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And the rich get richer

20 March 2020

On the eve of the worst pandemic in a century, it's a great time to be rich.

Or so I'm told -- because unfortunately I definitely fall into the other category.

If things proceed as predicted, we're going to see a huge transfer of money from the poor to the rich. Yes, the rich will get richer and the poor will get poorer, despite the best efforts of our present (slightly) socialist-leaning government.

You see, those who live hand-to-mouth have nothing in reserve to see them through "hard times" and that's something that the richer members of our society can capitalise on to further boost their own wealth.

How many small businesses will go to the wall over the coming months?

A lot!

What will happen to their stock, their (sometimes very valuable) branding and all the equity they've worked so long and hard to build?

Answer: it'll get sold for cents on the dollar to those of their competitors who were lucky enough to have sufficient reserves to see them through.

The same goes at a personal level, perhaps even moreso.

What will happen to the young couple with a growing family who have scrimped and saved for decades to get and service a heavy mortgage?

With no jobs there's no longer a way to pay the bills and service that mortgage so the only option they have is to either sell-up (at cents on the dollar in a depressed market) or to wait for the bank to foreclose and kick them out. In the event of foreclosure, the bank will only be interested in getting the outstanding balance of the loan so once again the sale will be for cents on the dollar.

The family are huge losers but whoever has enough cash to step in and pick up these properties for a song will be wearing a huge grin, safe in the knowledge that within a decade or so they'll likely have doubled or trippled their investment.

Another casualty of this situation could well be landlords.

A seven year lease on a commercial building is worthless if the tenant goes out of business and is would up. Even personal guarantees will likely be unenforceable because of mass bankruptcies.

In the case of residential properties, tenants may simply be unable to pay rent but landlords will still be facing the same costs -- which may include servicing mortgages to the banks.

Any landlord who doesn't have freehold on all their properties must be pooping themselves right now.

One thing is for sure... there will be many a fortune made or significantly enhanced over the coming months. Sadly, those fortunes will cost the lives and the livelihoods of many others who can ill-afford to take the hit.

There is also huge potential for political instability to arise. In times of extreme hardship, radical political parties sometimes appear and gain huge traction. It's easy to sell a dream of a better future to those with empty stomachs and no money. Such crowds will embrace the dream and sometimes set aside their morality and ethics in the hope of bettering their own circumstances. Extreme socialist policies are an easy way to appease the great unwashed and unfed masses.

However, to bring a somewhat brighter note to the end of the week, I really think things will not be as bad as they have been predicted to be.

Mankind is a resilient species and I find it amazing that we think nothing of getting into our cars every day with full awareness that hundreds of Kiwis are killed on the roads, we live with thousands more dying every year from avoidable cancers related to smoking and drinking -- yet we are now living in absolute fear of a pathogen that will (at worst) produce about the same number of deaths.

Once living with COVID-19 becomes "normalised" I think we'll see life return to normal far more quickly than is predicted.

Using the PNOOMY algorithm (Plucking Numbers Out Of My Arse), I predict that within 3-4 weeks we'll start seeing a relaxing of restrictions and a return to normal life here in NZ.

Few businesses will fail, few people will lose their homes and what the experts are currently predicting to be a period of up to 18 months of social isolation will become more than an order of magnitude less in duration.

Well that's the hope, anyway.

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