Just in case you didn’t get your fill of dour headlines about the US economy last week, there were plenty more over the weekend.
In an phone interview with Bloomberg, for instance, Jim Bullard warned that the unemployment rate could rise to 30% next quarter, a figure that makes Steve Mnuchin’s worst-case scenario seem relatively benign (Mnuchin reportedly told GOP senators last week that the jobless rate could soar to 20% if drastic action isn’t taken on the fiscal side to shore up the economy).
And that’s not all Bullard said. The notoriously dovish Jim also warned the economy could see a mind-boggling 50% drop in GDP in Q2, a figure so large that one can’t help but chuckle, even as there’s absolutely nothing funny about it.
You’ll note that while Bullard is now the proud owner of the most dour forecast on the block, Morgan Stanley has joined Bridgewater in one-upping Goldman’s estimate of a 24% collapse. Morgan now sees a 30% contraction in Q2, in-line with Bridgewater’s worst-case scenario, as communicated late last week.
“As social distancing and the coronavirus disruptions to economic activity have become more pervasive, the downside to GDP will be increasingly significant”, Morgan writes, projecting a 2.4% contraction for Q1 prior to Q2’s expected 30% swan dive.
And it gets better – or, actually, I suppose “worse” is more apt. “Economic activity has come to a near standstill in March [which] we estimate will mark the first drop in nonfarm payrolls, down 700k”.
Got that? On Morgan’s estimate, we’re going to swing from a February jobs report which showed the US economy adding 273k jobs to a 700k drop, a near 1 million swing in the space of a single month. The unemployment rate, Morgan reckons, will average 12.8% in the second quarter.
But, hey, look at the bright side: Bullard’s estimate is far worse.
When it comes to what else Jim imagines the Fed might be able to do to ameliorate this situation, he told Bloomberg that “everything is on the table”.
“There is more that we can do if necessary” under the Fed’s emergency authority, he said, adding that “there is probably much more in the months ahead depending on where Congress wants to go”.
You can expect one of the first things we’ll see in terms of new tools is a corporate bond-buying program and perhaps an expanded version of the mini-muni bailout announced late last week.
Part of the rescue package currently in the works reportedly involves Treasury guaranteeing some $425 billion in Fed loans and other support to businesses and municipalities. Mnuchin suggested total Fed support to eligible borrowers under new programs could reach $4 trillion, the same figure Ray Dalio’s Bridgewater says US corporates are set to lose in a worst-case scenario.
Corporate bond spreads have ballooned wider in recent days. Junk is now officially in “distressed” territory for the first time since 2009.
“At this point, we estimate US corporate revenue across public and private businesses will decline by roughly $4 trillion”, Bridgewater said Friday, calling it “a very dangerous decline” which, if not mitigated by fiscal and monetary policy, “will lead to a long-lasting ripple”.
The last two weeks have seen guidance withdrawn virtually across the board, while many management teams draw down credit lines and hoard cash in preparation for the inevitable.
Acrimony on Capitol Hill – where lawmakers are rushing to finalize another aid package – boiled over on Sunday, with Senator Tammy Duckworth accusing Republicans of “pushing to give the Trump administration a Mnuchin-controlled slush fund with virtually no oversight, and using the stock market and American lives as leverage”.
Nancy Pelosi said there was no deal with Mitch McConnell as of early Sunday evening in D.C., where Senator Rand Paul tested positive for the virus.
Senator Rand Paul has tested positive for COVID-19. He is feeling fine and is in quarantine. He is asymptomatic and was tested out of an abundance of caution due to his extensive travel and events. He was not aware of any direct contact with any infected person.
— Rand Paul (@RandPaul) March 22, 2020
McConnell did move closer to Democrats over the weekend. The new bill includes increases to unemployment insurance, direct payments of $1,200 per adult and $500 per child, and hundreds of billions in extra spending for a hodgepodge of initiatives.
Restrictions on corporate bailout money include a buyback prohibition, a mandate to maintain employment levels, a two-year comp. freeze for employees making more than $425,000, and a ban on golden parachutes.
Democrats were pushing for much (much) more including, but not limited to, additional funds for states and localities, enhanced unemployment insurance and more assistance for Americans laboring under student debt.
As far as markets are concerned, lawmakers are playing with fire.
On September 29, 2008, when the House initially rejected the Wall Street bailout bill, the S&P fell 8.7%.
(BBG)
It is becoming very hard (for me) to see a path where US emerges from the Covid-19 tunnel with 77% of GDP in services sector.
Very good point
Yeah… a future without UBI this year would look a lot like a zombie apocalypse… likely worse since the zombies would not be brainless undead but real people destitute and without any means of survival. The system isn’t built to handle it.
Limit down on futures.
Maybe Trump and GOP are just looking at the virus problem the wrong way. Instead of current fiscal stimlus, they need to think in terms of sexual stimulus. Maybe if they begin to get away from a G rated story, they could come to grips with xxx? There’s simply no serious reason for the current political leadership to have their heads buried so far into the tarpit, there is no way that Americans or anyone in the world should put up with the total unequivocal retardation put forth from the GOP. I guess we get the government we deserve. Initially, I was hopeful for government intervention and support, but I fully understand why Democrats are demanding more for people who need help, versus the GOPs irrelevant and weak plan. What a nightmare!
Expanding further into the unimaginable, think past the hard landing and prepare to provide food security of humanity… think of the fallout when countries don’t get fed. Militaries on the move… nukes lit off. Just saying.
Make America normal again.
H- The dithering is about bloated companies and over leveraged banks vs regular people who just weren’t paying attention and are now caught in the middle of an unprepared country. Who survives? Go ahead pick? We are so far down the rabbit hole of debt NOT everyone is going to make it………….no way especially with the haves doling out the crumbs to those same regular people and the Corona Virus ready to stick it up their non-tested asses.
Luck everyone.
Ed Yardeni fits the role of a fairly decent economist, however, he’s most recent blog post, from March 4th nicely sums up the total stupidity of people like him, spread across the internet, getting the virus thing totally wrong! Ed typified stupidity about 3 weeks ago by blaming Bernie Sanders for the market turning downward! This is a moron who apparently used to be a guru at Moody’s. I thought I’d check in there and find a small bit of insight, but, like other polarized blogs, written by fox news groupies, the virus is ramping up to be a political weapon of mass destruction, linking itself to fake news and masses of zo mbie retards, like Yardeni, who are having heart attacks over poor people being given help. Literally and figuratively just insane in terms of the GOP tribe not being able to process reality or wrap their dumbass empty brains around the general theme of a pandemic! My basic prayer, is that the GOP will be essentially wiped off the face of the Earth. Sadly, nature will fill that void with something worse and God knows the Democrats are not exactly God’s gift to anyone’s dreams, but, truly, God help us all, except for the criminally insane Republicans.
“I would gladly pay you today for your vote tomorrow.
I’ll send you $1200.
Can I borrow 8 trillion? Actually, just give me 4. Then I’ll owe you 4, you’ll owe me 4, and we can just get over this ‘who owes who’ stuff.”
~ DJT