Thoughts on where our economy goes from here…
My worry is how do we get out of this mess.
Everyone is hoping for a V-shaped recovery, but I do not see that as likely.
Not only did the USA botch just about everything they could, but the current response is still too slow. Europe dragged its feet but at least now they are now serious with countrywide lockdowns. I do not think a V-shaped recovery is likely for Europe either though… especially because tourism is such a huge part of GPD here.
The USA is going to have to go into lockdown to get this under control. It is already happening unofficially which is worse than officially, an unofficial lockdown is just going to prolong the pain. At least with an official lockdown, you pick the times and everyone has to go into lockdown together to stop the spread and give the USA time to respond.
Who is most affected right now? (USA numbers)
- Restaurant industry – 15.3 million workers.
- Retail – 15 million workers.
- Air Transport – 10 million workers.
The unemployment numbers for March/April are going to be crazy as restaurants are going layoff entire teams and close for ~1 to 2 months. I can’t imagine retail is going to be much different. All these businesses have thin margins and do not have savings to weather 2 to 3 months with no sales. And, that is a lot harder to bail out than 3 or 4 big companies.
And workers? In the USA, unemployment benefits max out at ~$800 a week and they do not count tips. That is a lot of people who won’t have money to pay rent or buy groceries.
The investor Warren Buffett once gave a famous warning:
“It’s only when the tide goes out that you learn who’s been swimming naked.”
Not only do we face a severe problem in labor, but we are about to see which businesses have fucked up their balance sheets with cheap debt. Given the amount of cheap credit floating around this is going to be interesting. Especially since the FED is going to do everything possible to help, but you can’t create consumer demand when you are facing an existential threat like this. I can easily see companies getting bailed out or loans at 0%, but that is adding even more dead wood to their balance sheet. It might be the only choice and hope to burn it all down later with a *natural* recession.
Some thoughts…
- You might see the French/Spanish/Italian GDP’s crash by 5% to 10%. Tourism and what it supports is huge and that is all going bye-bye. Maybe if Europe can get this under control fast they could at least retain EU to EU tourism. And, China might step back up in a few months if Europe can clear this. But, I could easily see the EU banning the USA from visiting for a long period if they can’t get this under control (or requiring records/tests in order to visit).
- Trump is an absolute idiot and could drive the USA right off a bridge. I could easily see him declaring no lockdown… thus putting half the USA in lockdown and half not (he has already done this with poor leadership). Then this becomes a battle between cities and states and prolongs the economic damage.
- You are starting to see problems in the corp bonds/loans market. If companies were counting on refinancing debt or getting that to fund x project that might all disappear. Then you have fewer companies investing in the company, downsizing, and this gets even worse.
- The USA has a terrible social safety net and the medical system is beyond broken. Maybe this will spawn real fixes to that system… but maybe not. I’d love to see us fix unemployment, improve social security, add paid sick and vacation days, and more. But until poor people and the young start to vote that will NEVER HAPPEN.
So you might ask… why not just weather the virus?
We could, but there is a huge RISK there.
Society doesn’t tolerate mass breakdowns well… if 60% of Americans get Covid the entire medical system breaks down.
You will have people dying at home from both Covid as well as other things. And, because you can’t handle the breakdown you see a much higher death rate. Say the death rate is 3.4%, which is ~7 million people in the USA. That doesn’t count all the other people who will die because they can’t get a bed at a hospital. Even in South Korea where it is 0.8% right now, that would be ~1.7 million people (keep in mind they have a ton of active cases, their patients are way younger than the average because of the cult that caught it, and their hospital system is still working).
People are already terrified and panicked. They are not going to overcome that and go eat out and buy things while watching everyone die. And, if they have to watch 1.7 to 7 million people die over the next 12 months the political implications are HUGE. Which should scare the shit out of everyone.
I hope we see some leadership emerge in the USA. People forget how important that is in times like this. Can we get Zombie FDR back in the White House?
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