Looking across the valley.
It's a phrase that's been doing the rounds in the financial markets lately. It seeks to explain the apparent disconnect between what lies ahead and surprisingly exuberant financial markets.
By all accounts a severe recession looms, yet sharemarkets here and around the world continue to exhibit a keen appetite for risk.
For the moment, the markets see the pandemic-driven economic difficulties as being simply a valley — and not a gaping chasm — to cross.
"Yes, we face a substantial economic downturn but it's looking like it a might be less of a hit than we thought in the depths of March, when things were really falling off a cliff," Craigs Investment Partners head of private wealth research, Mark Lister, says. "In New Zealand people were talking about unemployment going into double digits and level 2 being around for nine or ten months."
In the United States, the talk was that unemployment would go to 20 per cent.
"Things were looking pretty bleak but we came back to level 1 much quicker than we thought, so that was good news," says Lister.
"In the US, unemployment went to 13 per cent, and it's since come back a bit.
"It has not been the complete disaster that people thought it might be.
"It's been a difficult outcome, but it could have been worse."
Early in the pandemic, investors across the board underestimated the level of central bank and fiscal stimulus that came to bear.
That support here and overseas has been bigger, faster and stronger than some might have expected.
"For all of that, markets are taking a bit of a leap of faith and are looking across the valley — which is a nice phrase to describe people appreciating that things are potentially going to get worse from here," Lister says.
"They are willing to look out two or three years rather than focusing on what happens over the next two to three months.
"Some would say that is logical because share prices don't reflect the next 12 months.
"They reflect all the future earnings, forever, discounted back to today's value — so of course they are factoring in what these businesses will do for the next 10-20 years rather than what they will do over the next year.
"Others would say that markets are still in dreamland. Why are they are they back to where they were at the start of the year, given what is going on in the world?"
Even so, appearances can be deceptive.
In May, the Reserve Bank said the rapid spread of Covid-19, and associated public health measures to contain the outbreak, had caused substantial disruption to global economic activity.
In New Zealand, border closures and economic lockdowns led to an unprecedented decline in economic activity, the bank noted.
"Even accounting for an expected recovery in the second half of the year, this year's projected decline in annual GDP is the largest in at least 160 years," the bank said.
Grim words from a central bank that is not given to overstatement, yet the New Zealand sharemarket is only a few hundred points below its record high, set in February.
It's the same story in many other parts of the world — sharemarkets doing well despite the dire circumstances posed by Covid-19.
In New Zealand's case, much of that can explained by what is happening with those high profile stocks that continue to find favour.
"If you look under the hood at what companies are doing in New Zealand, a big part of that resilience has been due to F&P Healthcare, a2 Milk, Spark and Chorus," Lister says.
"Look across the rest of the market, and you will see the carnage.
"The fast bulk of those companies are still well below where they they started the year at."
It is the same in the US, where the indices are dominated by the likes of Microsoft, Netflix, Amazon a number of tech plays and some other high fliers.
Says Lister: "The indices don't always reflect the entire market and the sharemarket does not reflect what is going on in the economy as well.
"It's hard to look at that and get a feel for what is going on on main street.
"It's not a clear picture of what is going on on the ground and it's not a perfect cross-section of NZ Inc."
Markets here and around the world have had to grapple with mountains of cash needing to find a home.
New Zealand has its Kiwisaver and in the US there is the 401k — state-sanctioned pension saving schemes — into which a portion of people's paychecks are deposited with fund managers with metronome-like regularity.
That cash has to go somewhere.
"The mountains of cash that are still sitting on the sidelines in short term deposits, earning absolutely zip, is still phenomenal," adds Lister.
"People have got $190b sitting in deposits at the banks — that's more than we had a year ago, and 5 or 10 years ago.
"That's been steadily rising even though interest rates have been falling through the floor.
"All that money has been going up over the last 10 years — not just in nominal terms but as a proportion of household financial assets as well."
"Long story short, we love our term deposits but these days you are not getting 8 per cent like you did before the Global Financial Crisis or 3 per cent a few years ago.
"You are getting 1.5 — 1.6 per cent pre-tax — barely more than 1 per cent after tax.
"If you have money sitting on the sidelines you are going backwards, basically, and it's the same offshore.
"What that means is that the money has to go somewhere, and the path of least resistance is still the equity market.
"Even with those recent dividend cuts, companies can offer a yield of 3.5 to 4 per cent on the New Zealand market, which is more than double what they can get from the bank.
"The sharemarket looks expensive when you consider recent history, and when you consider the economic backdrop, but when you consider the alternatives that people have, it looks good.
"We forget how powerful a theme that can be."
There is a mountain of cash there to fill the gap, says Lister.
"If you talk to some of the Kiwisaver fund managers around New Zealand, they are all sitting on lots of cash."
The theme of money finding a home is still alive and well.
Outside those high-profile Kiwi stocks, for many it will be a long road of recovery.
The good news is the appetite for risk is there, paving the way for companies to recapitalise if they need to, or to take advantage of new opportunities.
Investors are turning to the 2008-9 Global Financial Crisis playbook.
Back then, number of companies went to the market to shore up their balance sheets.
At the time, investors were able to pick up stock at discounted levels, and were for the most part well ahead of the game two years later.
All the while, funds keep being diverted into Kiwisaver accounts, and that money needs to be put to work.
And to get any sort of return, investors have to move up the risk curve, which means exposure to equities.
"The environment is positive," Lister said. "The demand is absolutely there and again it's the same sort of themes at work.
"That money is on the sidelines and it needs to go somewhere."
Say Lister: "There is much more capital out there looking for a home than there are places to put it.
"For good businesses with good opportunities, that come to the market, there is no shortage of demand."