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Economic impact of #Coronavirus isn& #39;t a blip that& #39;ll bounce back to normal soon. Think of the chain of economic events: spending stops for a few weeks, incomes stop too, & the vicious circle goes on amplified. Eventually the slowdown hits everyone, even if far from the troubles.
Apart from the real economy in the past tweet, what& #39;s happening to #stocks #stockmarket now is a long overdue correction: mkt had become disconnected with fundamentals-based valuation of companies; see earlier tweets e.g. below. Virus was catalyst/trigger. https://twitter.com/kmabadir/status/950056784336707584">https://twitter.com/kmabadir/...
Crazy idea floating about #CentralBanks making loans cheaper to boost business, totally misses that problem will be the incomes & spending chain (requires FISCAL stimulus). Cheaper money would be used for speculation, make the #bubble bigger & #StockMarketCrash2020 historic.
Wow. #Fed did just that, slashing #interestrates by a full 50 basis points. But markets are not buying it. Time to learn, dear policymakers.
Impact of massive stimulus (50bps cut) didn& #39;t even last 15mins. And the ammunition is running out for when it will be really needed, enough left to buy another 30mins maybe. What a waste. And Trump is saying Fed should& #39;ve cut more?! Econ 101 is on offer in all universities chaps.
We& #39;ve had pandemics before (SARS etc.), but they haven& #39;t led to market routs like now...& about to get worse. Why? Mkt has been highly overvalued for some time now, & still kept pushing up unreasonably; see earlier tweets. (Another reason that I won& #39;t detail again: policymakers).
Keynes& #39; multiplier effect (1930s, ABC of macroecon):
Out of work not getting income → not spending → lower output & investment → lower employment, & vicious circle will go on unless fiscal policy intervenes NOW. It will NOT fix itself.This isn& #39;t a blip.Demand won& #39;t come back.
Out of work not getting income → not spending → lower output & investment → lower employment, & vicious circle will go on unless fiscal policy intervenes NOW. It will NOT fix itself.This isn& #39;t a blip.Demand won& #39;t come back.
And this will NOT be solved by corporate tax rate cuts,like recent wasted stimulus that was subsequently used overwhelmingly by firms to buy back their own shares & inflate their stock price.Fiscal stimulus must be directed to consumers directly,espec ones at lower income ranges.
If #Fed were to start buying stocks to prop them up, it would become a #speculator at the expense of the taxpayers who don& #39;t have an exposure to the #StockMarket. Not to mention that this isn& #39;t in their dual mandate of low #inflation & high #employment. https://www.cnbc.com/2020/03/29/what-it-would-take-for-the-fed-to-start-buying-stocks-during-coronavirus-crisis.html">https://www.cnbc.com/2020/03/2...
Consumer Price Index #CPI increased in March in the #Eurozone by 0.5%. If this continues, it& #39;s annual #inflation of 6.17% (compounded). Think about that.
#Stagflation
#InterestRates
#Stagflation
#InterestRates
The 10m #unemployed over the past 2 weeks is an underestimate, more delayed until next Thursday& #39;s figure is released:
“I literally tried to do everything,” said one Florida resident who has been trying, unsuccessfully, to apply for benefits for two weeks. https://www.cnbc.com/2020/04/02/state-unemployment-offices-scramble-to-handle-jobless-claims-surge.html">https://www.cnbc.com/2020/04/0...
“I literally tried to do everything,” said one Florida resident who has been trying, unsuccessfully, to apply for benefits for two weeks. https://www.cnbc.com/2020/04/02/state-unemployment-offices-scramble-to-handle-jobless-claims-surge.html">https://www.cnbc.com/2020/04/0...
Yup, it was: the 10m #unemployed of those 2 weeks has been revised up by a quarter of a million more, and today& #39;s release for the week is an additional unemployed 6.6m (more if you factor capacity limits for filing->delays); basically now ~17m ppl out of jobs over 3 weeks.
And #StockMarket is cheering the news by buying more stocks of zombie companies that are effectively #bankrupt ( #EarningsSeason starts next week). That& #39;s what you get when #CentralBanks print & distribute free money instead of using it to support the real #economy.
#Stagflation
#Stagflation
Cleansing effect of #recessions is forgotten, weeding out companies that shouldn& #39;t survive, making space 4 better ones.
#Schumpeter
#CreativeDestruction
Now we& #39;re giving money to #speculators to prop-up share price instead of creating value.
(+Kiss goodbye the value of currency)
#Schumpeter
#CreativeDestruction
Now we& #39;re giving money to #speculators to prop-up share price instead of creating value.
(+Kiss goodbye the value of currency)
Here& #39;s an example of my earlier tweet, via @Stalingrad_Poor & @QTRResearch
One also needs to question what will happen to the value of that paper we hold & call "money". https://twitter.com/QTRResearch/status/1248240770349445121">https://twitter.com/QTRResear...
One also needs to question what will happen to the value of that paper we hold & call "money". https://twitter.com/QTRResearch/status/1248240770349445121">https://twitter.com/QTRResear...
When these destructive interventions are all said & done, the only remaining functioning #capitalist system will be #China& #39;s.
Just to clarify what& #39;s going on. When these zombie companies are unable to pay their debts, the owner of the debt (now the Fed) becomes the priority shareholder, and the earlier shares get what& #39;s left after the debt is paid (usually zero).
And it& #39;s as if policymakers learnt none of the 2008 lessons. Here& #39;s another example of what their policies will produce, the #MoralHazard problem.
https://twitter.com/StockCats/status/1248301117265633280
a">https://twitter.com/StockCats... cute one from @StockCats!
https://twitter.com/StockCats/status/1248301117265633280
a">https://twitter.com/StockCats... cute one from @StockCats!
And here& #39;s an interview echoing the thread above:
https://www.marketwatch.com/story/fed-should-pay-every-american-more-let-hedge-funds-and-billionaires-get-wiped-out-says-social-capital-ceo-2020-04-09
A">https://www.marketwatch.com/story/fed... #bubble started with #Fed straying from its dual mandate & propping up stock prices https://twitter.com/kmabadir/status/745329682481090564">https://twitter.com/kmabadir/...
https://www.marketwatch.com/story/fed-should-pay-every-american-more-let-hedge-funds-and-billionaires-get-wiped-out-says-social-capital-ceo-2020-04-09
A">https://www.marketwatch.com/story/fed... #bubble started with #Fed straying from its dual mandate & propping up stock prices https://twitter.com/kmabadir/status/745329682481090564">https://twitter.com/kmabadir/...
1yr ago, Treasury Bond Adv Cttee projected that treasury wd need to sell $12tn more in next decade, while foreign demand was already heading sharply lower. We& #39;re getting close to this # though we& #39;ve just started 2020. Who will buy this? Only 1 answer possible: Fed,printing money.
@FT @ftfinancenews today:
"Federal Reserve has encouraged moral hazard on a grand scale.
Chair Powell has gone from preaching about credit risks to buying junk bond funds"
by Jonathan Tepper @jtepper2
#myft:notification:daily-email:content">https://www.ft.com/content/52a46bcf-f238-43cd-82dd-c48c3c1883e3?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8 #myft:notification:daily-email:content
Some">https://www.ft.com/content/5... quotes to follow: ...
"Federal Reserve has encouraged moral hazard on a grand scale.
Chair Powell has gone from preaching about credit risks to buying junk bond funds"
by Jonathan Tepper @jtepper2
#myft:notification:daily-email:content">https://www.ft.com/content/52a46bcf-f238-43cd-82dd-c48c3c1883e3?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8 #myft:notification:daily-email:content
Some">https://www.ft.com/content/5... quotes to follow: ...
"response must not be a cover to bail out bust borrowers and out-of-pocket speculators"
"economy[...]inhabited by zombie companies"
"Lending to potentially insolvent companies is bad enough, but buying corporate bonds and ETFs in the secondary market is of questionable legality"
"economy[...]inhabited by zombie companies"
"Lending to potentially insolvent companies is bad enough, but buying corporate bonds and ETFs in the secondary market is of questionable legality"
The #IMF report is overly optimistic. Why? Read the full thread above & https://twitter.com/kmabadir/status/1246788079240785920.">https://twitter.com/kmabadir/... The decimation of the #supply side of economic activity is missing:
https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/
"Assuming[...]preventing">https://blogs.imf.org/2020/04/1... widespread firm bankruptcies, extended job losses" is unrealistic.
https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/
"Assuming[...]preventing">https://blogs.imf.org/2020/04/1... widespread firm bankruptcies, extended job losses" is unrealistic.
The week& #39;s new #unemployment filings are an additional 5.2m, compared to the week before being 6.6m, and the market is cheering it. Don& #39;t they realize it& #39;s not really a decline, given that US agencies were closed on Good Friday (only 4 days to go claim, instead of the usual 5).
No matter how many loans are given to unprofitable firms,it won& #39;t solve their problem: unable to sell their products&services. With 22m additional unemployed in last 4wks,consumption 2b slashed more. Money shd& #39;ve gone to ppl,as priority b4 loans to firms,not just on moral grounds
To clarify: money shd& #39;ve been given to ppl as a payout, not loan. Thinking that zombie firms wd be able to repay loans is fantasy. These loans are money gone down the drain; won& #39;t be recovered by govt (& taxpayers).
We were told that these things happen only in banana republics.
We were told that these things happen only in banana republics.
Will the #Fed now buy #WTI #oil contracts to stop them going to zero (or less)?!
$4/barrel once, $4/barrel twice, ...
(Can& #39;t buy all the assets in the world, not even with fully functioning printers.)
$4/barrel once, $4/barrel twice, ...
(Can& #39;t buy all the assets in the world, not even with fully functioning printers.)
US #GDP #growth figs 2b released in 0.5hr: expected -4%.
It& #39;s optimistic, more likely double this. My silly calc:
Half of March was damaging for services (80% of economy); so 2% for 2.5mo, and -50% (say) for 0.5mo => -7%.
To get -4% requires -33% (not enough) instead of -50%
https://abs.twimg.com/emoji/v2/... draggable="false" alt="👆" title="Rückhand Zeigefinger nach oben" aria-label="Emoji: Rückhand Zeigefinger nach oben">
It& #39;s optimistic, more likely double this. My silly calc:
Half of March was damaging for services (80% of economy); so 2% for 2.5mo, and -50% (say) for 0.5mo => -7%.
To get -4% requires -33% (not enough) instead of -50%
"US first-quarter GDP shrank 4.8%, vs 3.5% decline expected"
https://www.cnbc.com/2020/04/29/us-gdp-q1-2020-first-reading.html
So">https://www.cnbc.com/2020/04/2... 37% more drop than expected. I think this drop will be revised to a larger one when more data are collected & next fig released.
https://www.cnbc.com/2020/04/29/us-gdp-q1-2020-first-reading.html
So">https://www.cnbc.com/2020/04/2... 37% more drop than expected. I think this drop will be revised to a larger one when more data are collected & next fig released.
French #GDP drops by 6% https://www.marketwatch.com/story/french-enters-recession-after-historic-drop-in-gdp-2020-04-30">https://www.marketwatch.com/story/fre...
If printing your way out of a #recession was doable, we wouldn& #39;t have had any recessions.
Think about that.
#Fed #Stagflation #MoralHazard
Think about that.
#Fed #Stagflation #MoralHazard
The invisible data released, while ppl focus on bigger headlines:
- Continuing #unemployment claims: 22.65m; prev 18m.
- Unit Labour Cost: +4.8% vs last *quarter* (=+21% annualized); prev +0.9%.
#Fed #Stagflation #recession
- Continuing #unemployment claims: 22.65m; prev 18m.
- Unit Labour Cost: +4.8% vs last *quarter* (=+21% annualized); prev +0.9%.
#Fed #Stagflation #recession
#CNN front page: "US lost 20.5 million jobs in April and unemployment rose to 14.7%, a level not seen since the Great Depression"
#Fox: nothing on the above.
In the meantime, other less visible data today: U6 #unemployment rate (incl part-timers etc) jumps from 8.7% to 22.8%.
#Fox: nothing on the above.
In the meantime, other less visible data today: U6 #unemployment rate (incl part-timers etc) jumps from 8.7% to 22.8%.
Here, confirming what I said in earlier tweet in this thread, 1 month ago. #Treasury Sec #Mnuchin says now: "There’s scenarios[...]where we could lose all of our capital, and we’re prepared to do that"... “fully prepared to take losses” on $500bn bailout. https://twitter.com/kmabadir/status/1251895362807312384">https://twitter.com/kmabadir/...
Something is seriously wrong (economically AND morally) with those 2 headlines coexisting (e.g. CNBC today):
- "American billionaires got $434 billion richer during the pandemic."
- "Mitch McConnell says next coronavirus bill will not extend enhanced unemployment benefits."
- "American billionaires got $434 billion richer during the pandemic."
- "Mitch McConnell says next coronavirus bill will not extend enhanced unemployment benefits."
Here& #39;s a tweet from 6 weeks ago:
https://twitter.com/kmabadir/status/1248327609391382529
The">https://twitter.com/kmabadir/... #Fed will effectively own a slice of what& #39;s left of #Hertz after it filed for #bankruptcy. BTW, Fed isn& #39;t allowed to buy stocks, but will find itself owning some if anything is salvaged from bankrupt firms.
https://twitter.com/kmabadir/status/1248327609391382529
The">https://twitter.com/kmabadir/... #Fed will effectively own a slice of what& #39;s left of #Hertz after it filed for #bankruptcy. BTW, Fed isn& #39;t allowed to buy stocks, but will find itself owning some if anything is salvaged from bankrupt firms.
Laughable to hear that #stockmarkets are forward-looking, as a justification to ignore what’s going on in the real economy. If you want to know how #coronavirus shock affects the path of real economy, read http://restud.oxfordjournals.org/content/69/4/749.">https://restud.oxfordjournals.org/content/6... #Recovery will take a lot longer than is thought.
...& a confirmation from today& #39;s data about what& #39;s in the thread above:
- Weekly new #jobless is an additional 1.48m (& last wk revised up), exceeds expectation; #unemployment remains stubbornly high+rising.
- #GDP #inflation rising "unexpectedly" from 1.4% to 1.6%.
#stagflation
- Weekly new #jobless is an additional 1.48m (& last wk revised up), exceeds expectation; #unemployment remains stubbornly high+rising.
- #GDP #inflation rising "unexpectedly" from 1.4% to 1.6%.
#stagflation
