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Economic impact of #Coronavirus isn't a blip that'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'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
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'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've cut more?! Econ 101 is on offer in all universities chaps.
We've had pandemics before (SARS etc.), but they haven'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't detail again: policymakers).
Keynes' 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't a blip.Demand won'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't a blip.Demand won'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't have an exposure to the #StockMarket. Not to mention that this isn'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
Consumer Price Index #CPI increased in March in the #Eurozone by 0.5%. If this continues, it'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'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
“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
Yup, it was: the 10m #unemployed of those 2 weeks has been revised up by a quarter of a million more, and today'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'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't survive, making space 4 better ones.
#Schumpeter
#CreativeDestruction
Now we're giving money to #speculators to prop-up share price instead of creating value.
(+Kiss goodbye the value of currency)
#Schumpeter
#CreativeDestruction
Now we're giving money to #speculators to prop-up share price instead of creating value.
(+Kiss goodbye the value of currency)
Here'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
One also needs to question what will happen to the value of that paper we hold & call "money". https://twitter.com/QTRResearch/status/1248240770349445121
When these destructive interventions are all said & done, the only remaining functioning #capitalist system will be #China's.
Just to clarify what'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's left after the debt is paid (usually zero).
And it's as if policymakers learnt none of the 2008 lessons. Here's another example of what their policies will produce, the #MoralHazard problem.
https://twitter.com/StockCats/status/1248301117265633280
a cute one from @StockCats!
https://twitter.com/StockCats/status/1248301117265633280
a cute one from @StockCats!
And here'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 #bubble started with #Fed straying from its dual mandate & propping up stock prices https://twitter.com/kmabadir/status/745329682481090564
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 #bubble started with #Fed straying from its dual mandate & propping up stock prices https://twitter.com/kmabadir/status/745329682481090564
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're getting close to this # though we'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
https://www.ft.com/content/52a46bcf-f238-43cd-82dd-c48c3c1883e3?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content
Some 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
https://www.ft.com/content/52a46bcf-f238-43cd-82dd-c48c3c1883e3?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content
Some 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. 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 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 widespread firm bankruptcies, extended job losses" is unrealistic.
The week's new #unemployment filings are an additional 5.2m, compared to the week before being 6.6m, and the market is cheering it. Don't they realize it'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't solve their problem: unable to sell their products&services. With 22m additional unemployed in last 4wks,consumption 2b slashed more. Money shd've gone to ppl,as priority b4 loans to firms,not just on moral grounds
To clarify: money shd'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'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't buy all the assets in the world, not even with fully functioning printers.)
$4/barrel once, $4/barrel twice, ...
(Can'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'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%
It'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 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 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
If printing your way out of a #recession was doable, we wouldn'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
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's a tweet from 6 weeks ago:
https://twitter.com/kmabadir/status/1248327609391382529
The #Fed will effectively own a slice of what's left of #Hertz after it filed for #bankruptcy. BTW, Fed isn'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 #Fed will effectively own a slice of what's left of #Hertz after it filed for #bankruptcy. BTW, Fed isn'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. #Recovery will take a lot longer than is thought.
...& a confirmation from today's data about what'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
