“Sounds like something we have heard before”, Nordea’s Morten Lund and Andreas Steno Larsen dryly write, in the course of assessing Donald Trump’s “Opening Up America Again” plan, unveiled on Thursday, much to the delight of markets looking for a reason to keep the faith.
The US president spent the better part of the last two days effectively fomenting civil disobedience, with all-caps tweets calling for residents in Minnesota, Virginia and Michigan to “liberate” themselves, an apparent allusion to stay-at-home orders and other virus containment protocols.
On Saturday, protests against the virus lockdown measures sprang up in several states, in some cases drawing support from familiar corners, including Alex Jones’s InfoWars. Trump, it would appear, sees an opportunity to capitalize on the current situation by devolving decision making to states, while simultaneously releasing a loose set of common sense guidelines and expressing his overt support for the lifting of the strictest state measures.
In the simplest possible terms, the president can now take credit if reopening plans go well, and blame states if they don’t.
Trump is (either by accident or simply by virtue of his willingness to exploit and incite with little regard for decorum), a savvy political operator. If that’s too much, then we can say he’s an extremely effective provocateur and understands how to parlay drama into political leverage, which in turn pigeonholes Republicans into supporting (or, at the least, not opposing) even the president’s more controversial words and deeds.
I’d share some of the visuals from the weekend protests, but frankly, they are in many cases unnerving. Some depict residents hoisting signs featuring xenophobic rhetoric. One banner seen outside the Texas State Capitol building called for officials to be “delivered” for “treasonous” activity (Doctors Birx and Fauci were named, as was Steve Mnuchin and even Mike Pompeo). Other placards carried slogans echoing libertarian credos like “We will not comply with edicts”. A seven-year-old girl held a poster board sign declaring “Bill Gates can keep his poison”.
Nordea’s Lund and Steno Larsen state the obvious, which is that at least some of Trump’s push to open the country is “highly politically motivated”, which isn’t necessarily a partisan assessment. Trump is, after all, a politician.
“Yes, the new cases curve is slightly bending in the US, but the combo of a tsunami hitting the US job market (22 million have now lost their jobs) and swing states also looking better are perhaps the biggest explanations of Trump’s move”, the Nordea analysts write, adding that it’s “interesting the Donald has also made a U-turn on his ‘I’m calling the shots’ rhetoric”.
(Nordea)
As I wrote Thursday morning, Trump’s decision to backtrack on claims to having “absolute” authority on directing states’ reopening plans was likely motivated by the realization that sticking to that declaration meant taking responsibility if something goes awry, which it almost invariably will, somewhere.
“With the new guidelines, he thus shows that he has done everything he could within his power, so Governors are now to blame if they are too slow to re-open and thereby not allowing Trump to Keep America Great”, Nordea goes on to say, in a frank assessment.
Leaving aside the debate around whether it’s appropriate for the White House to effectively call for citizens to defy state and local officials’ advice when it comes to protecting communities from a highly contagious respiratory disease, it’s far from clear this is a good strategy for Trump politically, and it’s even less clear it’s a net positive for markets.
It’s obviously true that if businesses reopen and customers return (as they apparently are in South Korea, where lines formed at the Apple store and people openly dined at local restaurants with no masks) without a concurrent second wave of infections, it would bode well for Trump in terms of being able to claim success in the fight against COVID-19. The US death toll appears to be on track to come in well below even the low-end of original estimates and if economic activity can safely restart ahead of schedule, well, then, all the better.
Any outcome short of that, however, could be disastrous for obvious reasons. In addition to the risk of a surge in infections (and thereby hospitalizations and deaths), you could quite easily argue that the worst possible scenario for markets is for the economy to restart prematurely, only to be idled again. If nothing else, that would be psychologically devastating and would likely raise questions about when or even if things will ever get back to normal, “herd immunity” or no “herd immunity”.
US cases rose just 3.4% from Friday, slower than the average over the past week. New York, meanwhile, reported “just” 540 deaths in the past 24 hours. That’s the first time the state has had less than 600 fatalities in 12 days. The peak was on April 9, with 799 deaths.
During Saturday’s White House briefing, Trump assailed China, and said he’s finding “more and more” problems with the World Health Organization. The president halted funding to the body earlier this week, in an extremely controversial move.
The US, Trump said Saturday, tests far more in hot spots than anywhere else in the world. He lauded Texas for plans to reopen the economy and claimed that Kim Jong-Un recently sent him a “nice note”.
“Nobody wants to reopen more than me. Nobody wants to get the economy going more than me”, Andrew Cuomo said, at his own daily briefing. “We’re not at a point where we’ll be reopening anything immediately, but we are planning”, he added. “We’re not at the plateau anymore, but we’re still not in a good position”.
And therein lies the problem. Many locales in the US are like New York – “not in a good position”. But by definition, most areas of the country are not “hot spots” (if everybody were a “hot spot”, the term would have no meaning). The idea is simple enough. If you’re a hot spot, maybe take a few more weeks to sort this out. If you’re not, well, then, let’s get back to work.
It sounds easy, but it’s anything but. If it becomes apparent that locales which were previously spared the worst of the disease are becoming breeding grounds thanks to the relaxation of lockdown protocols, it’s not clear where that will leave the country – or markets.
In the interim, economic activity is obviously collapsing. It is, as SocGen’s Subadra Rajappa put it in a Friday note, “a scary movie”.
“Weakness in Q2 data in the US is unravelling in slow motion like a scary movie, supporting a rally in bonds as data disappoints already dire expectations”, she wrote. “With the front end pegged, the steam-roller migrates to the belly and the rest of the curve in Q2”.
SocGen, you might recall, predicted a US recession in Q2 and Q3 of 2020 way back in November, although not due to any pandemic. Rajappa had the lowest target for 10-year yields on the Street. She was proven correct.
As for equities, Trump on Saturday claimed stocks’ rally over the past two weeks is proof that the market endorses his crisis response. “The market is smart. The market is actually brilliant”, he mused. “And they’re viewing it like we’ve done a good job. They view it that way”.
Perhaps. But don’t expect the president to admit the opposite if stocks were to plunge anew and test recent lows.
“Profit estimates have, not surprisingly, continued to get downgraded and S&P 500 is now expected to have -12% EPS growth in 2020”, Nordea wrote, in the same note cited here at the outset.
(Nordea)
“The downgrade process is far from over, in our view [as] macro indicators point to a risk of a 30 to 60% drop in earnings for 2020”, the bank went on to say, adding that “the current S&P 500 forward P/E of 19.5 is thus in all likelihood a major understatement of the actual P/E ratio”.
Maybe if we just open up a few Starbucks, though…
Such a large affluent part of our economy are the hotspots. If POTUS plays pollitics about aid we can have depresions in the states that are not being underwritten with “farm aide”. He may be on the path to the tried and true Republican “Law and Order” campaign. Hope not.
Let’s just call it what it is: a revival of the Klan led and fomented by the Bircher-in-Chief.
Like the capitalist would like to sacrifice my mother for their stinking stock portfolio, I too hope that Covid-19 takes a few white nationalist with it. That is tongue in check hyperbole, my mother is long gone. I do not wish death on any one except, maybe, … but if people have a death wish than have at it. I am a humble man, certainly no “stable genius,” but from where I sit, the red states have yet to feel the wrath of this disease. It is coming.
If time lost is lives lost Then the eight weeks Trump wasted (and is still wasting) equal a lot of lost American lives. Very frustrating trying to understand why the Republican Senate doesn’t grow some cahones and find a way to get rid of the A’hole. Might improve the chance that some of them may actually get re-elected.
it’s clear where this is headed now. After last nights briefing where Trump called Air Force grads sitting 10 feet apart while Pence blathers at them “being very politically correct” we are dividing down a familiar fault line. People who wear masks to limit the spread, social distance themselves, or otherwise take the virus seriously are all ‘libtards’ while true ‘patriots’ live fearlessly and unconcerned about this silly flu thing.
Hey! Said my name is called Disturbance
I’ll shout and scream, I’ll kill the King I’ll rail at all his servants
Well then what can a poor boy do except to sing for a Rock and Roll Band
A corollary: This song was banned on many radio stations in America, its release coming within a week of the riots at the 1968 Democratic National Convention.
The Red Spring Revolt consisted of a few hundred lunatics “protesting”. Doesn’t say much for trump’s ability to mobilize his followers to fight against “tyranny”.
Here’s the thing that everyone seems to be missing (yes, I hate being that person), the economic effect of COVID is not binary, “opening” the economy will do nothing to “save” the economy. Normalized consumer behavior is likely 24+ months away regardless of what restrictions are in place. We are not choosing death vs economics death. The general extreme of outcomes: 100k dead, economy crashes vs 1 million dead and economy crashes. There is no scenario in which the economy doesn’t crash as a result of the pandemic.
Listened to talking head #1 this morning Pense) spend 1/2 hour talking around the questions without answering them. What a waste of time. On the streets the demonstrators are shoulder to shoulder so that those that are Covi-19 positive can spread it faster by chanting and shouting. Demanding to go back to work where there may be no jobs. Idiots led by a President who will be ridiculed without end in the generations to come. Do we really have to wait until November for a leader to come forth?
H-Man, the reality is POTUS spends most of his time concocting CYA courses of action so he can be the Teflon man.
Did you see Steven Moore’s comments? I would call him a moron but I would not want to insult morons.