Posted on 04/03/2020 9:43:25 AM PDT by Kaslin
We have few material numbers yet from companies or economies on the actual, bottom-line business impact of the coronavirus pandemic. The repeatedly adjusted economic contraction estimates and revisions to guidance for companies - both always to the negative - results in, essentially, almost all predictions before actual numbers post being guesswork at best for these unprecedented circumstances. CARTOONS | Michael Ramirez View Cartoon
The Thursday unemployment numbers reflect this stark reality well. The prior week's new seasonally adjusted unemployment claims, for the week ending on March 21, posted at 3.28 million and coming in at the higher end of the 1-4 million generally estimated. This week's however were a bombshell as there were generally expectations for about 3.76 million and yet the actual numbers posted at a mind-boggling 6.648 million. The prior week's numbers were even adjusted up to 3.307 million. The S&P 500's 2.28% gain in the wake of such news was just about as senseless as it having continued to rally and reach new highs from late January to early February as the coronavirus began to slowly seep into just about every nation in the world.
The fact is that we are seeing the actual numbers post as being often much worse than even the most sophisticated analysts' consensus and now seemingly even sometimes well outside of even a generally expected range. In just two weeks the newly unemployed are now more numerous than all the new jobless claims from 2008 to 2010 during the entire Great Recession. As with seemingly everything in this coronavirus market the worst seems still to come however as the Federal Reserve Bank of St. Louis estimates unemployment could soon enough reach a historic, unprecedented 32.1%.
There is a reason the unemployment numbers are of particular concern amid all the various corporate guidance and economic numbers being thrown out. That the American consumer is the heart of the country's economic engine is not only a great feel-good slogan but also is a stark reality. When consumers stop spending or, in this case, can't spend due to lack of jobs and income then the financial contagion quickly spreads to everything from mortgages to consumer debt, from student loans to entertainment/leisure, from demand for new iPhones to even how often one keeps the lights on.
In many ways the 2008 financial crisis began when the consumer's pocketbooks began drying up (whether for many subprime mortgages there ever was the actual pocketbook to begin with is a whole other question) and thus mortgages began defaulting, associated mortgage-related products began defaulting, financial companies with exposure to those assets began defaulting, companies with exposure to those companies the same, and so on and so forth.
In 2020 we now face a similar situation. Even in just the first few weeks of this downturn we see how business and residential rents are already in severe default territory. It is easy to imagine how landlords, who rightly state they have their own obligations in the forms of mortgages and other costs, will soon default or need relief on said costs and debts and add to the lost revenues of other companies and further workers out on the street.
This is not a avalanche, it is a star collapsing into a financial black hole. Even the historic $2 trillion stimulus package passed and signed into law a few days ago already is old news as discussions for more stimulus is already taking place. The United States posted a 2019 Gross Domestic Product of $21.44 trillion - it is easy to see how with the overwhelming bulk of the population carrying on a trickle of their prior economic activity how filling that gap may soon begin accumulating a startling bill.
The Great Recession saw the major indices plummet by 45-50% from their highs in 2007 over the course of about one and a half years. The Great Depression saw the Dow drop over 90% from its September 1929 high over the course of two and a half years before finally finding its bottom in July 1932. If the current lockdowns and disruptions continue for much longer it is much likely we are facing the latter as a simple "un-pause" becomes increasingly difficult amid a sea of defaults and dried-up spending. By contrast, the highest unemployment rate during the Great Depression came in at 24.9% in 1933.
Nowadays we have much more financial controls and cushions in place than the "wild west" of markets in the early Great Depression era where financial institutions invested in securities with bank deposits and the U.S. Securities and Exchange Commission did not come into existence until 1934. The SEC also may delay our full understanding of the impact of coronavirus on companies as it has permitted a 45-day extension of various filings otherwise due March 1 to July 1. It remains clear nonetheless however that we are at perhaps less the the bottom of the valley than at the edge of a precipice - if things continue to crumble too far it will escalate in asset-destroying financial contagion for far longer before it gets better.
No way this would kill 2 million people at any rate if we let it run its course..maybe another 100-150k vs nothing.
Not all depressions are caused by banking distress, although that usually is part of it. Yes, the banks are in better capital shape today vs 2007, but unemployment didn’t hit anything close to 32% in 2007 either, nor did a dozen major industries have their revenue go from 100% to 0-20% overnight for long periods of time and small businesses get wrecked everywhere. I put the odds of a short depression (-10% GDP for 6 months) at 50/50 at the moment and a longer depression at 25%.
What you don’t understand what Wuhan is and what makes it different. This is not a pandemic caused by a naturally occurring pathogen. This one has been altered and weaponized making it a beast of a different type and does not play to the normal scenario. It is engineered to be fast spreading, have a certain type of lethality or incapacitating effects. This is meant to stop armies and relatively fast. It is also resistant to most vaccines and requires decontamination to get rid of traces which can still cause problems. Many of my colleagues see this as an asymmetric weapon to cause chaos in society and mess up the economy.
Define “temporary.” Also, how many BKs?
This is the reality. All you skeptics note the speed and magnitude of spread.
Tell me what a "BK" is, and maybe I could.
Also...what would you predict peak unemployment would be, and will we in fact avoid a depression?
Sure, only because we are shutting the economy down, but then again, why would China blow up 1/3 of their own economy (exports)?
I am well aware how exponential functions work. I ran one on this back in Mid February. How about you? Try this, if you haven’t, though. Run R0 of 2.5-3 and assume you can cut that in half with these shutdowns. Then run it out and see how long you need to do the shutdowns to “bend the curve” (hint its 12-18 months). Then run the same assuming you re-open after 6 weeks - all you did was push the curve out 6 weeks. The economy can’t last 12-18 months and pushing this out 6 weeks doesn’t do much and still causes massive economic damage.
Three fold:
1) They had protests and dissidents. This shut them down and they have no regard for their citizens. As bad or if not worse than Mao.
2) When you develop a bio-agent you usually have a vaccine or method to mitigate the effects. In war there is acceptable loss
3) They want Trump out and Democrat/traitor friendly government in.
Clue...don't use jargon without defining it at least once.
"Also...what would you predict peak unemployment would be, and will we in fact avoid a depression?"
Peak unemployment is irrelevant because it ignores time. The Depression lasted over a decade, this will not. So,YES, we will avoid a Depression.
If that progression doesn’t scare you, then you are insane. Bye!
“This is TEMPORARY.”
Says who? Business are destroyed, and governors and mayors learned they can say “State of Emergency” and become dictators.
“But we’re NOT “killing our free society”.”
So, go open all those shuttered businesses.
“but you would have “economic disruption” if 2 million Americans die. “
Stupidly childish statement. Histrionics by the feeble minded and gullible.
No it doesn’t, actually. Shutting down our entire economy and eliminating 40 million jobs affecting 100+ million Americans directly, trashing the tax basis of local and state governments, adding $10T to US debt in a year and printing trillions of dollars of money to pump into the system scares me though
Says me...and history. This will not last a year. The real Depression lasted for a decade. And once it is over and done, we citizens will pass laws limiting "state of emergency" so-called "dictatorial powers.
"So, go open all those shuttered businesses."
The free market will take care of that.
"Stupidly childish statement. Histrionics by the feeble minded and gullible."
So you're OK if 2 million Americans die?? Sorry, but I value life over property...live with it. And the real-world experiment has already been done...it is called "Italy". They did what you and the rest of the skeptics wanted...ignored self-quarantine, and they have a huge death toll AND huge economic disruption as well.
Bye!
There is no legitimate evidence this will kill 2 million people here not that delaying this for a month or two will save anyone in significance. There is plenty of evidence already we have wrecked the economy and it will look far worse by the end of April. You have made the USA perm poorer, which will kill far more, you will cause suicides to skyrocket and you just wrecked the lives of tens of millions of families. So you can feel superior if you want, I think you and those like you are monsters
See Italy. We already have the negative answer to you doubt. And anyone that puts mere property ahead of hundreds of thousands of lives is the real monster. GOOD BYE.
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