Money & Markets: Engineering firms will gain from post-pandemic spending

The coronavirus crashed the stock market, as you will undoubtably know by now. In my last column I discussed what to do when it crashed and how best to handle such a terrifying event. Since then the governments of Europe and the US have come out with the biggest monetary and fiscal initiatives the world has ever seen.

Now the world is solidly talking in trillions rather than billions of dollars and the order of magnitude in economic affairs now has 12 zeros in its attempt to avoid things being reset to one big zero.

The only way to cope with this plague is to isolate citizens and dice with financially destroying an infected country’s economy.

It will be an incredibly tricky balancing act to avoid exchanging the disaster of an acute pandemic for the chronic catastrophe of an economic collapse.

The hierarchy of financial pain in a locked-down economy is at its worst for B2C (business to consumer) companies with a physical presence, like shops, pubs, restaurants or those involving travel and tourism. Many seem obviously doomed from the start. The next level of difficulty is for the B2B (business to business) segment, where most engineers and technologists work. Here business volumes will be down markedly for the duration, but they won’t see the 100 per cent drop in business volumes suffered by publicans, non-essential retailers or airlines and tourist destinations. The least affected will be B2G (business to government) companies where a fair amount of engineering undertakings will be doing business. As government can spend all the money it cares to print, it will carry on spending undaunted. B2G will in the main enjoy at least continuity and B2G business may well balloon. Some B2G companies, especially in infrastructure, may be looking down the road to massive injections of spending. Governments’ efforts to resuscitate growth will include plenty of building, for example, and all the bridges to nowhere it can think up will be put into planning and construction. So all is not lost for B2G engineers.

Technologists are not in such a happy place. The road ahead is strewn with dead unicorns. The pinnacle of the technology pyramid funds all the free cappuccinos at the ‘Silicon roundabouts’ of Europe and the US and this funding is significantly driven at the root by the huge online advertising profits of the giants of Silicon Valley. Google, Facebook, Twitter, all those ‘free stuff for your privacy’ companies, they live off the advertising billions that the B2C business legions throw at them to get access to your secret unexploited desires. Those battalions are being more than decimated by customer lockdown.

Right now, as I write, the Nasdaq has barely crashed. It floats like a sword of Damocles over the heads of all the other markets because the index isn’t even below the level of the 2018/2019 slump, while the rest of the markets are down to 2016 levels, a level which if reached on the Nasdaq would destroy so many trillions of dollars that even the Federal Reserve would struggle to magic it back out of the black hole that is a stock market crash.

In the end, the outcome will be down to how long countries keep their lockdowns in place. When you read this, you will probably know already. The outcomes for economies and their markets are a curve on axes of time and impact. Stop the world for a day and you have no problems with your economy, it’s called a ‘bank holiday’. Close it for a week or two – Chinese new year, Golden Week in Japan, Christmas, summer lulls – and it has ramifications that rattle the system a little, but that drop in activity is built into normal practice and is coped with. Lock down economies for longer and the greater the hiatus, the more the damage. At some point on that curve the world falls to pieces. This is the axis we are travelling along now, and with luck the process will be well managed.

There will be huge dislocation in any event which will wash back and forth over economic progress or otherwise for years. The vast flood of new money on its own will create its own kind of havoc. The precipitous drop in demand, supply and activity over an extended period, even for six or so weeks, will upend the GDPs of the world and the recovery is guaranteed to be filled with aftershocks, even if the virus does not strike again as do flu epidemics.

Like the credit crunch before, at best the coronavirus pandemic will rewrite economic theory, at worst it will force governments to create hyperinflation by trying to rescue their economies from the aftermath.

We are all squarely in the lap of the gods and in the hands of our governments.

Markets still hold the potential to nose-​dive to levels not seen since the crash of 1929 when the Dow fell 82 per cent, a crash that must be bought into if it were to happen.

Yet government is not asleep at the wheel. While this is perhaps a double-edged sword, it will certainly mean a huge amount of effort will be expended to attempt to rescue the situation.

The stock markets of the world will be early messengers of how that pans out.