COVID-19 and the economy - looking forward

[task0778]

The following posts from me in this thread are excerpts from a free newsletter that John Mauldin sends out weekly and shows up in my email inbox. I don't get the sense that he is being political about this one way or the other, he's a financial investment guy who is interested in green more than red or blue. If anyone has comments or other perspectives, please share. I think we all should have some sense of what lies ahead, after the pandemic has been reduced or eliminated. Some say there will be a virus rebound next winter, maybe so but I am not commenting on that cuz the data is so sparse. IOW, nobody knows. So, here we go:


Actually, let’s start with some good news. I talked with Dr. Joseph Kim of Inovio yesterday. They are beginning the initial safety/immune response phase human trials of a vaccine which should show data in June, and they should be in a larger phase 2/3 trial as early as July/August. Inovio plans (but isn’t promising) to have a million vaccinations ready by year-end, and is looking for even higher capacity.

Many other vaccine trials are underway around the world, too. Dr. Kim named several he was familiar with, some of which are also beginning human trials. They use different mechanisms but with the same end goal. He is hopeful some will work, saying, “Look, think of it like 71 shots on goal. The more we try the more likely we are to score.” Of those, probably 10 or so will look promising enough to draw funding.

Vaccine production capacity will be key. We will need millions per week and eventually billions per year. This is a global crisis and must be treated globally. Dr. Kim thinks people will likely need multiple vaccinations, probably every other year, but we just don’t know yet.
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If you want to know the future, some say to look at China. The coronavirus originated there and China was the first to impose the kind of restrictions now common elsewhere. The virus had already spread rapidly through that highly dense urban population before lockdown measures.

What we see is that after 2–3 months of ruthlessly enforced lockdown, the virus receded enough to let people leave home and businesses begin reopening. The downtime created massive unemployment, disruption, and lost income that will take years to recover. Daily life is still heavily constrained, consumer spending is nowhere near what it was and will probably remain so until a vaccine is available. We don’t yet see anything that looks like a V-shaped economic recovery in China.

Unfortunately, I think the US and Europe will follow a similar course. We will learn a lot in the next couple of weeks as some areas begin reopening. The key question: Can they do so without hospitalizations and deaths spiking higher? If so, maybe we can have a modified but somewhat normal summer. But there is a real risk of having to clamp down again if it doesn’t work.

The economic trajectory is also uncertain but only in the sense that we don’t know how bad it will be. I am sure you’ve seen poll data like this from CBS News.


Source: CBS News



There are other surveys with different timelines and activities but they all point in the same general direction. This is not going to be like turning on a light switch.

Absent miraculous breakthroughs, the economic pain is only just beginning. We are going to see entire industries either wiped out or hastily transformed.

Viral Thoughts

If you want to know the future, some say to look at China. The coronavirus originated there and China was the first to impose the kind of restrictions now common elsewhere. The virus had already spread rapidly through that highly dense urban population before lockdown measures. We don’t yet see...

www.mauldineconomics.com

I don't know that many people are aware that economic recovery could be be harder and take longer than anticipated. Please consider my next post.

 

[task0778]

Still quoting from Mauldin's email newsletter. Is he too pessimistic? Maybe, but some businesses have closed and may not be returning and that means lost jobs and that means less spending.


Everybody wants to know when the economy can reopen. In one sense, that’s the wrong question. The economy isn’t “closed.” Many essential businesses are still open. People still buy and sell things. Those sitting at home still engage in economic activity. But it is of a different nature, and the change creates costs.

So what we’re really asking is when the previously normal economy will be back. The answer is “never,” I’m afraid. We will return to something quite different and as yet unknown.

According to Danielle DiMartino Booth’s Quill Intelligence, less than 3% of US counties account for half of GDP and 61% of COVID-19 cases. Until these densely populated counties can reopen, economic activity will be lackluster which drags on consumption. The urban areas will be the hardest to bring back online. But without them, we can’t approach anything that looks like “normal.”

As for when this can happen, we actually have a plan. On April 16, President Trump announced his guidelines for “Opening Up America Again.” These are recommendation to governors, who may choose different paths, but the plan seems sensible. It envisions three phases, and each state would move through them based on 14-day periods of declining cases and adequate hospital capacity.

You may think Trump’s plan is too relaxed or too strict, but it is at least relatively objective. It gives us targets to meet and recognizes local differences. Best of all, the phased approach should boost public confidence that the danger is easing—and that is critical to bringing the economy out of deep-freeze.

I get the resentment some feel toward being kept from work, but lockdown orders aren’t the only barrier. Businesses won’t reopen and put employees back on the payroll unless customers feel they can return safely, and the poll data shown above says they mostly don’t.

All this will take time. There’s no way around it. The measures we are presently taking have successfully “flattened the curve” nationally (local areas vary). We have to reopen without letting it shoot higher again. We also have to protect vulnerable people—the elderly and those with underlying health conditions. Doing all this at once will be a giant juggling act, but I believe we can do it. I think most of the US can be in phase 3 by the end of May if we do this right.

 

[task0778]

Testing is key to any reopening plan. Most of the experts think the US needs to be testing at least 500,000 people a day to truly get the pandemic under control. We are just starting to get into the neighborhood of 200,000 on average for the last few days. We need to at least triple that number. And then double it again. And then double that again. And again. We know private labs have plenty of capacity. We trust them to test us for everything else. Get them working…

The tests and labs are not the only constraints here. Paraphrasing the old proverb, “For lack of a swab, the test wasn’t done.” Ditto for supplies like gloves and other protective equipment for health workers. We need to get every component, in adequate quantity, in the right places at the right times. Our initial inability to do that let the virus grow far faster in the US than it did in places with extensive testing, like South Korea and New Zealand.

I can’t stress enough how important this is. Widespread, reliable testing will help generate the confidence we need to get the economy moving again. Not enough testing will mean less confidence and slower recovery.

Gov't dropped the ball here, going back to least a couple of administrations. Spare me the TDS, Obama didn't leave us in good shape to handle any kind of pandemic. We're gonna have to put up the money to be better prepared for the next time. And I am confident in saying there WILL be a next time. Maybe as soon as next winter according to some.

 

[task0778]

As I’ve been saying the last four weeks, without intervention we face the certainty of a massive deflationary depression. The Fed is leaning against this in unprecedented ways while the government tries to replace the lost income for businesses and individuals. This is not what we normally think of as “stimulus.” It is not intended to boost economic activity but simply replace a lost portion of it. The hope is to reopen the economy soon enough for recovery to take place on its own. I think this will take 2+ years, and we won’t see anything like a V-shaped recovery this year.

I sadly think that we will need even more rather large government spending. It will almost certainly be needed before the election, and quite likely before Congress breaks for the summer so that those checks and other help arrive in time for the elections. This is a bipartisan “need” for politicians.


Again, this is Mauldin talking, not me. I am by no means an expert on anything, and I am not a fan of more gov't spending. but I think we gotta do what we gotta do. Unfortunately, I'm sure that politics will intervene and make this a partisan issue rather than a unified one that it should be.

 

[task0778]

Still quoting Mauldin here. I haven't seen other perspectives, some might be more positive ad others might not.


How High Will Unemployment Go?
Here are two predictions, the first from Danielle DiMartino Booth at Quill Intelligence and the second from Mike (Mish) Shedlock.

Source: Quill Intelligence

Quoting Quill:

Extrapolating the data for the last five weeks indicates U3 unemployment rate for April payrolls should be around 16.2%; risk is to the upside surprise for the unemployment rate as some densely populated states’ unemployment rates are lower than what would be expected

Mike Shedlock offered another analysis. You can see his math and methodology as to how he comes up with his numbers at the website.

Based on 26 Million Claims, What's the Unemployment Rate? My comfort range is 17–25% with an expectation of 20–24%. A U-6 rate well into the 30% range is likely in any case.

(“U-6” is a broader unemployment rate that includes “involuntary part-time workers” who took those jobs but really want to work full-time.)


That ain't good, folks. Again, maybe the reality won't be this bad, but maybe it will or be even worse if we don't get our shit together as a country and tend to business. Right now, I ain't seeing that as likely, especially with this being an election year. It's almost like changing presidents in the middle of a world war. It may not be a shooting war, but an economic one with some very serious ramifications if we don't get our responses right.

 

[georgephillip]

Gov't dropped the ball here, going back to least a couple of administrations. Spare me the TDS, Obama didn't leave us in good shape to handle any kind of pandemic. We're gonna have to put up the money to be better prepared for the next time.

For a portion of the 20th Century, "the democratic state served as a counterweight to the concentrated power that flowed to concentrated wealth in a capitalist economy."

This "New Deal" approach to constraining the abuses of private power has been under assault for the last fifty years.

Perhaps it's time for the pendulum to swing back?

The Rise of Neo-Feudalism

"Under the system of financial regulation created in the New Deal, commercial banks were strictly supervised under one regulatory regime, while the issuance and sale of securities were tightly governed under another.

"In exchange for federal deposit insurance and/or membership in the Federal Reserve System, commercial banks had to abide by reserve requirements, conflict-of-interest strictures, and regular supervisory examinations.

"Their ability to merge or open branches was limited.

"The interest they could pay on deposits was regulated.

"They were not permitted to turn loans into securities."

 

[Deplorable Yankee]

I'm at 30 /70 on the economy

70% being hold onto yer hats

20% chance of big v's across the boards