Gareth Vaughan on the US$10 trillion rescue, buying shares in bankrupt companies, COVID-19 long-haulers, a reset for capitalism & a South Pacific tourism bubble

Gareth Vaughan on the US$10 trillion rescue, buying shares in bankrupt companies, COVID-19 long-haulers, a reset for capitalism & a South Pacific tourism bubble

This Top 5 COVID-19 Alert Level 1 special comes from interest.co.nz's Gareth Vaughan.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz. And if you're interested in contributing the occasional Top 5 yourself, contact gareth.vaughan@interest.co.nz.

See all previous Top 5s here.

I hope COVID-19 Alert Level 1 is treating you well.

1) The US$10 trillion rescue.

McKinsey & Company has taken a detailed look at how much governments are spending, and what they're spending money on, in the battle against COVID-19 and the related economic fallout.

As exhibits 1, 4 and 3 below demonstrate, the scale and breadth of the spending and efforts made are breath taking.

McKinsey points out governments' economic response to date has focused on relief. Additional interventions will be needed to resuscitate economies. McKinsey suggests there are four areas that should feature in a recovery plan. They are green energy, digitization and the next technology wave, shaping the workforce of the future and resilience of supply chains and security of essential goods.

On green energy McKinsey says government investment in clean energy should be accelerated, with companies incentivized to improve energy efficiency. Why?

Although COVID-19 is not directly linked to climate change, public opinion is in favor of recovery actions that also address the green agenda. Close to 70 percent of surveyed respondents say climate change should be prioritized in recovery efforts. Environmental and economic impact can be complementary: creating a low-carbon stimulus program for one European country has been estimated to require an investment of between €75 billion and €150 billion, which would produce €180 billion to €350 billion of gross value added and create up to three million jobs.

And on shaping the workforce of the future McKinsey says workforces need to be up-skilled so they can remain productive in a future of increased automation. Why?

Automation and AI will prompt large-scale workforce transition over the coming years. Even with today’s technologies and knowledge, 60 percent of occupations have around 30 percent of tasks that are technically automatable. Many occupations will see growing demand, while others will shrink, leading to 75 million to 375 million workers potentially needing to switch occupational groups by 2030.

2) Buying shares in bankrupt companies.

A big spike in retail investor activity on the NZX has been an interesting aspect of the COVID-19 crisis in New Zealand. Over in the US Bloomberg reports on investors piling into the shares of companies in Chapter 11 bankruptcy. This even though it's rare for shareholders to get anything back through bankruptcy.

Some of the rally in bankrupt shares might be attributable to short covering, when traders who have bet against a company close their positions by re-buying shares, lifting prices. But the rally could also be fueled by amateur traders, bored in lockdown and looking for a quick buck, using platforms such as Robinhood. The number of Robinhood users holding both Hertz and Whiting Petroleum shares surged after the companies filed for bankruptcy, according to Robintrack, a website unaffiliated with the stock trading platform that uses data to show trends.

“No one ever loses equity in a bankruptcy case,” U.S. Bankruptcy Judge David Jones said during a status conference in the J.C. Penney case last month. “Equity gets lost long before the case is filed.”

Under U.S. bankruptcy law, shareholders are last in line for any kind of payout -- behind the lawyers, lenders, and vendors -- making a recovery for shares unusual. The size and scope of payouts is usually determined by a so-called Chapter 11 plan, which creditors vote on and send to a federal judge for approval. Those plans often leave even high-ranking creditors getting less than they’re owed.

Interestingly back in NZ, shares in our beleaguered national carrier Air New Zealand have been on quite a run of late...

3) Capitalism needs a reset.

In a story about the first female editor in the Financial Times' 131-year history, Roula Khalaf, Vogue describes her as a level headed radical. In a previous lifetime I worked for an FT offshoot in London. It would be fair to say it was quite old school. One of my colleagues once overheard some staff from another arm of the group complaining that their new boss hadn't been to Oxbridge (neither Oxford or Cambridge universities).  

However I don't think the point Khalaf is making below is radical at all.

Now, she is at the helm of capitalism’s biggest cheerleader. Though that isn’t how she would necessarily describe the Financial Times. “Where Forbes and the FT are on the same page is that we both believe in free markets, we both believe in the value of business and the value created by business. But the FT is not unquestioningly pro-market and pro- business. We want to hold business to account and we’ve always held business to account. The excesses of the financial crisis, the political impact, whether populism or nationalism, the widening of inequality: it is plain that capitalism needs a reset.”

4) COVID-19 long-haulers.

The Atlantic's Ed Yong takes a look at COVID-19's so-called "long-haulers." He features the story of 32-year-old Glasgow-based Vonny LeClerc, who appears to have had COVID-19 for 80 days.

COVID-19 has existed for less than six months, and it is easy to forget how little we know about it. The standard view is that a minority of infected people, who are typically elderly or have preexisting health problems, end up in critical care, requiring oxygen or a ventilator. About 80 percent of infections, according to the World Health Organization, “are mild or asymptomatic,” and patients recover after two weeks, on average. Yet support groups on Slack and Facebook host thousands of people like LeClerc, who say they have been wrestling with serious COVID-19 symptoms for at least a month, if not two or three. Some call themselves “long-termers” or “long-haulers.”

I interviewed nine of them for this story, all of whom share commonalities. Most have never been admitted to an ICU or gone on a ventilator, so their cases technically count as “mild.” But their lives have nonetheless been flattened by relentless and rolling waves of symptoms that make it hard to concentrate, exercise, or perform simple physical tasks. Most are young. Most were previously fit and healthy. “It is mild relative to dying in a hospital, but this virus has ruined my life,” LeClerc said. “Even reading a book is challenging and exhausting. What small joys other people are experiencing in lockdown—yoga, bread baking—are beyond the realms of possibility for me.”

Even though the world is consumed by concern over COVID-19, the long-haulers have been largely left out of the narrative and excluded from the figures that define the pandemic. I can pull up an online dashboard that reveals the numbers of confirmed cases, hospitalizations, deaths, and recoveries—but LeClerc falls into none of those categories. She and others are trapped in a statistical limbo, uncounted and thus overlooked.

5) A South Pacific tourism bubble.

Writing for The Conversation, Regina Scheyvens and Apisalome Movono of Massey University's development studies department make the case for a South Pacific tourism bubble. They note that whilst Pacific nations have mostly avoided the worst health effects of COVID-19, its economic impact is proving devastating. Thus, they argue, New Zealand and Australia have a prime opportunity to help their smaller neighbours.

Have to admit my family booked a holiday in Fiji during the July school holidays before COVID-19 cast its huge shadow. Unfortunately these plans are now on ice.

Supporting Pacific states to recover is an opportunity for New Zealand and Australia to put their respective Pacific Reset and Step-Up policies into practice. If building more reciprocal, equitable relationships with Pacific states is the goal, now is the time to ensure economic recovery also strengthens their socio-economic, environmental and political infrastructures.

Economic well-being within the Pacific region is already closely linked to New Zealand and Australia through seasonal workers in horticulture and viticulture, remittance payments, trade and travel. But for many years there has been a major trade imbalance in favour of New Zealand and Australia. Shifting that balance beyond the recovery phase will involve facilitating long-term resilience and sustainable development in the region.

My former colleague Mike Field, a keen observer of the South Pacific, has been saying for some time that Fiji hasn't been testing for COVID-19 at anywhere near the level New Zealand and Australia have. Seems our PM has noticed this too. So it may be a while before we extend our bubble to Fiji.

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24 Comments

Aussie to support NZ tourism economy through trans Tasman bubble ASAP

https://7news.com.au/lifestyle/new-zealands-popular-tourism-attraction-q...

Regarding story no 1.
So a repeat of the aftermath of GFC is likely again ? With such money pumped into economies, there will be many winners in the stocks, shares and bonds ? The Rich will get Richer, others will survive and struggle more for the next decade or so to prop up the Rich ?

Many people will be making out like bandits. Ticket clipping is best because you can pass on most of the risk.

Stock market run too hard too soon. Recent recovery a dead cat bounce. To stay this level needs support from improved corporate earnings later this year. Market recovery will be reversed based on another big factor jobs, jobs, jobs.

https://i.stuff.co.nz/business/121777925/carter-holt-harvey-to-cut-up-to...

https://i.stuff.co.nz/business/300031265/coronavirus-covid19-exposes-nak...

I'm not so sure - they've been running at over-subscribed levels for ten years.

Nowhere else for the rentier money to go - all those pension-funds etc

15
up

READ THIS IDEA .........call it our own " RESET "

We should not be letting our international recognition of our success with Covid slip away , instead , we should be aggressively using it to our advantage .

New Zealand has the opportunity to become a global centre for IT innovation and the leaders in the 4th Industrial Revolution.

The Government should be all over Silicone Valley right now offerring those Companies tax and R&D incentives to set up shop or branches or innovation centres here .

Land North of Auckland should be set aside as a Free Trade IT development zone , a "new" Silicone Valley if you like ...........right here in the Pacific region .

The only conditions should be 1) that for every foreign IT specialist coming here , there must be a Kiwi training in that skill as a shadow trainee

And 2) that if you are listed on the NASDAQ or Wall St , that you have a secondary , non-primary listing on the NZX .

And 3) , the foreign IT business has to support , sponsor or give scholarships or bursaries to IT and innovation students at Massey University on the Shore as part of its Corporate Social Responsibility, and this should be say 2% of turnover

We could provide a direct entry into the China market as we have a Free Trade Agreement , and this would be a good selling point , given current Trade tensions between the US and China .

We would move from a low-wage economy agri-economy to to a much higher wage economy as our young people could become part of a whole new sector of the economy

It would stimulate ALL sectors from construction to services , and would not involve mineral extraction or environmental degradation

We have numerous benefits to offer including :-

Reliable power supplies
Strong regulatory frameworks
Free traded currency
Reliable educated workforce
We are stable
Least corrupt counrty in the world P
Strong Protection of Trade Marks and intellectual property
Virus Free
An ally of the US
Strong legal framework
Independent Judiciary
Ease of doing business
English is the lingua Franca
We are mostly a happy multi-cultural country with a great future
We are a liberal equal opportunity democracy

and its a bloody great place to live and work .

For us there are advantages too numerous to mention , including Job creation in the new tech world , we would diversify into new technologies , we would spread the risk of dependence on foreign students to fund our Universities , we would widen our tax base through higher incomes per capita

The Irish did it in the 1980's with IT hardware businesses , and I am sure we could too , and do it better .

We should be talking to everyone list on the NASDAQ, and not just
Microsoft
Google
Oracle
Facebook
Zoom
SAP ( German)

Great idea Boatman, it has already started to happen here in Nelson due to mountain bike visitors from US. Just need to figure out we build those darned complicated house thingies first. I mean, which way up do you hold the plan and which end of the hammer operates the tape measure???

I know you jest, however not far from the truth. Had someone who spoke Chinese said they heard the builders on a site at Millwater talking to each other, whilst walking past.
"Which way around does this roof truss go?"
"I don't know, read the plan."
"I can't, I don't understand it."
"Ah, ok just put it this way, we already have it up here."

Roof trusses are bugga's and a lot of them can be either way arround. You get a plan of what position they go in and you have to figure ot out from there.

Nice, I like it.

13
up

My concern with your idea - which is similar to many others out there - is "our saviour will come from across the waters mentality". Your idea is similar to Rod Drury's idea of selling 1000 sections to wealthy foreigners so we can can make $5 billion and provide ongoing jobs for local serfs mowing lawns etc.
Our salvation must be our own doing. Any successful country built it's own wealth on it's own people and resources. Japan and Germany did not rebuild after WW2 by bringing in foreign saviours but borrowed and built on foreign successful ideas. Ditto Taiwan, Korea, China etc etc.

Correct Kauri - we must lift our own standard of living, not just lock in how things are with the rider that it will likely get worse. It's one of the reasons I was so bitterly disappointed with the lack of follow-through on Kiwibuild, Urban Planning reform and Light Rail. Change you can see like that doesn't happen often, and combined they would have drastically altered the way our cities look, and in doing so, what people expect from them.

Sadly it's likely we'll all be here in ten years, having the same arguments, with nothing to show for it other than lost time, money and even harder attitudes resistant to any change at all, for better or for worse.

Agree. The IT and innovation focus is a great idea (a la Dalia on the rise and fall of empires and societies), along with education to equip it, but we can't focus solely on importing talent instead of developing it.

However, it's very important to focus on fostering the above. The last National government made the absolute right call in putting in fibre as a national strategic asset / service rather than leaving it to the mess that has been delivered overseas - kudos to them for that. We can follow that with other such investments. Dalio highlights that credit-bubbling our way through (primarily over land) is not the way to achieve better future outcomes.

All that said, if we need some migration then making the path user-friendly for PhDs might be a good option. (We probably need to refocus our universities away from their vocational training school focus of the present.)

Shifting focus from vocational training towards critical thinking skills still needs to be practice-led to maintain relevance. That's going to take quite a shift for universities..

Hardware manufacturing maybe....but then it'd just be done in China like it always has and will be.

Software, not a chance. Everyone is now doing more and more work from home. That means I can be anywhere in the world and do my job. I don't need to be halfway round the world in NZ. Physical location is become more and more irrelevant in the silicon valley world. Even our own companies in NZ are realising it, I saw something on the news about AMP moving out of the big city and encouraging work from home.

Made in China is only a recent thing. Also a passing phase. I helped build an extension to Fisher and Paykel's Mosgiel factory and Cadbury's Dunedin factory. A lot of my childhood clothes were made in Dunedin by Hallensteins and Sew Hoys. The flashest ones were made in England. Chinese manufacturing is being shifted regularly to other countries. The Aussies will send coal and iron ore to anyone who will buy them. The people we sell to chops and changes just as much.

The only problem with your plan is that everyone on the planet has the exact same plan, trying to achieve the same thing. And IT is a talent driven industry. How is NZ ever going to compete with India, China, Russia, South Korea and US is beyond me. Specially with a education system that is socially driven with little or no regards for outcome in measurable skills (math skills, reading and writing skills etc). All indicators are that NZ education system produces less skillful people generation after generation, as there is little competition expected, even when they go to university (with exceptions of medical schools and to a lesser degree law schools that have high entrance bars).
You do not become good at IT by learning IT from foreigners. You become good at it by improving the national mathematical skills and setting higher bars for skills at high schools.

I don't think you get good at IT by math skills per se. Coding is basically logical relations, but more importantly, agility comes from those people who understand that everything is potentially a modifier. This is a real shift away from if this then that thinking - what you really need are people who can creatively circumnavigate logic. That's a very different skill set to straight math.

What's really needed then is to combine the domains - there's too many silos. Combine IT with the creative arts and you might get somewhere...

"Combine IT with the creative arts and you might get somewhere..."

Yes indeed, one of the best programmers I worked with was also fluent in several languages and had a degree in something linguistic from Oxford. Obviously also highly intelligent which helped :-) His take on computer programming as a career choice "it's just another form of self expression".
One of the very few people whose code I didn't dread having to maintain or modify, it was like well crafted poetry.

Two thoughts on the struggle New Zealand has to create a better economy and income for the bottom 60%. From 1973-1978 my company held an Import License for two critical components. We gained that license only after proving to the Commerce Commission that the components could not be produced by any Manufacturer in NZ. 3 affidavits were required. The law at that time was simply " What could be produced in NZ-must be produced in NZ". That thinking created jobs and good incomes in Manufacturing, textiles, etc. Rogernomics ended it all.
But now too little in produced in NZ-even Kiwi Rail won't buy local.
Secondly, the Minimum Wage as high as it is attracts too many school leavers into complacency, and by the time they wake up to the dangers of it in their mid 20's or so and they have kids and families it is too late to undue the damage caused by their unconcern about what their education will provide them in life. The ladder is much steeper to climb at 27 than it would have been at 13 when it was time to get serious about education.

This QE / money printing is still the most stupid thing I have ever seen in my sixty -something years on this planet .

If anything the money should not have been injected into the economy , but instead used to finanace improvements to crumbling infrastructure (In the US ) or for new infrastructure here in NZ .

To print money and encourage peeps to spend it on consumables is plain dumb

Who on earth are the buyers of Air NZ shares ?

There can only be 3 types buying .............Fools , Gamblers and Short Sellers covering their positions

My experience the last few months has been people who have never invested before have been buying Air NZ. Have a look at the FB investor pages.

I haven't bought any, but what do you know that they don't?