Page 7 - DIY Investor Magazine - Issue 25

W Z W-shaped Sideways - Z
It can be hard to get a handle on the geometry of markets – and never more so than in the aftermath of economic dislocation. But now the dust has begun to settle on the biggest sell-off in a generation, the next question might be whether we’re in line for a recovery, and, if so, what shape that recovery might take. Depending on the hit to Gross Domestic Product (GDP)1 , history tells us we could be in line for any number of different scenarios.
The market has a sharp fall, followed by a sharp rise, followed by another fall and another rise into recovery. Example: From January to July 1980 the US economy experienced an initial recession, then entered recovery for almost a full year before dropping into a second recession in 1981 to 1982.
W-shaped
Here, in the best of all scenarios, the discovery of effective measures to fight Covid-19 unleashes pent-up consumer demand, leading to a mini-boom before the economic trends reverts to its pre-crisis trajectory of steady if not spectacular growth.
Doughnut
ECONOMICS
The brainchild of Prof. Kate Raworth, donut economics provides a roadmap for government-led spending focused on sustainable infrastructure. The aim would to stimulate the economy to counter the impact of Covid-19 while laying the foundations for a more socially inclusive and ecologically sound future.
Square root
The square-root recovery An initial relief rebound followed by a plateauing of economic growth.
The R
NUMBER 1
And finally... The R number.
The key to everything. The R number denotes the number of people one infected person will pass Covid-19 on to. Anything above 1 is bad; anything below 1 is progress.
Where next?
US real GDP, annual percentage change (IMF forecasts)
4.5
-8
9121314 1516 1819 20
10 11
17
Stagflation: Slow economic growth and relatively high unemployment, or economic stagnation, which is at the same time accompanied by rising prices (i.e. inflation).
Fed: The Federal Reserve is the central bank of the United States. 1. A measure for a nation’s output over a given timeframe.
7 DIY Investor Magazine | Sept 2020
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OTHER SHAPES TO CONSIDER