Tuesday, May 26, 2020

The FT In London May Have Bad News For Democrats In The U.S.

Actually not-so-much the FT but Bryce de Londres.
And he is more the layer of the foundation than even the messenger, so don't shoot him.
First up, and this is important, from Markets Now, May 26:
....Here’s Exane BNP Paribas to set out the argument in favour:
The recession has likely ended…
Our high frequency indicators are turning higher. In Europe, toll traffic, high street footfall, electricity usage and restaurant & AIRBNB bookings have started normalising. In the US, driving and housing activity has recovered, with nascent improvements in SME, restaurant and bar spending. And in China, car and housing sales have normalised, while hotel bookings remain subdued.
We study the experiences of countries with lighter lockdowns and find that industrial activity could return surprisingly quickly. However, the recovery in consumer spending is likely to be more nuanced. Spending on Handsets, Cars and Housing goods/ materials is likely to be the first to normalise. Spending in Restaurants, Flights and Holidays will undoubtedly take longer to recover.
Earnings could be back at 2019 levels quicker than we feared…
... driven by 1) early signs from high frequency indicators; 2) our work suggesting that fiscal stimulus (CARES, EU Green package etc) eventually flows back to corporate profits; and 3) the easiest financial conditions ever seen during a recession. The risk here is another wave of lockdowns. But so far, EU countries that have eased restrictions haven’t seen a spike in cases.
Investors have been reluctant to play the recovery trade
Cyclicals vs defensives has been flat since the lows. However with the next batch of data likely to hint towards sequential improvement, perhaps this hesitance might change. We think Cap Goods, Construction, Mining, Semis and Autos are likely to see a quicker normalisation in earnings.
The upshot here is that driving volumes have normalised in the US, China and early un-lockdowners like Germany and Austria. Online spending has thundered back from March lows, housing activity’s been recovering in most places, China’s coal consumption’s back on trend and in Germany there’s improvement in olde-worlde metrics like high street footfall. Yet equities have been dead money for a month:
Exane uses Oxford Uni’s lockdown stringency tracker to guess at recovery times from here, using Sweden as the benchmark. It’s all stewed into charts like these, for driving, industrial production and both types of retail:

".... We probably don’t need to highlight the extremely obvious risk factor....."


I repeat, do not shoot Bryce, he's only the messenger.
If you are going to take potshots, aim your blunderbuss toward Boston and Harvard's Jason Furman.

From Politico:

The general election scenario that Democrats are dreading
In early April, Jason Furman, a top economist in the Obama administration and now a professor at Harvard, was speaking via Zoom to a large bipartisan group of top officials from both parties. The economy had just been shut down, unemployment was spiking and some policymakers were predicting an era worse than the Great Depression. The economic carnage seemed likely to doom President Donald Trump’s chances at reelection.

Furman, tapped to give the opening presentation, looked into his screen of poorly lit boxes of frightened wonks and made a startling claim.

“We are about to see the best economic data we’ve seen in the history of this country,” he said.
The former Cabinet secretaries and Federal Reserve chairs in the Zoom boxes were confused, though some of the Republicans may have been newly relieved and some of the Democrats suddenly concerned.

“Everyone looked puzzled and thought I had misspoken,” Furman said in an interview. Instead of forecasting a prolonged Depression-level economic catastrophe, Furman laid out a detailed case for why the months preceding the November election could offer Trump the chance to brag — truthfully — about the most explosive monthly employment numbers and gross domestic product growth ever.
Since the Zoom call, Furman has been making the same case to anyone who will listen, especially the close-knit network of Democratic wonks who have traversed the Clinton and Obama administrations together, including top members of the Biden campaign.

Furman’s counterintuitive pitch has caused some Democrats, especially Obama alumni, around Washington to panic. “This is my big worry,” said a former Obama White House official who is still close to the former president. Asked about the level of concern among top party officials, he said, “It’s high — high, high, high, high.”

And top policy officials on the Biden campaign are preparing for a fall economic debate that might look very different than the one predicted at the start of the pandemic in March. “They are very much aware of this,” said an informal adviser.

Furman’s case begins with the premise that the 2020 pandemic-triggered economic collapse is categorically different than the Great Depression or the Great Recession, which both had slow, grinding recoveries.

Instead, he believes, the way to think about the current economic drop-off, at least in the first two phases, is more like what happens to a thriving economy during and after a natural disaster: a quick and steep decline in economic activity followed by a quick and steep rebound. 

The Covid-19 recession started with a sudden shuttering of many businesses, a nationwide decline in consumption and massive increase in unemployment. But starting around April 15, when economic reopening started to spread but the overall numbers still looked grim, Furman noticed some data that pointed to the kind of recovery that economists often see after a hurricane or industrywide catastrophe like the Gulf of Mexico oil spill....
....Furman noted that there is one major obvious caveat: “If there’s a second wave of the virus and a really serious set of lockdowns, I wouldn’t expect to see this. But I think the most likely case is the one I just laid out.”....

As for how to bet:
It looks like we're going to have a second wave.
And perhaps Ruth Bader Ginsburg has to get deathly ill to mobilize the base.
And a market crash.
Hurricane season looks to be above average.
Maybe Iran is convinced it might help to shoot at something.