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I am not a “permabear” despite any recent bearish posts and comments. I had already been bearish prior to the virus. I thought this party had gone on too long and needed some correction. I would be happy to have people not lose money and everything be great, however I am a realist.
This virus is here for awhile and that will impact consumer behavior longer than just a few months. Even with a cure or vaccine, the emotional toll of having to deal with the seasonal flu, plus coronavirus, will take a years to normalize. The economic impact will be substantial.
‘This virus is going to be with us’
I’m hopeful that we’ll get through this first wave and, and have some time to prepare for the second wave. I’m hopeful that the private sector in its ingenuity and working with the government, NIH, will develop a vaccine that ultimately will change the impact of this virus.
But for the next 24 months, you know, we’re all in this together, and the most important thing that we can do is twofold: the American public fully embracing the social distancing that we requested to protect the vulnerable; and secondly, to operationalize the bread and butter of public health, you know, early case identification, isolation, contact tracing, so that this outbreak does not get the upper hand, as it has, unfortunately, in New York City, in northern New Jersey, and now New Orleans.
– CDC Director
This is not going away after the first wave. We will have a second wave, and most likely another after that. We all know the flu kills tens of thousands annually even with a vaccine available for years.
People are used to the Flu and not scared of it but it has been with us for a long time. But it still kills many people worldwide each year. Now, imagine adding a virus that we are all scared of to every flu season. If you did not get it during the first wave, you probably don’t want to get it in the second or third. This fear will greatly impact many people’s behavior. How they travel, spend, etc, and this will impact the economy for an extended length of time.
One in three Americans say a household member has been laid off or had their pay cut.
Fully a third of Americans have someone in their household who’s been laid off or lost pay. The economic and humanitarian damage here is incredibly widespread, even more than the unemployment claims data suggests.
The Google Trends data is especially alarming right now, because searches for “file for unemployment” are far, far higher than they were in the depths of the Great Recession.
Two economists, the University of Minnesota’s Aaron Sojourner and Yale’s Paul Goldsmith-Pinkham, have built a model for predicting unemployment claims based on news reports. Their initial model nearly nailed the 3.3 million number, predicting 3.4 million new claims. They now project 4.7 million new claims for the week ending March 27, a huge spike from an already record number.
Even with government checks and recovery money, many of these companies and jobs won’t come back. Weak businesses, the small mom and pop types, who were already struggling, won’t make it through this. Unemployment will remain elevated longer than some anticipate.
We had already seen a shift to many people working for themselves, also known as the gig economy. Many of these people are either already unemployed or will remain underemployed for months, if not years. This includes everyone from subcontractors, to your self employed business owners.
Multiple articles have popped up about different industries that are seeing an impact. Here are a few mentioned recently:
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Ridesharing (Uber, Lift, Scooters, Bikes)
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Restaurants (Chains, Bars, mom and pop, food trucks)
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Wedding Industry (Venues, Caterers, Photographers, Florists)
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Gambling (Casinos, Online, Vegas)
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Sports (Local indoor fields, gyms, rinks, youth sports, local leagues, races)
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Travel (Hotels, Airbnb, Airlines, Airports, Planners, Cruises, Tours, Cities)
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Oil (Certain States, companies, WTI)
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Retail (Malls, Local Independent Stores, some chains)
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Motion Picture (Studios, Labor, Theater)
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Home Services (Landscapers, Small Construction, Builders)
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Personal Services (Spas, Salons, Pet Care, Child Care, Nannies, Home Health Aids)
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Real Estate (2nd homes, Rentals, Realtors)
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Music & Arts (Concerts, Galleries, Venues)
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Auto (local dealers, new cars, big 3)
34% GDP Plunge
Goldman Sachs Group Inc. expects the U.S. economy to experience a far deeper slump than previously anticipated as the coronavirus pandemic hammers businesses, causing a wave of mass unemployment.
The world’s largest economy will shrink an annualized 34% in the second quarter, compared with an earlier estimate of 24%, economists led by Jan Hatzius wrote in a report. Unemployment will soar to 15% by mid-year, up from a previous forecast of 9%, they wrote.
The economists, however, now expect a stronger recovery in the third quarter, with gross domestic product expanding 19%.
“Our estimates imply that a bit more than half of the near-term output decline is made up by year-end,” they wrote. While there’s a risk of longer-term fallout on income and spending, the aggressive action by the Federal Reserve and the government should help to contain this.
34% is just a massive impact. They do expect a strong recovery (as do many) but it still won’t immediately make up for the total hit we will take. One can’t help but wonder how much of this won’t go away, and how long it will take to get back on track.
Conclusion: We will get out of this and life will return to normal. However, those calling bottoms, and talking V shape recovery in just a month or so may be shortsighted. The emotional and financial toll of this virus may take years to normalize.
Position: Overall market outlook for the next few months or so is bearish, despite the irrational exuberance of the bulls this past week.
Disclaimer: This is just a random opinion from some average guy locked in his house drinking copious amounts of coffee. Do your own DD and form your own opinion.
I did not dig into lots of other areas in this post. Other things to look at or consider; EM, China data, Oil, Europe, Debt, Future World Virus Spread, etc..
