The new Caribbean  economy and you.

The first thing we need to understand is that nobody is out of the woods globally. It is going to be a challenge for at least the first part of the new year, before we see a return to normal, but a return to normal will occur. Don’t despair, the reality is that we are turning the corner, it’s just a matter of time. 

The second is that it’s a bit of a longer term thing. What this has revealed globally, is that governments need to have the ability to respond and build up safety cushions and have good policies in place. When these type of events reoccur, you must have the ability to draw down on your credibility and your fiscal resources. You country’s Central bank must be able to help pull you back up to where you want to be and that’s going to be a challenge not just for Barbados but also for every government in the world, if we all want to ensure that we’re ready for whatever comes next.  

In the long term, there isn’t going to be much of a difference between a Republican-led or Democrat-led US government, in terms of the economy. Of course we have two very different personalities in terms of leadership. Ultimately, the key aspects that differ in policies are (1) with the Democrats, before Trump, corporate tax in the states was 35% and (2) after Trump’s cuts it was 21%. Most recently the Democrats are saying that they are going to raise it to 28%. Obviously that takes money out of the pockets of businesses but their goal is to offset that by a bigger stimulus package than the Republicans were offering. Net/net we really don’t see a significant difference. 

Barbados is currently having discussions around green energy, which means more alignment would be found with the Democrats who are very much for green technology. We can assume that this could create economies of scale for Barbados, as they move to achieve the same thing.  

Currently we have over 200 vaccines that are in the process of being approved. Three have already gone through the final stages and are actually approved. But still to be done is licensing, manufacturing and of course distribution. Once distribution begins and flights and destinations become more accessible, we’ll definitely see a rebound. Due to pent up demand we may even see a surge to higher levels than pre-covid, before it settles at normal levels. 

There is an opportunity to change one part of the business model on tourism, with longer vacations. Given the ability to work from home, it’s quite possible that we see tourists take advantage of infrastructure in the more developed Caribbean countries, like Barbados that are safe and have good internet connections, to set up shop. We can see people staying for one month, where two weeks are spent working from your hotel room and the other two are the actual vacation. That alone positions the English Caribbean as a very attractive destination.

The first is that equity markets are very forward looking. They look to the future, they see the rebound coming and now they will price that into financial assets. We saw that very clearly when news of the Pfizer vaccine came around. Even though the vaccine will not be implemented immediately, based on the potential impact, we saw a lift right away. 

The other important consideration is that there’s a lot of money out there. Governments have been throwing money at households and firms. Central banks have been flooding markets with liquidity, so interest rates are really low and that’s a powerful combination for markets. 

People have a lot of savings and they’re not earning anything on them. So, what’s the alternative from an investment perspective? Do you want to park your money in a low interest rate bearing instrument (which is a perfectly sensible investment strategy) or do you have a bit more preference for risk and decide to invest in equity markets that have dividends that pay more than what you’re paying on a low bearing instrument? Maybe you just invest in equity markets in general. Because of these two factors and others as well, we’re seeing stocks go up.