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U.S. Economy Shrinks at 4.8% Pace, Signaling Start of Recession

468 points by chollida1 7y ago

brenden2 7y ago
Good news for stocks, it means the Fed will keep printing trillions of dollars.
- arcticbull 7y ago
  In this market good news is neutral and bad news is good.
  - brenden2 7y ago
    There's a mistaken belief on WSB and elsewhere that bad news should make stocks go down. Stocks go up when the market thinks they'll be more valuable in the future, that's all there is to it. The cash will flow into the assets that provide the greatest returns, and right now that's stocks. Since treasuries provide almost no return, and corporate bonds are at high risk of default, the money will move into stocks because 1) the US government is hellbent on making sure big companies don't fail and 2) the Federal Reserve is prepared to buy unlimited treasuries and mortgage backed securities at any price.
    - rswail 7y ago
      If corporate bonds (debt) are at high risk of default, why would there be investment in those same companies' equity which is even higher risk? The fact that treasuries are providing no return tells you that most money is invested there "safely". The problem of course is that the USG should be making sure small companies don't fail, because that's the actual driver of the economy both for employment and consumption.
      - brenden2 7y ago
        Bonds and stocks move differently. The market has already re-priced the stocks of these companies to account for the risk of default on their debts. The US government has also signaled that they will bail out these debts, so the companies themselves (and thus, their stock) will probably be fine even if they stop paying their debts. Crazy times we live in.
cs702 7y ago
Given that that Jan and Feb seemed largely fine, the rate of decline in March was probably around 3x the quarter's headline figure -- call it -15%, give or take. April was much worse, without a doubt. Anything between a -25% and -50% GDP decline seems possible for April.
- SpicyLemonZest 7y ago
  Annualized numbers can always be a bit misleading, but applying them to individual months starts to get silly. What's the annualized GDP decline of weekends?
  - cs702 7y ago
    Of course. My point is that the figure for the quarter understates the economic shock in March.
- syncsynchalt 7y ago
  The decline was only 1.2%, 4.8% is after a 4x "annualizing" multiplier.
  - cs702 7y ago
    Of course. 4x to anualize a quarter. To guesstimate for just one month, we need 12x, i.e., multiply by another 3x. And of course, all this ignores compounding, seasonality, etc. The point I was tying to make -- and evidently, I did a poor job at articulating it -- is that the annualized rate of GDP change for the quarter understates the economic shock in the month of March. And April is likely worse than March.
iambateman 7y ago
I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?
- adrr 7y ago
  Fed is printing money and it needs to go somewhere. They are buying everyone’s distressed assets including dumping money into junk bond etfs.
  - JKCalhoun 7y ago
    Stock market is going up because it's going up. Wait 'til the music starts and there's a scramble for seats.
    - pravda 7y ago
      >Wait 'til the music starts and there's a scramble for seats. You meant 'stops'.
      - JKCalhoun 7y ago
        Yes. :-)
- seibelj 7y ago
  You will get 100 different answers. I like the argument that inflation is actually high, but our outsourcing of goods that make up the consumer inflation algorithm to cheaper countries makes it seem like inflation is low, but goods that can't be outsourced (education, housing, startup unicorns, financial assets like stocks) were eating the excess inflation that had no other place to go. So the real value of stocks is lower when adjusted for true inflation, but everyone claims inflation is minuscule / nonexistent so we can pretend that printing trillions of dollars and handing it to banks is having no effect.
londons_explore 7y ago
Thats 4.8% annualized. The real figure is 1.17% for 3 months. It's quite impressively small really, considering everyone is sitting at home, and many aren't working at all.
- harryh 7y ago
  Keep in mind that this is a Q1 total and the bulk of Q1 was unaffected by coronavirus.
- creaghpatr 7y ago
  Skews towards the end of the quarter, probably. Much steeper drop in Q2 coming.
- drdec 7y ago
  Not when you factor in that shutdowns didn't really start until the very end of the quarter. According to Wikipedia[1], earliest state stay-at-home order was March 19 in California and 19 states either waited until April or never issued a stay-at-home order. [1] https://en.wikipedia.org/wiki/U.S._state_and_local_government_response_to_the_2020_coronavirus_pandemic https://en.wikipedia.org/wiki/U.S._state_and_local_governmen...
  - meragrin_ 7y ago
    It wasn't just large government shutdowns. It was local governments taking action, people traveling less, businesses cancelling/denying trips, people eating out less, etc. All of that started weeks before the large scale shutdowns.
- thehappypm 7y ago
  Let's assume that 2 weeks of Q1 were significantly impacted. Let's make the very poor assumption that it scales linearly. That would imply that in Q2, we'll have about a -7% GDP, -28% annualized.
- ceejayoz 7y ago
  That's a weird way of doing the numbers. If I get murdered in December, it's not super helpful to note that I was 92% alive on average that year.
grey-area 7y ago
NB this is for the first quarter of 2020, which had hardly any impact from Covid-19 - lockdowns mostly happened late March and the start of April. So the second quarter will be a better reflection of the impact of shutdowns and changes in consumer behaviour/travel, but we won't see figures for that for a while. Almost more worrying, 20% of the value of the S&P 500 is now concentrated in the top 5 tech stocks, which are vulnerable in these conditions (advertising spend is dropping dramatically and unemployment is rising). https://www.cnbc.com/2020/01/13/five-biggest-stocks-dwarfing-the-market-at-unprecedented-level.html https://www.cnbc.com/2020/01/13/five-biggest-stocks-dwarfing...
- obblekk 7y ago
  Vulnerable, yes but the google earnings from yesterday show even in advertising, there seems to be a temporary floor. Entirely possible the floor is a temporary illusion and falls out over next 3mo, but the market is betting that won’t happen (I don’t know why, I’m not an expert on ads)
  - grey-area 7y ago
    Yes, it could conceivably go either way at present, and I guess the market is being optimistic, but most countries are locking down for months, not weeks, and there may unfortunately be a second wave for some. Do bear in mind those google results were for a quarter which was pretty much untouched outside China.
  - ashtonkem 7y ago
    The market can either be betting that there’s a floor, or that Google will survive and ads will be valuable again in the future. Either or.
- tree3 7y ago
  > NB this is for the first quarter of 2020, which had hardly any impact from Covid-19 Except the economy was impacted, since manufacturing in China was slowed during the first quarter.
XIVMagnus 7y ago
I thought we were already in recession, ever since the lockdown.
- the-dude 7y ago
  A recession is a clear defined term : 2 successive quarters of a shrinking economy.
  - freddie_mercury 7y ago
    You are wrong. The NBER Business Cycle Dating committee explains their criteria and explains why "the two quarter rule" the financial press always talks about is not what they use. https://www.nber.org/cycles/recessions.html https://www.nber.org/cycles/recessions.html "The committee's procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP and real GDI, but use a range of other indicators as well. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in activity." Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates. The differences between these two sets of estimates were particularly evident in the recessions of 2001 and 2007-2009." The NBER definition is what gets used in the US by every single government department and academic.
    - mywittyname 7y ago
      > The Committee does not have a fixed definition of economic activity. It examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economy-wide employment, and real income. The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve's index of industrial production (IP). The Committee's use of these indicators in conjunction with the broad measures recognizes the issue of double-counting of sectors included in both those indicators and the broad measures. Still, a well-defined peak or trough in real sales or IP might help to determine the overall peak or trough dates, particularly if the economy-wide indicators are in conflict or do not have well-defined peaks or troughs. The GDP approach is a lot more concrete. The NBER's approach is more nuanced due to evaluating more factors, but is also more hand-wavy.
nakedshorts 7y ago
One year ago, if you had asked me what would happen if we printed $4T+ (that's 20% of GDP for perspective) out of thin air and injected it into the economy, I would've told you massive hyperinflation and immediate collapse of the dollar. Instead, we see the US Dollar Index strengthening over the last 6 months [1]. The dominance of the United States as a global hegemonic superpower truly cannot be overstated; I'm in awe. We can literally print trillions of dollars worth of fiat and people around the world will give us real assets for it. Not only that, they will give us real assets at better rates than before we ramped up the printing presses. Makes me feel pretty good about the future, to be completely honest. [1] https://www.marketwatch.com/investing/index/dxy https://www.marketwatch.com/investing/index/dxy
- grey-area 7y ago
  Bear in mind every other country in the world is also practicing competitive devaluation (hence USD relatively unchanged), and the unrest over global inflation post the 2008 binge of QE led to wars and revolutions across North Africa and the middle east. This policy does cause real suffering, and some would argue never really normalised the economy or led to growth for most of the economy.
  - mancerayder 7y ago
    Bear in mind every other country in the world is also practicing competitive devaluation (hence USD relatively unchanged), and the unrest over global inflation post the 2008 binge of QE led to wars and revolutions across North Africa and the middle east. I'd love to read about the thesis/explanation you just outlined. Do you have a link or two on the specific topic of competitive devaluation v inflationary challenges and the global conflicts?
- ganeshkrishnan 7y ago
  Printing money hasn't caused inflation since world war 1 and that's because the demand for USD is virtually unlimited. As long as the money printed comes back to the government as taxes, it's not an issue. Else it becomes a deficit. This was already theorized by modern money mechanics and this incident is proving it right
lmilcin 7y ago
Nah, it signals exactly nothing. If there was no Coronavirus, then maybe. With Coronavirus it is just as likely that the economy is going to rebound once the worst of the virus passes. People stopped buying stuff but rest assured, they will make up for it when they finally can.
- eplanit 7y ago
  True, but only if they're not completely depleted by that time. The longer time spent in economic ruin will take longer to recover from.
- onion2k 7y ago
  People stopped buying stuff but rest assured, they will make up for it when they finally can. Apart from the people who were laid off, or spent their savings because they had no income, or lost their businesses because they couldn't pay their debts, or ... well, it's a long list. People who think the world is just on pause and everything will bounce back to normal in a few months need to look outside of their filter bubbles.
  - metalliqaz 7y ago
    Also people who didn't lose their jobs but are now spooked and are going into save mode.
    - standardUser 7y ago
      I'm still employed, but I have spent less money in April than any month of my adult life. Saving mode indeed.
      - eppp 7y ago
        Me too but that would be back to almost normal very quickly if the spread of the virus stopped. The hard work of stopping the spread is taking too long and is wasting the pain that we are causing.
- 7y ago
A4ET8a8uTh0 7y ago
I wish I could say I disagree, but to be perfectly honest, I was fully expecting a recession last year. As someone may have already mentioned though, between FED basically keeping the market afloat, stimulus working its way through the economy and dollar still riding as a safe haven, it is not that surprising that US economy did not crash, while a good chunk of population is at home and out of commission. The thing that worries me is that by attempting to prolong it as long as we are, we are basically setting up a stage for a greater depression. We already saw 'sell everything' panic in March.
- HenryKissinger 7y ago
  > The thing that worries me is that attempting to prolong it as long as we are, we are basically setting up a stage for a greater depression Why?
  - A4ET8a8uTh0 7y ago
    Because keeping it afloat indefinitely creates a fake value that does not correspond to real situation on the ground. That reality will eventually burst the bubble and because the bubble appears to encompass just about every asset class, it will hurt everyone.
  - grey-area 7y ago
    Revolutions happen when the gap between public pretension and private reality becomes too large. The same could be said of stock market crashes.
    - watwut 7y ago
      Not really. They happen when whoever holds power gets weak and there is discontent simultaneously. As long as you are strong, the gap can be arbitrary large.
      - grey-area 7y ago
        Many dictators have been deposed not because they were weak, but because their subjects grew tired of lies and life under their rule. Gadaffi, Sisi, Ceaușescu, Romanovs were not weak by any objective measure, they were happy to suppress dissent and kill their subjects and still had a functioning security apparatus when deposed, ordinary citizens just refused to cooperate. If almost the entire civilian population refuses to cooperate, regimes cannot function.
mytailorisrich 7y ago
Since there are 12 months in a year, a first approximation is that each month contributes 8.3% to the GDP. Even in lockdown the economy is not fully stopped, though, and we can expect a rebound after the lockdown is lifted, but the lockdown will impact more than a single month. All in all, I think that it is probably a reasonable ballpark figure for 2020 as whole.
chvid 7y ago
For comparison China’s gdp fell by 6.8% in the same period.
- Retric 7y ago
  Considering how much earlier China’s lockdown started, that’s probably what Q2 will look like.
me32015 7y ago
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aaron695 7y ago
Why are we continually saying Recession when we know it will be a Depression?
- dylkil 7y ago
  we dont know that
  - aaron695 7y ago
    Until everyone in the supply chain from mining to customers have free movement, which means 80% or more of the world have some sort of immunity (Either from opening everything up or vaccines) our economy will be depressed. This will be many many quarters from now. Even if today China said don't care that would be 6 months at least. And they are only part of the supply chain. What don't we know?
    - SpicyLemonZest 7y ago
      The supply chain already has free movement. Every country's border closures have exempted international trade, and almost all stay-at-home orders consider mining and such to be essential businesses.
      - aaron695 7y ago
        There are ~193 countries in the world. Its not just yours that matters. How many mines are run by under 10 people. The answer is a lot, there are 50 million artisanal miners globally, 90% of the mining workforce. South Africa shut down industrial mining for a period and is still not allowed to fully ramp up. Is oil all ok as it shuts down wells it can't just reopen? Exploration has been shut down across the board. No, mining is not ok. And its only a small part of the supply chain I mentioned. It's just one bit that will not be fully operational within 6 months.
- vorpalhex 7y ago
  That's like saying you should remove your leg when you get an infected cut because we know it'll turn into gangrene. It's profitable to be an economic doomsayer, which is why every single week for the past 8 years someone has said that we're going to have a recession or depression. That doesn't make them right.
nimbius 7y ago
This is anecdotal and it might come across as bitter and tonedeaf as someone who is not in a STEM job and cant see the bigger picture very well. Im a diesel engine tech who repairs those big trucks carrying food and shit tickets to grocery stores. the fact that ANY market is completely detached from whats actually happening to Americans is frustrating. My job just cut benefits and hours but we're "essential." Remember those $1200 checks? Im still waiting on mine. Lenders and banks were supposed to start going easy on loans but ive had two emails and a phone call about the loan for my Silverado this month and wouldnt you know, the caller was excited to mention my stimulus check. A guy who used to be my bartender now couch surfs a few days a week at my place while he looks for work. His mother is getting evicted from an assisted living center in a few days and his girlfriend is sick. She 'works at the Amazon' so she cant take any time off, but hes hoping if he gets a job at the Flying J at the edge of town he can switch places with her and she can take a few days off. Shops are closing and nobody seems to care. Ive counted 2 furniture stores, a consignment shop, a few barber shops, and half the god damn bars in this town including one that was burned to the ground "mysteriously" over the last two weeks. Someone spray painted a swastika on the late night pizza joint. So yeah this is a recession but it is so much worse than a lot of people think. No school means poor kids roam the street like packs of feral dogs asking for money for food around here. Half the country is out of work and the best Bloomberg can come up with is "its the start of a recession dont you know!"
- dudul 7y ago
  And this post is why I get so infuriated when I see all the blue-checkmarks on Twitter, calling people who want to go back to work "Selfish, stupid, idiot, etc". People don't want lockdown to stop because they need to go to their hairdresser, or because they need to go hangout at the pub, or whatever idiotic reason these privilege a-holes put in their tweets. People want to get back to work, because they need money, to have a roof above their head. To feed their kids. Edit: Just to clarify because I see a lot of misunderstanding in the replies: I am not advocating to end the lockdown. I am criticizing the tone deaf, patronizing, rude, caricatural comments attacking people who want to end it to get their paycheck back.
  - 7y ago
whatok 7y ago
Nearly half (2.25%) of the decline was in healthcare. "Elective" procedures on hold played a large role in that and conventional wisdom would suggest that this $ would get pulled forward into Q2. I don't think it's that simple as we have had major job losses and with healthcare being tied to employment, you may not see the rebound in this that you would think.
ta1234567890 7y ago
"Start of a recession"? We've been in a recession for a while now, and a global one too. The IMF and other such organizations have been saying it for over a month now. Why has the US been trying to deny it for so long?
- eightysixfour 7y ago
  Recession is a semi-technical term that is often defined as a fall in GDP for two successive quarters.
  - ashtonkem 7y ago
    That’s why there’s a lot of debate about whether this is a depression or a recession, we haven’t had enough time to decide.
Zenst 7y ago
What has happened over the past few decades has been with companies: 1) A shift to JIT stock control and resource management 2) Shift towards paying dividends over building up reserves for rainy days 3) Valuing of companies with more weight upon public perception and perceived prospects over tangible assets on the books. With many other factors that all, whilst small, add up to a market with companies driven by a way of working that is more volatile towards any unknown changes as less prepared by design to handle any rainy days periods. This is also not just a company thing, but a personal thing with the shift in mentality to buy now pay later over save now, buy later. Mostly driven by low interest rates, which have been kept low as a way to manage currency value as a way to manage inflation. That along with any crash saw people with high interest rates as much larger and quicker to drive an economic crash with debts. Though mostly, to drive consumer spending so GDP looks good and the perception helps that countries credit rating. Making them able to borrow more for even less. Consumers with no incentive to save, buy more, borrow more, everything looks nice. But of course there is more to it than that, but the whole drive towards lower interest rates has over the decades bestowed a culture more included to think short-term and deal with the long-term later and enjoy the sun. This has permeated in many forms and creates what I would call a false economy. So after the moore's law of interest rates started to hit a limit as they could not shrink any lower, they invented QE, which worked and helped avoid reality of things catching up with the markets for many a time. But then even that can only go so far, so the new tool - negative interest rates. This of course, all tricks to help balance the books and keep the whole financial system rolling ahead without it taking a reality audit and adjusting down instead of being over valued due to perception of constant growth. But with a big rainy day that is global, things in any market would take a hit, how much of that depends as many companies will die, but how many of them will be due to the way they operate and not the `market snap`(sorry Marvel, I'm using it) we are experiencing. If anything, whilst many jobs will be lost, more attention to local sourcing will be given and that will create not only jobs, but more stable jobs. At least to until the fashion of outsourcing comes back and we end up with Detroit mark2. Also be new opportunities/jobs - certainly be a boom for many internet companies. Also see alas another nail in many a high street and with that, things will change, how much of that does transpire is unsure for certain. But certainly see more things local produced instead of imported, with that production has been slowly clustering globally and in some area's has become centered. So insourcing may well become a word used more than outsourcing when it comes to production and materials resources. About the only thing I do know for sure, even after this - people will use more soap than before.
jb775 7y ago
Is it outrageous to say we need to end this quarantine right now? At this point, the cure is worse than the disease.
- iffybookmark 7y ago
  Isn't covid-19 the #1 cause of death in NYC right now? And not, like, starvation? Saying the cure is worse than the disease shows a frightening lack of both empathy and objective reasoning. I don't want to construct a strawman, but I worry that what "reopen" people are really saying is "I don't care if X% of the US population dies - as long as I'm not one of them - if it means I can try to go back to normal." And try is the key word there. I would argue the main thing keeping people at home is not stay-at-home orders, but fear. Correctly-calibrated, sensible fear of getting a disease that has better odds of killing you than lots of other sources of risk in modern life.
  - jb775 7y ago
    I think it's frightening that people like you are missing the bigger point here: X% of the population was going to die anyways, and these numbers are getting skewed out of proportion. Triggering a major recession will cause more deaths and despair over the long term. Start thinking for yourselves rather than believing everything you hear. Hospitals are now FINANCIALLY INCENTIVIZED to lump as many patients as possible into the "Covid" column. Look at the stats on the sudden drop in historical "Other" column deaths in comparison to the "Covid" column (for this year)...they basically align perfectly....which tells you that hospitals are flagging people who were going to die anyways as "Covid" related.
    - watwut 7y ago
      That is why you look at excess deaths in area. And excess deaths are quite high. They make situation look worst then confirmed covid deaths. Hospitals don't need formal covid patience. They need more testing.
    - esoterica 7y ago
      > Look at the stats on the sudden drop in historical "Other" column deaths in comparison to the "Covid" column (for this year)...they basically align perfectly. There is no drop in "other" column deaths. The excess all-cause mortality rate is actually substantially higher than the number of diagnosed Covid deaths [1]. There are certain commenters on various social media sites posting CDC all-cause mortality charts showing a "drop" in recent all-cause deaths, except that's purely an artifact of the reporting lag (deaths take a couple weeks to show up in the stats so if you try to look up the number of deaths that happened within the past 1-2 weeks you will get an undercount). It sounds like you have been duped by one of those people. [1] https://www.nytimes.com/interactive/2020/04/28/us/coronavirus-death-toll-total.html https://www.nytimes.com/interactive/2020/04/28/us/coronaviru...
rcw4256 7y ago
The actual report that the Bloomberg article keeps referring to but never links: https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-advance-estimate https://www.bea.gov/news/2020/gross-domestic-product-1st-qua...
cletus 7y ago
So I still think there's a huge disconnect between market perception of what's going on and what's actually going on. Last month I was saying "don't treat this is a temporary dip". Many have never known anything other than a bull market. The S&P 500 has rallied some ~20% since then (after a >30% fall mind you) so I've had a couple of people point to this like I'm wrong. The perception many seem to have is that everything is going to go back to normal in a month. But some businesses and jobs are just... gone. This will absolutely impact demand and this will be much slower to recover. I was also surprised to learn that S&P 500 earning shave been flat since 2014 while the market has gone gangbusters. That had to come crashing back to Earth eventually. Also, some things like social distancing are here for the long term. I've already gotten emails from airlines saying they won't be filling certain seats on the plane. It's probably going to be a lot nicer to fly in coach, which I guess many will enjoy, except it's going to have to get more expensive. Less passengers, same plane, higher price per passenger. It's just simple math. And who's going to be traveling anyway? Business travel (the lifeblood of most airlines) is going to take a long time to recover. The economy just doesn't shrink 5% and everything is back to normal the next month. People who think so are hopelessly naive or just plain delusional. And that GDP contraction isn't going to end here.
- bugzz 7y ago
  > I was also surprised to learn that S&P 500 earning shave been flat since 2014 while the market has gone gangbusters. That had to come crashing back to Earth eventually I was also surprised recently to learn how flat earnings have been. The stock prices going gangbusters can be explained (at least partly) by earnings per share going up due to stock buybacks. If you go look, most companies have significantly fewer shares outstanding than they did in 2014.
tempsy 7y ago
The stock market is nearly flat for the year. Nasdaq is up for the year. Incredible.
xtacy 7y ago
As others have noted, Q2 would likely be worse hit than Q1 since the quarantine started later in the quarter. FRB NY has a GDP Nowcast prediction of about -8% for Q2.
asdff 7y ago
The recession started when we hit circuit breakers. This was a pullback due to overselling, now the second leg down, exactly the same pattern as 2008.
IkmoIkmo 7y ago
It's pretty insane that the S&P500 is higher than it was during October last year, hell even something like 7% higher than it was last year May. There was a post on reddit joking about a guy going into a coma last year after having purchased a share of an S&P500 ETF, waking up today and hearing the news of a global pandemic, people were told to quarantine at home for more than a month, a quarter million people died, more deaths in the US than 20 years in the Vietnam war, unemployment at 20%. But when he looks at his stock account, it's in the green. It feels like this is trickle-down economics again. Bail-out large companies by issuing cheap money, stock markets stay pumped, big companies don't go bankrupt, and hope employees don't get fired, and give each individual about 1 week of average income in the US as a little boost. Meanwhile, 20% of people have last their jobs, the $1200 hasn't arrived or was already spent.
- tartoran 7y ago
  I know, this is just terrible. The rich insulated themselves from any risk and in case of calamities like they double up. I don't know what we're on to next.
- nickff 7y ago
  This could also just be a 'bull-trap', and the major stock indices could collapse soon. There was a major bull-trap at the beginning of the great depression.
  - DrAwdeOccarim 7y ago
    I believe it was 6 months long, too...
- andysandwich 7y ago
  I know this is bad math but just as an estimation: Fed balance sheet increased about $2T, and Congress spent $2.2T so far with more to come. That's at least 20% of GDP ($20T). Optimistic forecast is that the economy shrinks like 30% of GDP, so that's a 10% net reduction in NOMINAL spending/earnings. SPX is down like 15% from it's previous high. The market seems to expect things to return to normal next year, which is probably short-sighted, but it's a market. The real value of any company is down because it's producing less, but the nominal price of the company is inflated by the government spending. So the price of SPX is is not insane (if optimistic), given the government's actions. No comment on whether the actions themselves are sane.
cik2e 7y ago
This isn’t a typical recession and cannot be compared to anything in the past. The economy has been effectively put on pause. So the dynamics of the duration and recovery will be totally different than anything we’ve seen in the past. I’m optimistic about a much quicker recovery than the last one.
- AnimalMuppet 7y ago
  If we don't destroy it by the pause. Look, I think the pause was necessary. But economies don't come with pause buttons. We had to do something that nobody has ever done before, and the second- and third-order effects are going to include some surprises. I'm hopeful that you're right, that we can have a quick and relatively clean recovery, back to (mostly) where we were. But I'm also nervous that it won't work...
- three_seagrass 7y ago
  It depends on how much toxic debt accumulates during the pause - that is historically a large factor in causing recessions. We have 20%+ of the workforce losing their income (many who are living paycheck to paycheck) as well as many B2C businesses closing, so we're accumulating debt that will never be paid off.
ur-whale 7y ago
http://archive.is/rwqjJ http://archive.is/rwqjJ
mythrwy 7y ago
Recessions are kind of like forest fires from what I see. They are destructive, painful, cause loss of property, kill things and generally are undesirable. But (to an extent) they are also necessary. In the Western US fire used to be a regular occurrence. Natives would start fires, lighting would start fires, they would burn until they ran out of fuel and burn out. But this kept forests healthy. There used to be more bigger stronger pine trees and less undergrowth. Somewhere along the line it was decided fire was bad and we were going to set up fire towers and stop fires with maximum effort. Which was all good, until it doesn't work and we simply can't because there is too much built up fuel and the fire rages out of control completely destroying the forest. The previous fires, while more regular, were smaller because the amount of fuel never accumulated to the levels it does with modern fire suppression methods. In this analogy we've somehow decided that we are going to stop people from experiencing economic pain at all costs. This is humanistic. And we want things to keep growing and we don't want to see destruction. But what happens is a lot of trash builds up. Malinvestment. Corruption. Paper profits over actual production. Unlimited credit spent on consumer items. No personal savings. No problem, firemen Uncle Sam and the Federal Reserve are here to save the day! And no one can argue with this happening because who wants to see anyone get burned through no fault of their own? But (just to torture the analogy) what I suspect will eventually happen is enough malinvestment, corruption and lack of responsible behavior will build up they won't be able to put the fire out. No one will. And it will burn the system flat to the ground instead of just clearing out a little brush and giving space to strong trees. This isn't to suggest the government shouldn't help in this case. It's an unusual situation obviously. Just allowing little fires to burn prevents big fires later. Everything can't be free to everyone all the time. Reality doesn't work that way unfortunately. Failing to behave ethically, productively and responsibly, failing to save and to prepare for rough times, trying to consume and grow unsustainable without regard to risk can't be forever consequence free. That's not a moral statement, just a practical one.
- kyuudou 7y ago
  Not to spoil your fine analogy, but as you probably know forestry services and farmers have engaged in controlled burns[1] for quite some time as part of sound wildlife conservation methods. In keeping with your analogy, what may be wrong with current economic governance is the lack of letting a recession run its course and, for example, letting big banks who gambled too much fail instead of propping them up. The revolving door between, say, Goldman Sachs and the Dept of Treasury has something to do with this, I think. [1]https://en.wikipedia.org/wiki/Controlled_burn https://en.wikipedia.org/wiki/Controlled_burn
deleted 7y ago
[deleted]

468 points by chollida1 7y ago

brenden2 7y ago

Good news for stocks, it means the Fed will keep printing trillions of dollars.

arcticbull 7y ago
In this market good news is neutral and bad news is good.
- brenden2 7y ago
  There's a mistaken belief on WSB and elsewhere that bad news should make stocks go down. Stocks go up when the market thinks they'll be more valuable in the future, that's all there is to it. The cash will flow into the assets that provide the greatest returns, and right now that's stocks. Since treasuries provide almost no return, and corporate bonds are at high risk of default, the money will move into stocks because 1) the US government is hellbent on making sure big companies don't fail and 2) the Federal Reserve is prepared to buy unlimited treasuries and mortgage backed securities at any price.
  - rswail 7y ago
    If corporate bonds (debt) are at high risk of default, why would there be investment in those same companies' equity which is even higher risk? The fact that treasuries are providing no return tells you that most money is invested there "safely". The problem of course is that the USG should be making sure small companies don't fail, because that's the actual driver of the economy both for employment and consumption.
    - brenden2 7y ago
      Bonds and stocks move differently. The market has already re-priced the stocks of these companies to account for the risk of default on their debts. The US government has also signaled that they will bail out these debts, so the companies themselves (and thus, their stock) will probably be fine even if they stop paying their debts. Crazy times we live in.

cs702 7y ago

Given that that Jan and Feb seemed largely fine, the rate of decline in March was probably around 3x the quarter's headline figure -- call it -15%, give or take. April was much worse, without a doubt. Anything between a -25% and -50% GDP decline seems possible for April.

SpicyLemonZest 7y ago
Annualized numbers can always be a bit misleading, but applying them to individual months starts to get silly. What's the annualized GDP decline of weekends?
- cs702 7y ago
  Of course. My point is that the figure for the quarter understates the economic shock in March.
syncsynchalt 7y ago
The decline was only 1.2%, 4.8% is after a 4x "annualizing" multiplier.
- cs702 7y ago
  Of course. 4x to anualize a quarter. To guesstimate for just one month, we need 12x, i.e., multiply by another 3x. And of course, all this ignores compounding, seasonality, etc. The point I was tying to make -- and evidently, I did a poor job at articulating it -- is that the annualized rate of GDP change for the quarter understates the economic shock in the month of March. And April is likely worse than March.

iambateman 7y ago

I understand that the economy and the market are different but I'm so confused. The S&P is up ~12% this month, despite massive unemployment, a shrinking economy, and serious long-term questions about the outlook. Is most of the 12% just market speculation that the virus issue will pass without a long-term earnings hit?

adrr 7y ago
Fed is printing money and it needs to go somewhere. They are buying everyone’s distressed assets including dumping money into junk bond etfs.
- JKCalhoun 7y ago
  Stock market is going up because it's going up. Wait 'til the music starts and there's a scramble for seats.
  - pravda 7y ago
    >Wait 'til the music starts and there's a scramble for seats. You meant 'stops'.
    - JKCalhoun 7y ago
      Yes. :-)
seibelj 7y ago
You will get 100 different answers. I like the argument that inflation is actually high, but our outsourcing of goods that make up the consumer inflation algorithm to cheaper countries makes it seem like inflation is low, but goods that can't be outsourced (education, housing, startup unicorns, financial assets like stocks) were eating the excess inflation that had no other place to go. So the real value of stocks is lower when adjusted for true inflation, but everyone claims inflation is minuscule / nonexistent so we can pretend that printing trillions of dollars and handing it to banks is having no effect.

londons_explore 7y ago

Thats 4.8% annualized. The real figure is 1.17% for 3 months. It's quite impressively small really, considering everyone is sitting at home, and many aren't working at all.

harryh 7y ago
Keep in mind that this is a Q1 total and the bulk of Q1 was unaffected by coronavirus.
creaghpatr 7y ago
Skews towards the end of the quarter, probably. Much steeper drop in Q2 coming.
drdec 7y ago
Not when you factor in that shutdowns didn't really start until the very end of the quarter. According to Wikipedia[1], earliest state stay-at-home order was March 19 in California and 19 states either waited until April or never issued a stay-at-home order. [1] https://en.wikipedia.org/wiki/U.S._state_and_local_government_response_to_the_2020_coronavirus_pandemic https://en.wikipedia.org/wiki/U.S._state_and_local_governmen...
- meragrin_ 7y ago
  It wasn't just large government shutdowns. It was local governments taking action, people traveling less, businesses cancelling/denying trips, people eating out less, etc. All of that started weeks before the large scale shutdowns.
thehappypm 7y ago
Let's assume that 2 weeks of Q1 were significantly impacted. Let's make the very poor assumption that it scales linearly. That would imply that in Q2, we'll have about a -7% GDP, -28% annualized.
ceejayoz 7y ago
That's a weird way of doing the numbers. If I get murdered in December, it's not super helpful to note that I was 92% alive on average that year.

grey-area 7y ago

NB this is for the first quarter of 2020, which had hardly any impact from Covid-19 - lockdowns mostly happened late March and the start of April. So the second quarter will be a better reflection of the impact of shutdowns and changes in consumer behaviour/travel, but we won't see figures for that for a while. Almost more worrying, 20% of the value of the S&P 500 is now concentrated in the top 5 tech stocks, which are vulnerable in these conditions (advertising spend is dropping dramatically and unemployment is rising). https://www.cnbc.com/2020/01/13/five-biggest-stocks-dwarfing-the-market-at-unprecedented-level.html https://www.cnbc.com/2020/01/13/five-biggest-stocks-dwarfing...

obblekk 7y ago
Vulnerable, yes but the google earnings from yesterday show even in advertising, there seems to be a temporary floor. Entirely possible the floor is a temporary illusion and falls out over next 3mo, but the market is betting that won’t happen (I don’t know why, I’m not an expert on ads)
- grey-area 7y ago
  Yes, it could conceivably go either way at present, and I guess the market is being optimistic, but most countries are locking down for months, not weeks, and there may unfortunately be a second wave for some. Do bear in mind those google results were for a quarter which was pretty much untouched outside China.
- ashtonkem 7y ago
  The market can either be betting that there’s a floor, or that Google will survive and ads will be valuable again in the future. Either or.
tree3 7y ago
> NB this is for the first quarter of 2020, which had hardly any impact from Covid-19 Except the economy was impacted, since manufacturing in China was slowed during the first quarter.

XIVMagnus 7y ago

I thought we were already in recession, ever since the lockdown.

the-dude 7y ago
A recession is a clear defined term : 2 successive quarters of a shrinking economy.
- freddie_mercury 7y ago
  You are wrong. The NBER Business Cycle Dating committee explains their criteria and explains why "the two quarter rule" the financial press always talks about is not what they use. https://www.nber.org/cycles/recessions.html https://www.nber.org/cycles/recessions.html "The committee's procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP and real GDI, but use a range of other indicators as well. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in activity." Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates. The differences between these two sets of estimates were particularly evident in the recessions of 2001 and 2007-2009." The NBER definition is what gets used in the US by every single government department and academic.
  - mywittyname 7y ago
    > The Committee does not have a fixed definition of economic activity. It examines and compares the behavior of various measures of broad activity: real GDP measured on the product and income sides, economy-wide employment, and real income. The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve's index of industrial production (IP). The Committee's use of these indicators in conjunction with the broad measures recognizes the issue of double-counting of sectors included in both those indicators and the broad measures. Still, a well-defined peak or trough in real sales or IP might help to determine the overall peak or trough dates, particularly if the economy-wide indicators are in conflict or do not have well-defined peaks or troughs. The GDP approach is a lot more concrete. The NBER's approach is more nuanced due to evaluating more factors, but is also more hand-wavy.

nakedshorts 7y ago

One year ago, if you had asked me what would happen if we printed $4T+ (that's 20% of GDP for perspective) out of thin air and injected it into the economy, I would've told you massive hyperinflation and immediate collapse of the dollar. Instead, we see the US Dollar Index strengthening over the last 6 months [1]. The dominance of the United States as a global hegemonic superpower truly cannot be overstated; I'm in awe. We can literally print trillions of dollars worth of fiat and people around the world will give us real assets for it. Not only that, they will give us real assets at better rates than before we ramped up the printing presses. Makes me feel pretty good about the future, to be completely honest. [1] https://www.marketwatch.com/investing/index/dxy https://www.marketwatch.com/investing/index/dxy

grey-area 7y ago
Bear in mind every other country in the world is also practicing competitive devaluation (hence USD relatively unchanged), and the unrest over global inflation post the 2008 binge of QE led to wars and revolutions across North Africa and the middle east. This policy does cause real suffering, and some would argue never really normalised the economy or led to growth for most of the economy.
- mancerayder 7y ago
  Bear in mind every other country in the world is also practicing competitive devaluation (hence USD relatively unchanged), and the unrest over global inflation post the 2008 binge of QE led to wars and revolutions across North Africa and the middle east. I'd love to read about the thesis/explanation you just outlined. Do you have a link or two on the specific topic of competitive devaluation v inflationary challenges and the global conflicts?
ganeshkrishnan 7y ago
Printing money hasn't caused inflation since world war 1 and that's because the demand for USD is virtually unlimited. As long as the money printed comes back to the government as taxes, it's not an issue. Else it becomes a deficit. This was already theorized by modern money mechanics and this incident is proving it right

lmilcin 7y ago

Nah, it signals exactly nothing. If there was no Coronavirus, then maybe. With Coronavirus it is just as likely that the economy is going to rebound once the worst of the virus passes. People stopped buying stuff but rest assured, they will make up for it when they finally can.

eplanit 7y ago
True, but only if they're not completely depleted by that time. The longer time spent in economic ruin will take longer to recover from.
onion2k 7y ago
People stopped buying stuff but rest assured, they will make up for it when they finally can. Apart from the people who were laid off, or spent their savings because they had no income, or lost their businesses because they couldn't pay their debts, or ... well, it's a long list. People who think the world is just on pause and everything will bounce back to normal in a few months need to look outside of their filter bubbles.
- metalliqaz 7y ago
  Also people who didn't lose their jobs but are now spooked and are going into save mode.
  - standardUser 7y ago
    I'm still employed, but I have spent less money in April than any month of my adult life. Saving mode indeed.
    - eppp 7y ago
      Me too but that would be back to almost normal very quickly if the spread of the virus stopped. The hard work of stopping the spread is taking too long and is wasting the pain that we are causing.
7y ago

A4ET8a8uTh0 7y ago

I wish I could say I disagree, but to be perfectly honest, I was fully expecting a recession last year. As someone may have already mentioned though, between FED basically keeping the market afloat, stimulus working its way through the economy and dollar still riding as a safe haven, it is not that surprising that US economy did not crash, while a good chunk of population is at home and out of commission. The thing that worries me is that by attempting to prolong it as long as we are, we are basically setting up a stage for a greater depression. We already saw 'sell everything' panic in March.

HenryKissinger 7y ago
> The thing that worries me is that attempting to prolong it as long as we are, we are basically setting up a stage for a greater depression Why?
- A4ET8a8uTh0 7y ago
  Because keeping it afloat indefinitely creates a fake value that does not correspond to real situation on the ground. That reality will eventually burst the bubble and because the bubble appears to encompass just about every asset class, it will hurt everyone.
- grey-area 7y ago
  Revolutions happen when the gap between public pretension and private reality becomes too large. The same could be said of stock market crashes.
  - watwut 7y ago
    Not really. They happen when whoever holds power gets weak and there is discontent simultaneously. As long as you are strong, the gap can be arbitrary large.
    - grey-area 7y ago
      Many dictators have been deposed not because they were weak, but because their subjects grew tired of lies and life under their rule. Gadaffi, Sisi, Ceaușescu, Romanovs were not weak by any objective measure, they were happy to suppress dissent and kill their subjects and still had a functioning security apparatus when deposed, ordinary citizens just refused to cooperate. If almost the entire civilian population refuses to cooperate, regimes cannot function.

mytailorisrich 7y ago

Since there are 12 months in a year, a first approximation is that each month contributes 8.3% to the GDP. Even in lockdown the economy is not fully stopped, though, and we can expect a rebound after the lockdown is lifted, but the lockdown will impact more than a single month. All in all, I think that it is probably a reasonable ballpark figure for 2020 as whole.

chvid 7y ago

For comparison China’s gdp fell by 6.8% in the same period.

Retric 7y ago
Considering how much earlier China’s lockdown started, that’s probably what Q2 will look like.

me32015 7y ago

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aaron695 7y ago

Why are we continually saying Recession when we know it will be a Depression?

dylkil 7y ago
we dont know that
- aaron695 7y ago
  Until everyone in the supply chain from mining to customers have free movement, which means 80% or more of the world have some sort of immunity (Either from opening everything up or vaccines) our economy will be depressed. This will be many many quarters from now. Even if today China said don't care that would be 6 months at least. And they are only part of the supply chain. What don't we know?
  - SpicyLemonZest 7y ago
    The supply chain already has free movement. Every country's border closures have exempted international trade, and almost all stay-at-home orders consider mining and such to be essential businesses.
    - aaron695 7y ago
      There are ~193 countries in the world. Its not just yours that matters. How many mines are run by under 10 people. The answer is a lot, there are 50 million artisanal miners globally, 90% of the mining workforce. South Africa shut down industrial mining for a period and is still not allowed to fully ramp up. Is oil all ok as it shuts down wells it can't just reopen? Exploration has been shut down across the board. No, mining is not ok. And its only a small part of the supply chain I mentioned. It's just one bit that will not be fully operational within 6 months.
vorpalhex 7y ago
That's like saying you should remove your leg when you get an infected cut because we know it'll turn into gangrene. It's profitable to be an economic doomsayer, which is why every single week for the past 8 years someone has said that we're going to have a recession or depression. That doesn't make them right.

nimbius 7y ago

This is anecdotal and it might come across as bitter and tonedeaf as someone who is not in a STEM job and cant see the bigger picture very well. Im a diesel engine tech who repairs those big trucks carrying food and shit tickets to grocery stores. the fact that ANY market is completely detached from whats actually happening to Americans is frustrating. My job just cut benefits and hours but we're "essential." Remember those $1200 checks? Im still waiting on mine. Lenders and banks were supposed to start going easy on loans but ive had two emails and a phone call about the loan for my Silverado this month and wouldnt you know, the caller was excited to mention my stimulus check. A guy who used to be my bartender now couch surfs a few days a week at my place while he looks for work. His mother is getting evicted from an assisted living center in a few days and his girlfriend is sick. She 'works at the Amazon' so she cant take any time off, but hes hoping if he gets a job at the Flying J at the edge of town he can switch places with her and she can take a few days off. Shops are closing and nobody seems to care. Ive counted 2 furniture stores, a consignment shop, a few barber shops, and half the god damn bars in this town including one that was burned to the ground "mysteriously" over the last two weeks. Someone spray painted a swastika on the late night pizza joint. So yeah this is a recession but it is so much worse than a lot of people think. No school means poor kids roam the street like packs of feral dogs asking for money for food around here. Half the country is out of work and the best Bloomberg can come up with is "its the start of a recession dont you know!"

dudul 7y ago
And this post is why I get so infuriated when I see all the blue-checkmarks on Twitter, calling people who want to go back to work "Selfish, stupid, idiot, etc". People don't want lockdown to stop because they need to go to their hairdresser, or because they need to go hangout at the pub, or whatever idiotic reason these privilege a-holes put in their tweets. People want to get back to work, because they need money, to have a roof above their head. To feed their kids. Edit: Just to clarify because I see a lot of misunderstanding in the replies: I am not advocating to end the lockdown. I am criticizing the tone deaf, patronizing, rude, caricatural comments attacking people who want to end it to get their paycheck back.
- 7y ago

whatok 7y ago

Nearly half (2.25%) of the decline was in healthcare. "Elective" procedures on hold played a large role in that and conventional wisdom would suggest that this $ would get pulled forward into Q2. I don't think it's that simple as we have had major job losses and with healthcare being tied to employment, you may not see the rebound in this that you would think.

ta1234567890 7y ago

"Start of a recession"? We've been in a recession for a while now, and a global one too. The IMF and other such organizations have been saying it for over a month now. Why has the US been trying to deny it for so long?

eightysixfour 7y ago
Recession is a semi-technical term that is often defined as a fall in GDP for two successive quarters.
- ashtonkem 7y ago
  That’s why there’s a lot of debate about whether this is a depression or a recession, we haven’t had enough time to decide.

Zenst 7y ago

What has happened over the past few decades has been with companies: 1) A shift to JIT stock control and resource management 2) Shift towards paying dividends over building up reserves for rainy days 3) Valuing of companies with more weight upon public perception and perceived prospects over tangible assets on the books. With many other factors that all, whilst small, add up to a market with companies driven by a way of working that is more volatile towards any unknown changes as less prepared by design to handle any rainy days periods. This is also not just a company thing, but a personal thing with the shift in mentality to buy now pay later over save now, buy later. Mostly driven by low interest rates, which have been kept low as a way to manage currency value as a way to manage inflation. That along with any crash saw people with high interest rates as much larger and quicker to drive an economic crash with debts. Though mostly, to drive consumer spending so GDP looks good and the perception helps that countries credit rating. Making them able to borrow more for even less. Consumers with no incentive to save, buy more, borrow more, everything looks nice. But of course there is more to it than that, but the whole drive towards lower interest rates has over the decades bestowed a culture more included to think short-term and deal with the long-term later and enjoy the sun. This has permeated in many forms and creates what I would call a false economy. So after the moore's law of interest rates started to hit a limit as they could not shrink any lower, they invented QE, which worked and helped avoid reality of things catching up with the markets for many a time. But then even that can only go so far, so the new tool - negative interest rates. This of course, all tricks to help balance the books and keep the whole financial system rolling ahead without it taking a reality audit and adjusting down instead of being over valued due to perception of constant growth. But with a big rainy day that is global, things in any market would take a hit, how much of that depends as many companies will die, but how many of them will be due to the way they operate and not the `market snap`(sorry Marvel, I'm using it) we are experiencing. If anything, whilst many jobs will be lost, more attention to local sourcing will be given and that will create not only jobs, but more stable jobs. At least to until the fashion of outsourcing comes back and we end up with Detroit mark2. Also be new opportunities/jobs - certainly be a boom for many internet companies. Also see alas another nail in many a high street and with that, things will change, how much of that does transpire is unsure for certain. But certainly see more things local produced instead of imported, with that production has been slowly clustering globally and in some area's has become centered. So insourcing may well become a word used more than outsourcing when it comes to production and materials resources. About the only thing I do know for sure, even after this - people will use more soap than before.

jb775 7y ago

Is it outrageous to say we need to end this quarantine right now? At this point, the cure is worse than the disease.

iffybookmark 7y ago
Isn't covid-19 the #1 cause of death in NYC right now? And not, like, starvation? Saying the cure is worse than the disease shows a frightening lack of both empathy and objective reasoning. I don't want to construct a strawman, but I worry that what "reopen" people are really saying is "I don't care if X% of the US population dies - as long as I'm not one of them - if it means I can try to go back to normal." And try is the key word there. I would argue the main thing keeping people at home is not stay-at-home orders, but fear. Correctly-calibrated, sensible fear of getting a disease that has better odds of killing you than lots of other sources of risk in modern life.
- jb775 7y ago
  I think it's frightening that people like you are missing the bigger point here: X% of the population was going to die anyways, and these numbers are getting skewed out of proportion. Triggering a major recession will cause more deaths and despair over the long term. Start thinking for yourselves rather than believing everything you hear. Hospitals are now FINANCIALLY INCENTIVIZED to lump as many patients as possible into the "Covid" column. Look at the stats on the sudden drop in historical "Other" column deaths in comparison to the "Covid" column (for this year)...they basically align perfectly....which tells you that hospitals are flagging people who were going to die anyways as "Covid" related.
  - watwut 7y ago
    That is why you look at excess deaths in area. And excess deaths are quite high. They make situation look worst then confirmed covid deaths. Hospitals don't need formal covid patience. They need more testing.
  - esoterica 7y ago
    > Look at the stats on the sudden drop in historical "Other" column deaths in comparison to the "Covid" column (for this year)...they basically align perfectly. There is no drop in "other" column deaths. The excess all-cause mortality rate is actually substantially higher than the number of diagnosed Covid deaths [1]. There are certain commenters on various social media sites posting CDC all-cause mortality charts showing a "drop" in recent all-cause deaths, except that's purely an artifact of the reporting lag (deaths take a couple weeks to show up in the stats so if you try to look up the number of deaths that happened within the past 1-2 weeks you will get an undercount). It sounds like you have been duped by one of those people. [1] https://www.nytimes.com/interactive/2020/04/28/us/coronavirus-death-toll-total.html https://www.nytimes.com/interactive/2020/04/28/us/coronaviru...

rcw4256 7y ago

The actual report that the Bloomberg article keeps referring to but never links: https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-advance-estimate https://www.bea.gov/news/2020/gross-domestic-product-1st-qua...

cletus 7y ago

So I still think there's a huge disconnect between market perception of what's going on and what's actually going on. Last month I was saying "don't treat this is a temporary dip". Many have never known anything other than a bull market. The S&P 500 has rallied some ~20% since then (after a >30% fall mind you) so I've had a couple of people point to this like I'm wrong. The perception many seem to have is that everything is going to go back to normal in a month. But some businesses and jobs are just... gone. This will absolutely impact demand and this will be much slower to recover. I was also surprised to learn that S&P 500 earning shave been flat since 2014 while the market has gone gangbusters. That had to come crashing back to Earth eventually. Also, some things like social distancing are here for the long term. I've already gotten emails from airlines saying they won't be filling certain seats on the plane. It's probably going to be a lot nicer to fly in coach, which I guess many will enjoy, except it's going to have to get more expensive. Less passengers, same plane, higher price per passenger. It's just simple math. And who's going to be traveling anyway? Business travel (the lifeblood of most airlines) is going to take a long time to recover. The economy just doesn't shrink 5% and everything is back to normal the next month. People who think so are hopelessly naive or just plain delusional. And that GDP contraction isn't going to end here.

bugzz 7y ago
> I was also surprised to learn that S&P 500 earning shave been flat since 2014 while the market has gone gangbusters. That had to come crashing back to Earth eventually I was also surprised recently to learn how flat earnings have been. The stock prices going gangbusters can be explained (at least partly) by earnings per share going up due to stock buybacks. If you go look, most companies have significantly fewer shares outstanding than they did in 2014.

tempsy 7y ago

The stock market is nearly flat for the year. Nasdaq is up for the year. Incredible.

xtacy 7y ago

As others have noted, Q2 would likely be worse hit than Q1 since the quarantine started later in the quarter. FRB NY has a GDP Nowcast prediction of about -8% for Q2.

asdff 7y ago

The recession started when we hit circuit breakers. This was a pullback due to overselling, now the second leg down, exactly the same pattern as 2008.

IkmoIkmo 7y ago

It's pretty insane that the S&P500 is higher than it was during October last year, hell even something like 7% higher than it was last year May. There was a post on reddit joking about a guy going into a coma last year after having purchased a share of an S&P500 ETF, waking up today and hearing the news of a global pandemic, people were told to quarantine at home for more than a month, a quarter million people died, more deaths in the US than 20 years in the Vietnam war, unemployment at 20%. But when he looks at his stock account, it's in the green. It feels like this is trickle-down economics again. Bail-out large companies by issuing cheap money, stock markets stay pumped, big companies don't go bankrupt, and hope employees don't get fired, and give each individual about 1 week of average income in the US as a little boost. Meanwhile, 20% of people have last their jobs, the $1200 hasn't arrived or was already spent.

tartoran 7y ago
I know, this is just terrible. The rich insulated themselves from any risk and in case of calamities like they double up. I don't know what we're on to next.
nickff 7y ago
This could also just be a 'bull-trap', and the major stock indices could collapse soon. There was a major bull-trap at the beginning of the great depression.
- DrAwdeOccarim 7y ago
  I believe it was 6 months long, too...
andysandwich 7y ago
I know this is bad math but just as an estimation: Fed balance sheet increased about $2T, and Congress spent $2.2T so far with more to come. That's at least 20% of GDP ($20T). Optimistic forecast is that the economy shrinks like 30% of GDP, so that's a 10% net reduction in NOMINAL spending/earnings. SPX is down like 15% from it's previous high. The market seems to expect things to return to normal next year, which is probably short-sighted, but it's a market. The real value of any company is down because it's producing less, but the nominal price of the company is inflated by the government spending. So the price of SPX is is not insane (if optimistic), given the government's actions. No comment on whether the actions themselves are sane.

cik2e 7y ago

This isn’t a typical recession and cannot be compared to anything in the past. The economy has been effectively put on pause. So the dynamics of the duration and recovery will be totally different than anything we’ve seen in the past. I’m optimistic about a much quicker recovery than the last one.

AnimalMuppet 7y ago
If we don't destroy it by the pause. Look, I think the pause was necessary. But economies don't come with pause buttons. We had to do something that nobody has ever done before, and the second- and third-order effects are going to include some surprises. I'm hopeful that you're right, that we can have a quick and relatively clean recovery, back to (mostly) where we were. But I'm also nervous that it won't work...
three_seagrass 7y ago
It depends on how much toxic debt accumulates during the pause - that is historically a large factor in causing recessions. We have 20%+ of the workforce losing their income (many who are living paycheck to paycheck) as well as many B2C businesses closing, so we're accumulating debt that will never be paid off.

ur-whale 7y ago

http://archive.is/rwqjJ http://archive.is/rwqjJ

mythrwy 7y ago

Recessions are kind of like forest fires from what I see. They are destructive, painful, cause loss of property, kill things and generally are undesirable. But (to an extent) they are also necessary. In the Western US fire used to be a regular occurrence. Natives would start fires, lighting would start fires, they would burn until they ran out of fuel and burn out. But this kept forests healthy. There used to be more bigger stronger pine trees and less undergrowth. Somewhere along the line it was decided fire was bad and we were going to set up fire towers and stop fires with maximum effort. Which was all good, until it doesn't work and we simply can't because there is too much built up fuel and the fire rages out of control completely destroying the forest. The previous fires, while more regular, were smaller because the amount of fuel never accumulated to the levels it does with modern fire suppression methods. In this analogy we've somehow decided that we are going to stop people from experiencing economic pain at all costs. This is humanistic. And we want things to keep growing and we don't want to see destruction. But what happens is a lot of trash builds up. Malinvestment. Corruption. Paper profits over actual production. Unlimited credit spent on consumer items. No personal savings. No problem, firemen Uncle Sam and the Federal Reserve are here to save the day! And no one can argue with this happening because who wants to see anyone get burned through no fault of their own? But (just to torture the analogy) what I suspect will eventually happen is enough malinvestment, corruption and lack of responsible behavior will build up they won't be able to put the fire out. No one will. And it will burn the system flat to the ground instead of just clearing out a little brush and giving space to strong trees. This isn't to suggest the government shouldn't help in this case. It's an unusual situation obviously. Just allowing little fires to burn prevents big fires later. Everything can't be free to everyone all the time. Reality doesn't work that way unfortunately. Failing to behave ethically, productively and responsibly, failing to save and to prepare for rough times, trying to consume and grow unsustainable without regard to risk can't be forever consequence free. That's not a moral statement, just a practical one.

kyuudou 7y ago
Not to spoil your fine analogy, but as you probably know forestry services and farmers have engaged in controlled burns[1] for quite some time as part of sound wildlife conservation methods. In keeping with your analogy, what may be wrong with current economic governance is the lack of letting a recession run its course and, for example, letting big banks who gambled too much fail instead of propping them up. The revolving door between, say, Goldman Sachs and the Dept of Treasury has something to do with this, I think. [1]https://en.wikipedia.org/wiki/Controlled_burn https://en.wikipedia.org/wiki/Controlled_burn

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