautious, stuttering and faltering as to force equity markets to realign themselves with what the macroeconomic data is saying.
In chronological order, the first quote is perhaps the definitive sentence from Extraordinary Popular Delusions and the Madness of Crowds, Charles Mackay’s mid-19th century essay on financial mania: “Men, it has been well said, think in herds; it will be seen they go mad in herds, while they recover their senses slowly and one by one.” The second is the phrase from Franklin D Roosevelt’s inaugural address as US president in 1933 that “the only thing to fear is fear itself”.
These quotes form a useful juxtaposition because it remains unclear whether the developed world’s economies are nearer the start or the finish of a process that will end in, if you like, a Roosevelt moment. Are the senses of sufficient numbers recovered from the various effects of Covid-19 to permit the rich world’s output in the third quarter to be usefully better than what will be the second quarter’s dreadful figures, thus starting a process of recovery? Or will the nagging uncertainties – made plausible by the virus’s continuing toll – mean that the fearful herd continues to demand shelter and accept the downward economic spiral implied by that?