US economy unlikely to recover as rapidly as it collapsed

My Comments: As a former investment advisor, I find myself scouring the internet to get a better understanding of the current economy and the markets in general. So far my conclusion is everyone is as clueless as I am.

We’re in un-chartered waters. Yes, there have been dramatic market drops in the past, some of them followed by what are called Bull Market Traps. They’re called that because within a few weeks, everything reverses itself and often falls below the previous low point. Many of them reflect a positive gain after 12 months.

Today I read where highly regarded “experts” suggest that despite some 15 million job losses so far, we could see as many as 30 million. Keep in mind the price of stocks and bonds is driven by earnings, earnings, earnings. Even grocery store earnings are going to suffer because their supply chains are going out of business.

Farmers across the country cannot find buyers for what they grow. Countless millions of dollars worth of fruits and vegetables are going to waste. The people who transport those goods are now wondering how long they can remain solvent. It’s only a matter of time before they too have no income.

Yes, the markets typically rebound before it’s obvious the economy is rebounding. That happens because investors are betting it will rebound and want to be in front of the curve. The challenge this time is no one has a real clue how long this crisis will last. It’s a new paradigm.

My best guess? The markets are going to crash some more, and because the federal government apparently has no clue either, we’re going to drift further down into the mud. At least until herd immunity takes over or we come up with an effective vaccine for the virus. Do you have a clue when that will happen? Me either.

Either way, we’re looking at 18 months of negativity for the economy so somewhere between now and then the bull market trap will be behind us and investors can begin to see a brighter light at the end of the tunnel.

by Josh Boak \ 9 APR 2020 \ https://tinyurl.com/rv25omf

BALTIMORE (AP) — President Donald Trump has been telling voters that the U.S. economy will leap back to life “like a rocket,” stronger than ever after its bout with the coronavirus.

But there is a reason economics is called the “dismal science.” There are emerging signs that any recovery will fail to match the speed and severity of the economic collapse that occurred in just a few weeks. The 2020 presidential and Senate elections likely will take place as the world’s largest economy is still attempting to climb back from the deadly outbreak.

“Anyone who assumes we’re going to get a sharp snapback in activity isn’t thinking about how consumers are going to feel. They’re going to be very cautious,” said Nariman Behravesh, chief economist at IHS Markit. “Households and businesses have seen their finances deteriorate. People are buying groceries on their credit cards.”

To understand the consequences of a sudden negative shock on the economy, Behravesh studied how many people returned to flying after the Sept. 11, 2001, terrorist attacks.

“It took two and a half years for airline passenger traffic to go back to previous levels,” he said.

No longer able to campaign on a half-century low unemployment rate, Trump has begun to tell voters that he can quickly rebuild the economy. He said measures like the $2.2 trillion rescue package — with more money likely on the way — can send employment and economic growth to new highs.

Jefrey Pollock, a Democratic pollster, said voters will judge in November whether the Republican president has delivered an economic revival, and they will be taking a similar measure of incumbent members of Congress.

“The fact that we’re as partisan as ever doesn’t mean we’re destined to forgive a president who fails on the economy,” Pollock said. “This is a man who championed his economic abilities — and to me there is nothing to suggest that voters will forgive him, since he’s been front and center on the virus response since Day One.”

If his view holds, that plays to the advantage of likely Democratic nominee Joe Biden. But Biden will have to give voters a fuller idea of how he would boost the economy, Pollock said.

Trump has repeatedly sought to portray the situation as the U.S. economy being sideswiped by the “hidden enemy” of COVID-19, which he and his advisers initially downplayed in February and March and later suggested was impossible to foresee. His message to voters is that his leadership will make the economy even stronger.

“Our Economy will BOOM, perhaps like never before!!!” Trump declared Wednesday on Twitter.

Treasury Secretary Steve Mnuchin, who has been leading the stimulus efforts, has said there will be “a very big bounce back,” though he noted that the gains could be uneven.

“Certain parts of the economy you’re going to see come back immediately,” Mnuchin said Tuesday on the Fox Business Network. “Certain things are going to take a little bit longer.”

One of the arguments for a quick recovery came from the Harvard University economist Larry Summers, who served as a top economic adviser to President Barack Obama during the Great Recession, He suggested on Twitter that the U.S. economy would behave much as a beach town on Cape Cod, which closes in the winter and reopens around Memorial Day for a burst of summer activity.

Adding to the challenge is that political leaders cannot simply command an economic recovery to occur. The timing depends on the shared actions of millions of consumers and employers, said Paul Winfree, a former Trump White House official who is now director of economic policy at the conservative Heritage Foundation.

“I don’t think we’re going to get out of this because of political leadership,” Winfree said in an email. “This isn’t WWII. Rather, things won’t turn around until a significant majority of people decide that we’ve done enough (privately and publicly) and have to move along. Hopefully, that coincides with the success of public health efforts.”

A strong economic rebound likely depends on people and companies being able to preserve their money, so that it can be spent and invested once the gloom begins to subside. The challenge now is that incomes are eroding, and that could limit the recovery.

Not only have 16.8 million Americans — roughly 1 in 10 workers — lost their jobs in the past three weeks. Workers have seen their hours slashed, have seen sales commissions disappear and have accepted salary cuts, such that incomes have declined for half of U.S. working households, according to a survey from The Associated Press-NORC Center for Public Affairs Research.

Children can no longer attend school, reducing the productivity of their parents. And on a regional basis, many state economies may take time to claw back what has been lost. Florida will need to bring back roughly 130 million tourists annually. The decisions of Texas employers will likely depend on crude oil — trading on Thursday for around a low $25 a barrel — climbing back above $30 to a point at which drilling and pumping is profitable.

Stanford University economist Nicholas Bloom is an expert on uncertainty and believes the economy will end this year 10% smaller than it was at the start of 2020, a loss of nearly $2 trillion even with the $2.2 trillion rescue package.

The long-term outlook also has deteriorated, he added, in ways that could hurt the recovery.

“Working from home is creating a collapse in investment,” Bloom said. “All firms I have spoken to have canceled training, new product introductions and R&D projects, while at U.S. universities and laboratories unless you are working on COVID-19 you have stopped work. So innovation — the main driver of long-run U.S. growth — has stopped.”

Bloom has personally responded to the decline in an ominous way. He said he pulled his retirement funds and college savings from the stock market and placed them in interest-bearing accounts to wait out the storm.

8 thoughts on “US economy unlikely to recover as rapidly as it collapsed

  1. Tony B

    Since it crashed in about two weeks, no one EXPECTS it to recover as quickly as it collapsed. We have no precedent; we scuttled the ship intentionally, never happened before. You can’t complain about that, you’ve self-righteously claimed that the economy isn’t important when lives are concerned.
    Calafia Beach Pundit is the best market source i know of, Scott’s latest: http://scottgrannis.blogspot.com/2020/04/the-crisis-is-over-but-at-terrible-cost.html
    Within two weeks, your doc will have antibody tests…..(not sure why you say the fed. govt/ has no clue…no one knows, but they know more than anyone else)……and I thank God we have a business man as a leader, we are in much better hands than if we had some swamp monster owned by special interests.

    1. Tony B – I decided I really didn’t want to engage with someone who presents themselves as anti-progressive. But your comment here that “you’ve self-righteously claimed that the economy isn’t important when lives are concerned” is 100% at odds with my personal and professional beliefs, one’s that I’ve had all my adult life. Either read me more carefully or stop throwing stones.

  2. Tony B

    You had said ” But even my first cousin in Colorado called me to say it was more important to get the economy healthy than to worry about a few people dying.” The context was you had disagreed with him.
    Who is anti-progressive? Just the opposite: I am anti-REGRESSIVE….

    1. I think my cousin is an idiot but I’m not going to tell him that. If you knew me, you would know I”m a loud leftist, but I don’t advertise it because I’m still active as a financial professional, Your earlier comment recognized I disagreed with him but the tone of your reply was that I was full of shit. That told me you agreed with him and not with me. So what is it? If you bother to read any of my posts you’ll soon discover that I was a Bernie fan until he dropped out. That makes me anti-regressive. What are you? Anti-progressive? Because your comments here and before sure sound like you appreciate the MAGA stances.

  3. Tony B

    If I agreed with your idiot cousin I’d have said so. If you’ll recall, I never took a stand on that. I told you, I’m anti REGRESSIVE. Bernie is a regressive. He believes in a strong central government and socialized medicine. The good lord has a sense of humor; as this tragedy of a virus is showing how terrible socialized medicine is. We already fought that battle….fascism, socialism and communism lost.
    I believe in freedom, free markets, and limited government. Beach house Bernie is no phony….I believe he actually believes in the nonsense he spews….you’d THINK, although today he just sold out all his supporters as AGAIN the DNC rigged the primary against him.
    Good to keep your leftist leanings to yourself while you worked. A lefty financial advisor is like a skinny chef…..

  4. Tony B

    And BTW….i have NEVER used or implied you were “full of shit”. You use a lot of meaningless words…….I simply offer OTHER opinions (which you never seem to address, for some reason)…….

  5. Enjoyed the post and the banter. I think it would be a mistake not to have any money in the market now. Predictions are seldom accurate and I would not bet the whole farm in either direction.

    1. Tony B

      No one knows Ernest, you are correct. I look at it this way….I have no idea which way the next 25% move in the market is going to be. But I am positive of which way the next 100% move in the market is going to be. We know how this movie ends; the world will be better, stronger, cleaner and more peaceful as the damage from this global pandemic is cleaned up.

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