Stock market history is
packed with drama – 1929 Crash; Black Monday 1987; Asian Financial Crisis in
1998; Dotcom mania in 1999; Great Recession 2008. Nothing new will come as
surprise. Sell-off then a rally, followed by more sell-off then another muted
rally. The catalyst is always what the Federal Reserve does – QEs, interest
rate cuts or purchase of corporate bonds. Rosy views from Wall Street should
make one cringe. Every known indicator says it is headed for a major crash. Ask
Nuriel Roubini, he will tell you it is a 10- year depression! Who are the
winners? The top 1% elite of course, as they dump shares the retail investors
are picking them up. Would it mean commerce in Main Street can get back to
business as usual?
Source: https://www.stockinvestor.com
No, there is a disconnect
between liquidity and the Dow with commercial lending and business on Main
Street. The current slump in activity in most economies will continue until a
vaccine for Covid-19 is found or people’s behaviour change – social distancing
and masks. No matter how QEs are done, unless liquidity is injected directly
into businesses, bypassing banks and stock markets, the economy will remain in
doldrums. High unemployment, negative growth, and massive revenue losses are
features of failed pump-priming measures.
The other hazard in this
situation is a rise of fraud. Not only will people do creative accounting but
may commit serious financial shenanigans to survive. Already we have Luckin
Coffee, the Chinese Starbucks, and Hin Leong, the Singaporean energy trader.
More will follow.
Meanwhile, smaller firms
that provide employment are hurting. Some with limited track record find banks
are not willing to lend. And Government institutions that provide guarantees
require 3-year annual statements and a profit to boot. New Bumiputra companies
will not have both, unless they have solid contracts from the Government. Then
banks will tell you “we will revert in 3-4 weeks”. It never happens! So, businesses
close and Government asks what happened? Nothing, of course, because we are
dead!
What do SMEs want?
·
An
extension of the moratorium on principal loan repayments from October 2020 to
March 2021;
·
Guarantees
(for loans) that support even start-ups;
·
Tax
“holiday” for one year;
·
Meaningful
salary and rental support for one year (grants are preferable); and
·
Incentives
to digitalise, automate or computerise operations.
The five-pillar strategy
above will help SMEs and employers to be on their feet, looking out for
revenue. What do you think?
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