Displaying items by tag: lockdown

(New York)

This COVID crisis has made whole areas of the economy uninvestable. Many companies have had to halt operations entirely and as the lockdown drags on it has become more clear that many may not reach their previous levels for years (if ever). One problem is that many stocks and sectors appear to be “stubs”, or stocks that have very binary value propositions. Unless things go very right, they are worth almost nothing. Energy is a good example. If oil prices don’t come back and demand for oil stays low, what is the US oil sector worth? Big brock and mortar retailers are the same—what are they worth if the re-opening doesn’t go well?

FINSUM: This is a useful way to think about some sectors, but the outcomes are probably not as binary as they may seem right now.

(Washington)

While many readers often accuse us of having one political persuasion or another (we get accused by both sides all the time!), we try to be pretty neutral about politics here at FINSUM. On this particular topic, we want to weigh in very clearly (even though we don’t, have a clear position). Earlier this week, the President said what was easily the most heartfelt, eloquent and “presidential” comment of his presidency, and given this topic, we think it is worth sharing. He said “I have it make the biggest decision of my life, and I only hope to god I get it right”. Well, his view was made more clear today, which is that he is favoring a quick reopening.

FINSUM: In our view, nobody knows the right answer to the question about balancing the risk to life versus the imperative of providing economic security. In many ways it is a catch-22. We think a really well-considered strategy is needed.

(Washington)

The President and his team are working furiously on plans for how to open the $22 tn US economy after its unprecedented lockdown. “We’re looking at the concept where we open sections of the country and we’re also looking at the concept where you open up everything”, says Trump. In particular, the White House is looking to open the economy entirely within 30 days, or possibly 60 days, with different schedules being considered. The new strategy is to open the economy based on much more widespread and rapid testing. This will allow workers to be verified as having (or not) the virus and sent back to work.

FINSUM: Just as the coronavirus is a nearly unprecedented occurrence, so is the reopening of the world’s largest economy. It is going to take exceptionally good planning to balance the competing priorities of public health and economic restoration.

(Brussels)

Even though cases and deaths are still rising rapidly across the European continent, many governments within the EU are planning their re-opening from the Covid lockdown. Spain, Italy, Austria, and more are undertaking and/or announcing plans to reopen as soon as this coming Monday. The rollouts don’t look likely to be rapid anywhere, but their announcement may be received as an important turning point both socially and economically.

FINSUM: Markets are up big today and this is a significant part of it. Might the US start to re-open in a 2-3 weeks (?)—that is the question on investors’ minds.

(New York)

All the predictions in the market are about how steep the recession in Q2 will be (we think people should also be considering the Q1 numbers!), but a new paper has been published looking back at the economic effects of the 1918 pandemic. The surprising finding is that strong shutdowns did not actually hurt the economy as much as thought. In fact, the areas that undertook the strongest and swiftest shutdowns, had the weakest drops in output and the quickest recoveries. The average US location suffered an 18% downturn from the pandemic. However, the researchers (two from the Fed, one from MIT) summed up their findings this way, saying “Cities that implemented more rapid and forceful non-pharmaceutical health interventions do not experience worse downturns … In contrast, evidence on manufacturing activity and bank assets suggests that the economy performed better in areas with more aggressive NPIs after the pandemic”.

FINSUM: While this is not the most compelling evidence (given it is 100 years old), it is encouraging to consider that those taking swift action might not see the worst consequences.