rigorousintuition.ca

Via: FT

If housebuilders led America into its last recession, restaurants, casinos, hotels, cruise ship operators and airlines are leading the way this time. And after just four weeks in which US equity markets swung from hitting highs to pricing in the reversal Mr Singerman fears, the impact is starting to show in the real economy.

...the greater toll may be in industries that have nothing to do with global supply chains, economists believe. Ioana Marinescu, a labour economist at the University of Pennsylvania, predicted a collapse in what she called “human contact industries” such as restaurants, bars and theatres.

Those industries also tend to be dominated by smaller businesses with less cash on hand and less access to credit, she notes. Restaurants in particular have a high failure rate at the best of times. “We can expect those businesses to fail,” she said.

The food services industries alone employ 12m people in the US, up 30 per cent in the past decade.

Via: FT

“The world is shutting down,” said Patrick Berglund, chief executive of Xeneta, an Oslo-based provider of data on container shipping rates. “We are super worried about what is happening. What is different [from previous shocks to global trade] is that usually it’s just a corridor or two. Now it’s worldwide. Everyone is panicking.”

The Baltic Dry index — which tracks the cost of shipping bulk raw materials such as metallic ores, coal and grains and is therefore seen as a forward indicator of global economic activity — has fallen 80 per cent from a recent high last September.

Via: FT

China’s industrial output contracted at the fastest pace on record in the first two months of this year and urban unemployment hit its highest rate ever in February, as the coronavirus brought the world’s second-largest economy to a standstill.

Industrial output tumbled 13.5 per cent in the first two months of this year, the National Bureau of Statistics said on Monday. This would represent the largest contraction on record, according to Reuters data. The urban unemployment rate also surged to 6.2 per cent in February, the NBS said.

The latest economic data also showed that China retail sales plummeted 20.5 per cent year on year in January and February and fixed asset investment fell 24.5 per cent, down from 5.4 per cent growth when the data were last reported.

The numbers were well below analysts’ expectations with many China experts expressing surprise that government officials were willing to report such devastating figures.

Via: CNN

JPMorgan Chase CEO Jamie Dimon made a joke Tuesday about the deadly coronavirus outbreak.

"I had this nightmare that somehow in Davos, all of us who went there got it, and then we all left and spread it," Dimon said Tuesday at the bank's annual investor meeting. "The only good news from that is that it might have just killed the elite."

Attendees laughed after he made the comment. Prior to his joke, Dimon noted that that he hopes the virus gets contained and "feels terrible" about it.

Via: Bloomberg

The Covid-19 pandemic reflects a systemic crisis akin to the seminal crashes of the 20th century.

By Pankaj Mishra

As global supply chains break, airlines slash flights, borders rise within nation-states, stock exchanges convulse with fear, and recession looms over economies, from China to Germany, Australia to the United States, we can no longer doubt that we are living through extraordinary times.

What remains in question, however, is our ability to comprehend them while using a vocabulary derived from decades when globalization seemed a fact of nature, like air and wind. For the coronavirus signals a radical transformation, of the kind that occurs once in a century, shattering previous assumptions.

In fact, the last such churning occurred almost exactly a century ago, and it altered the world so dramatically that a revolution in the arts, sciences and philosophy, not to mention the discipline of economics, was needed even to make sense of it.

The opening years of the 20th century, too, were defined by a free global market for goods, capital and labor. This was when, as John Maynard Keynes famously reminisced, “the inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth.”

This maker as well as consumer of global capitalism could invest “his wealth in the natural resources and new enterprises of any quarter of the world.” He could also “secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality.”

Such an economically enmeshed world seemed to many the perfect insurance against war — a contemporary version of such optimism was Thomas Friedman’s “Golden Arches” Theory, according to which no two countries with McDonald’s restaurants would go to war.

The First World War not only brought the period of friction-free globalization to a gruesome end. It also cruelly exposed an intelligentsia which had believed in irreversible progress and now was forced to acknowledge that, as an embittered Henry James wrote to a friend in August 1914, “the tide that bore us along was then all the while moving to this grand Niagara.”

As with our own crisis, the seminal crashes of the 20th century — the First World War followed by the Great Depression — were harder to grasp because their principal causes were set in motion decades before, and largely neglected by mainstream politicians and commentators.

Democracy, whether as an emotive ideal of equality or as representative institutions based on a widening adult male suffrage, had steadily become the central principle of the modern world, especially as industrial growth generated new inequalities.

Repeatedly frustrated, the aspiration for democracy helped fuel the rise of both left and far-right political movements, pitting them against established ruling elites.

The firebrands found their most committed supporters in the exploited populations of then-rapidly growing cities. Filled mostly with people freshly uprooted from the countryside, sundered from traditional livelihoods, and forced to live in urban squalor, the world’s great cities had started to become hotbeds of discontent in the late 19th century.

The problems of how to accommodate rising aspirations for equality through inequality-generating economies were particularly acute for nation-states such as Germany, Italy and Japan, that were trying to catch up with economically advanced Western countries.

Once the series of economic shocks that began in the late 19th century climaxed in the Great Depression, the elevation of the far-right to power, and intensified conflicts between states, was all but guaranteed.

In our own conjuncture, all ingredients of the previous calamity are present, if ominously on an unparalleled scale.

For decades now, de-industrialization, the outsourcing of jobs, and then automation, have deprived many working people of their security and dignity, making the aggrieved in even advanced Western countries vulnerable to demagoguery. At the same time, stalled economic modernization or a botched process of urbanization in “catch-up” powers like India and Russia, has created, in almost textbook fashion, the political base for far-right figures and movements.

The financial crisis of 2008, which has caused deeper and longer damage than the Great Depression, may have discredited the globalizing elite that promised prosperity to all, creating broad scope for opportunistic demagogues like Donald Trump. Yet few lessons were learnt from the collapse of global markets as the tide moved faster to Niagara. This is why the crisis of our time is as much intellectual as it is political, economic and environmental.

One sign of analytic deficiency is that the prescriptions for multiple malaises have remained the same in much mainstream politics and journalism: more economic “reforms,” largely in the direction of global free markets, reheated Cold War slogans about the superiority of “liberal democracy” over “authoritarianism,” and aspirations for a return to “decency” and “global leadership.”

These hopes for a return to the pre-2008 political and ideological status quo are often leavened with a heightened, if ineffectual, concern about climate change. Their inadequacy will become clearer in the months to come when afflicted nations as much as individuals are tempted to self-isolate, sacrificing many holy cows to the existential urgency of survival. The coronavirus, devastating in itself, may prove to be only the first of many shocks that lie ahead.

Feed back from a Goldman Sachs investor call today (apparently over 1,000 participants). The key economic takeaways were:

50% of Americans will contract the virus (150m people) as it's very communicable. This is on a par with the common cold (Rhinovirus) of which there are about 200 strains and which the majority of Americans will get 2-4 per year.

70% of Germany will contract it (58M people). This is the next most relevant industrial economy to be effected.

Peak-virus is expected over the next eight weeks, declining thereafter.

The virus appears to be concentrated in a band between 30-50 degrees north latitude, meaning that like the common cold and flu, it prefers cold weather. The coming summer in the northern hemisphere should help. This is to say that the virus is likely seasonal.

Of those impacted 80% will be early-stage, 15% mid-stage and 5% critical-stage. Early-stage symptoms are like the common cold and mid-stage symptoms are like the flu; these are stay at home for two weeks and rest. 5% will be critical and highly weighted towards the elderly.

Mortality rate on average of up to 2%, heavily weight towards the elderly and immunocompromised; meaning up to 3m people (150m*.02). In the US about 3m/yr die mostly due to old age and disease, those two being highly correlated (as a percent very few from accidents). There will be significant overlap, so this does not mean 3m new deaths from the virus, it means elderly people dying sooner due to respiratory issues. This may however stress the healthcare system.

There is a debate as to how to address the virus pre-vaccine. The US is tending towards quarantine. The UK is tending towards allowing it to spread so that the population can develop a natural immunity. Quarantine is likely to be ineffective and result in significant economic damage but will slow the rate of transmission giving the healthcare system more time to deal with the case load.

China’s economy has been largely impacted which has affected raw materials and the global supply chain. It may take up to six months for it to recover.

Global GDP growth rate will be the lowest in 30 years at around 2%.

S&P 500 will see a negative growth rate of -15% to -20% for 2020 overall.

There will be economic damage from the virus itself, but the real damage is driven mostly by market psychology. Viruses have been with us forever. Stock markets should fully recover in the 2nd half of the year.

In the past week there has been a conflating of the impact of the virus with the developing oil price war between KSA and Russia. While reduced energy prices are generally good for industrial economies, the US is now a large energy exporter, so there has been a negative impact on the valuation of the domestic energy sector. This will continue for some time as the Russians are attempting to economically squeeze the American shale producers and the Saudi’s are caught in the middle and do not want to further cede market share to Russia or the US.

Technically the market generally has been looking for a reason to reset after the longest bull market in history.

There is NO systemic risk. No one is even talking about that. Governments are intervening in the markets to stabilize them, and the private banking sector is very well capitalized. It feels more like 9/11 than it does like 2008.

identity » Wed Mar 18, 2020 12:08 am wrote:
https://www.youtube.com/watch?v=AaFC0p-Gna4

https://twitter.com/NathanTankus/status ... 2027936768
Nathan Tankus
@NathanTankus

This is absolutely incredible. Just totally amazing. And hey remember that foreclosure crisis Obama absolutely could do nothing about? Yeah...
Quote Tweet

USA TODAY
@USATODAY
· 7h

President Donald Trump announces the suspension of foreclosures and evictions until the end of April.

semper occultus » Wed Mar 18, 2020 5:49 pm wrote:there’s $250 trillion in global debt right now. Total bank capital worldwide is less than $10 trillion.

So if the coming defaults trigger a mere 4% loss in total debt, it will exceed the entirety of global bank capital.

And this doesn’t even take into consideration the impact of the $1 QUADRILLION derivatives exposure.

https://www.zerohedge.com/markets/banks-are-going-drown-ocean-defaults