Coronavirus - All things economically related

Goldman Sachs predicts that a record 2.25 million Americans filed for unemployment benefits this week - the highest ever. 

https://markets.businessinsider.com/news/stocks/us-jobless-claims-record-forecast-layoffs-unemployment-coronavirus-economy-gs-2020-3-1029016767

It's the worst for men. They are losing $1.00 for every $.79 a woman loses.

Goldman's new GDP forecast

Q1: -6%

Q2: -24%

Q3: +12%

Q4: +10%

Full-year: -3.1% (q4/q4)

Unemployment rate to peak at 9%.

Unemployment is going much higher than 9%.    Not only are people being laid off in ridiculous numbers, but most companies are instituting hiring freezes.  Hard to hire when you can't entertain someone for an interview.  

 In addition, the goodwill that many companies are showing today by keeping people on payroll is not going to last forever.   And for many companies, this next few weeks is going to be a wake up call that many functions, projects, and their associated employees are simply not really needed.

Time for UBI?

sbenois said:

Unemployment is going much higher than 9%.    Not only are people being laid off in ridiculous numbers, but most companies are instituting hiring freezes.  Hard to hire when you can't entertain someone for an interview.  

 In addition, the goodwill that many companies are showing today by keeping people on payroll is not going to last forever.   And for many companies, this next few weeks is going to be a wake up call that many functions, projects, and their associated employees are simply not really needed.

This is probably all true. But for now at least, my employer is giving us an extra $500 next month for combat pay. But work has been kinda slow the last couple of weeks. (we're a major insurance company)

We also just got our 2019 bonuses - which I was afraid would get cut back or just eliminated.

So far so good. Fingers crossed and knock on wood.

Consider yourself fortunate.

I do.

For now anyway.

do we think in the face of this that there will be calls for governmental austerity around the world after the initial stimulus legislation?  I would hope this is different, but I'm already seeing deficit scolds on social media complaining how much the projected stimulus is going to add to the national debt.  It's insane what some people prioritize when thousands of people are looking at death and millions facing potentially tremendous hardship.  I hope we won't repeat the mistakes governments made early in the last decade in going back to business as usual, but I fear there's a good chance we will.

"Negotiations on massive $1.6 trillion-plus emergency economic package to deal with the coronavirus crisis stalled on Sunday, with Senate Democrats objecting to the bill before a key procedural vote.

Democrats emerged from a closed-door lunch saying the emergency package had serious shortfalls and provided a "slush fund" to large corporations."

"Among the issues for Democrats, according to a senior Democratic aide, is $500 billion for corporations, stock buyback language that can be waived by the Treasury Secretary, limits on executive compensation only lasting two years and no provisions to protect individuals for eviction. In addition, Democrats are objecting to a lack of money for state and local governments and a provision of only three months for unemployment insurance."

https://www.politico.com/news/2020/03/22/coronavirus-stimulus-congress-141360

See my next post. 

"Federal Reserve Bank of St. Louis President James Bullard predicted the U.S. unemployment rate may hit 30% in the second quarter because of shutdowns to combat the coronavirus, with an unprecedented 50% drop in gross domestic product."

https://finance.yahoo.com/news/u-jobless-rate-may-soar-191838293.html

Where are all the conservatives/Republicans screaming about socialism now?

Stock futures opened at 6:00 PM.  At 6:04 they hit limit down.  

eta - If they can get a stimulus bill agreed before the opening on Monday, there might be a chance. Right now, as if an excuse was needed, the futures players are acting in reaction to the impasse on the stimulus bill.

ml1 said:

do we think in the face of this that there will be calls for governmental austerity around the world after the initial stimulus legislation?  I would hope this is different, but I'm already seeing deficit scolds on social media complaining how much the projected stimulus is going to add to the national debt.  It's insane what some people prioritize when thousands of people are looking at death and millions facing potentially tremendous hardship.  I hope we won't repeat the mistakes governments made early in the last decade in going back to business as usual, but I fear there's a good chance we will.

 What do you think should have been done?  Monetary and fiscal policy has been downright radical and has been increasing as the century progresses.  From Doug Nolan's credit bubble bulliten:

I don’t see another Bubble on the horizon. Each reflationary Bubble must be greater in scope than the last. Mortgage finance was used for post-“tech” Bubble reflation. Policymakers unleashed the “global government finance Bubble” during post-mortgage finance Bubble reflation. Massive international inflation of central bank Credit and sovereign debt went to the heart of global finance – the very foundation of “money” and Credit.

There is no greater Bubble waiting in the wings to reflate the collapsing one. We are instead left with desperate measures to expand central bank “money” and government borrowings that will surely appear absolutely reckless in hindsight.

Let’s touch upon prospects for Bubble reflation. There was an abundance of positive spin coming out of the previous bust period. “If only the Fed hadn’t incompetently failed to bail out Lehman, crisis could have – should have - been avoided.” Reckless home lending caused the crisis, and regulators will never tolerate a replay. Prudent “macro-prudential” policies and an abundantly capitalized banking sector ensure stability. From the crisis experience, central bankers learned to move early and aggressively to nip market instability in the bud.

The previous crisis was labeled “the 100-year flood.” Onward and upward, with enlightened central banking both leading the way and ensuring a smooth ride.

With assurances of central bank liquidity and market backstops, an unprecedented Bubble inflated throughout global leveraged speculation. Popular “carry trades,” foreign-exchange “swaps,” myriad derivatives (incorporating leverage) and such morphed during this cycle into a colossal self-reinforcing Credit Bubble. The resulting liquidity became a prominent fuel source for asset and economic Bubbles, reminiscent of the late-twenties.

Can’t a massive expansion of central bank Credit (securities purchases, lending facilities, swap lines, etc.) now reflate the Bubble? I seriously doubt it. Risks associated with various strategies have been revealed. Leverage in its many forms has been, once again, shown to be a serious problem. Rather than the proverbial “100-year flood,” for the second time in less than 12 years the world is facing the worst financial crisis since the Great Depression. Burn me once, shame on you. Fool me twice…

It’s not hyperbole today to use “depression” to describe the unfolding deep global economic downturn. Coronavirus uncertainty makes it impossible to forecast the length and severity of the economic collapse. In the best case, the rapidly expanding outbreak in Europe and the U.S. subsides over the coming weeks. Even so, economies around the world will take huge hits. And prospects for the coronavirus to reemerge next winter (and emerge more powerfully during the southern hemisphere’s approaching winter season) will keep risk-taking well-contained for many months to come.

Coming out of the previous crisis, the global economy had the benefit of a powerful “locomotive” of accelerating expansions in China and the emerging markets more generally. Importantly, post-Bubble reflationary measures came as those fledgling Bubbles were attaining powerful momentum. Beijing pushed through an unprecedented $600 billion stimulus package, while aggressive monetary policy stoked EM booms generally. Keep in mind that total Chinese banking system assets inflated from about $7 TN to $40 TN since the crisis.

Looking ahead, the global economy is without “locomotives.” It evolved into one massive global financial Bubble financing a precarious synchronized global economic expansion. And I believe speculative finance became a prevailing source of Global Bubble Finance.

Here’s where I could be wrong. I seriously doubt this Bubble is revivable. The unwind will likely unfold over weeks and months. Extraordinary central bank measures will spur rallies and hopes for recovery. At times, it will appear that liquidity is returning. Yet the Bubble will not be reflated.

Confidence has been shattered. Faith that central banks have everything well under control has been broken. Myriad fallacies have been exposed. Central banks can’t guarantee liquid markets, especially in a Bubble-induced highly levered speculative environment. The entire derivatives universe has been operating on the specious assumption of liquid and continuous markets. History is unambiguous: markets experience bouts of illiquidity, dislocation and panicked crashes. The fantasy that contemporary central bank monetary management abrogates illiquidity and market discontinuity risks is being debunked. The mania in finance has, finally, run its course.

Leverage has to come down – and I believe it will stay down for years to come. A month ago risk could be disregarded – had to be disregarded. Market, financial, economic, social and geopolitical risks matter tremendously now, and they will matter going forward. In the best-case scenario, the coronavirus peaks over the coming weeks. I don’t want to ponder the worst-case.

The base money chart should be really disconcerting to us all.  Especially given the fact that it is going to point straight up once again.

Limit down ain't what it used to be.

This is gigantic news from the Fed. The futures were down 600 and they're now up 600. We'll see if it holds. 

"The Federal Reserve said Monday it will launch a barrage of programs aimed at helping markets function more efficiently in the wake of the coronavirus crisis.

Among the initiatives is a commitment to continue its asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

terp said:

The base money chart should be really disconcerting to us all.  Especially given the fact that it is going to point straight up once again.

 I don't pretend to be an economist, so I could be wrong but isn't that chart referring to something different that what I was describing?

Great news.  Sell into it.  

sbenois said:

Great news.  Sell into it.  

 There could be a countertrend rally for a few days, then a retest of the lows. Yeah, so sell into it. 

We haven't seen the lows yet.

ml1 said:

terp said:

The base money chart should be really disconcerting to us all.  Especially given the fact that it is going to point straight up once again.

 I don't pretend to be an economist, so I could be wrong but isn't that chart referring to something different that what I was describing?

I'm not sure exactly what you were referring to.  So, 'm not sure if this is different.  It is all part of the same machine though.  Cramer's post above just proves the point. 

Anyway, I'm not sure by what measure we've been austere.  Below is the national debt chart.   Perhaps further explanation would be helpful. 

I would add that the government and the fed have been behaving like there is a crisis when their isn't a crisis.  This is precisely why we are already at 0% interest and already running huge annual deficits prior to this happening.   

We'd be a lot better off if we had some semblance of healthy fiscal and monetary policy going into a crisis like this.  However, we had already been in crazy land.  Further down the rabbit hole we go...

sbenois said:

We haven't seen the lows yet.

 Problem with limit down is we don't know the real down or up if there should there be a reversal after limits are frozen.

sbenois said:

We haven't seen the lows yet.

 I would agree.  We should see up moves as a selling opportunity.

It doesn't do any good now, but last week in a CNBC interview with Chamath Palihapitya, he talked about how criminal it was to allow hedge funds to be leveraged-up 10-15 times their capital. It starts at 8:00 on the video but the entire interview is worth watching. . 

I received an email this morning from a friend who is a senior partner at one of the largest accounting-advisory firms in the world. He said business is grinding to a halt and he didn't think that he would ever see something like this. They're making some gut-wrenching decisions. 

terp said:

I would add that the government and the fed have been behaving like there is a crisis when their isn't a crisis.  This is precisely why we are already at 0% interest and already running huge annual deficits prior to this happening.   

We'd be a lot better off if we had some semblance of healthy fiscal and monetary policy going into a crisis like this.  However, we had already been in crazy land.  Further down the rabbit hole we go...

 there were an awful lot of mistakes made over the past several years.  But I guess my point above is that now doesn't seem like the time to try to correct them.  

cramer said:

This is gigantic news from the Fed. The futures were down 600 and they're now up 600. We'll see if it holds. 

"The Federal Reserve said Monday it will launch a barrage of programs aimed at helping markets function more efficiently in the wake of the coronavirus crisis.

Among the initiatives is a commitment to continue its asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

That went well.  

cramer said:

I received an email this morning from a friend who is a senior partner at one of the largest accounting-advisory firms in the world. He said business is grinding to a halt and he didn't think that he would ever see something like this. They're making some gut-wrenching decisions. 

 Meaning firing people?

Yes. Right now they're doing targeted lay-offs. If the downturn becomes more severe they face the prospect of having to do more severe and extensive lay-offs come mid-to-late April.