Lockdown linguistics

At the moment, the market is struggling with the question of 'lockdown vs no lockdown' as coronavirus cases surge but with that framing, we're asking the wrong question. Take a look at the GOLD and DOW30 charts at the bottom of this piece. Meanwhile, Ashraf posted this latest chart, highlighting the unfolding correlation between Biden-Trump polls and the market. 

There is no consensus definition for what a pandemic 'lockdown' means. It's used to range from everything to harshly-enforced home quarantines in China to the closures of bars. As cases mount, there's a fear of a new lockdown as if it's a binary event when in reality is a series of potential steps that governments could take.

The likelihood of true nationwide lockdowns was saw in March is remote. Even parks were closed in many countries and that's something that proved unnecessary.

The real question is how a resurgence in virus cases will impact economies. It's how much economic growth will be curbed by efforts to curb the virus, whether those are government mandated or behavioral.

Framing it as lockdown vs no lockdown is a mistake. What we should be considering is how much a continued spike through flu season will affect consumer behaviour. Part of the reason we don't hear much commentary about that is because it's so difficult to estimate. Returning to a lockdown would mirror what happened in March; economists now have a model for that.

What we don't have any idea on is how consumers will react to a long, dangerous and depressing winter. Will banks and governments continue their generosity? Will business owners continue to battle or close their doors?

There is no model to fall back on and almost every turn so far in the pandemic has been unexpected. Caution is warranted.