Economics: Everything Counts In Large Amounts - Will The US Will Avoid A COVID-19 Recession?

 (Drivebycuriosity) - It seems everyone expects that COVID-19 will push the US economy into a recession, meaning an extended economic downturn, usually defined as two quarters of a falling GDP back-to-back. According to Wikipedia the shortest recession in the US history lasted 6 months (in 1980   wikipedia). The experience from China & Korea, which came back to almost normal, gives hope that the current downturn will be much shorter, thanks to the $6 trillion stimulus programs ($2 trillion from the government plus $4 trillion from the Federal Reserve).  Everything counts in large amounts.

Fortunately, 2020 started on a solid foot with record low unemployment & solid retail sales. On March 27th, the Federal Reserve Bank of Atlanta, which uses all available information, still calculated a GDP growth of 2.7% for Q1 (frbatlanta ). The final numbers will certainly be lower. According to CNBC the US economy came to a standstill in the last days of the quarter (cnbc). But here in Manhattan, where I live, grocery and other stores for necessary goods are still fluid and many restaurant & pubs are open for take out. The Internet sector seems to boom. Many work at home, use e-commerce, educate & entertain themselves on Internet. Online sales in the US are already surging. Amazon already hired 100,000 people to deal with a surge of online orders, Facebook reports explosive demand and Microsoft says that some categories of their cloud computing services jumped 775% (microsoft)! The final GDP number will show tepid growth but there will be still be a plus for the whole quarter.

The coming quarter will have a shrinking GDP thanks to the draconian measures. The question is how deep the GDP will drop. We are experiencing now an economic air pocket which will continue in April (many businesses are closed and the panic buyers will consume their huge provisions they are amassing now). There will be a sharp reduction of business investment, as in every economic downturn. But the US economy will not totally be frozen. Consumer spending for rentals could be immune to the virus and consumer expenditures for health services are spiking. Factories for necessary goods, grocery stoes and take out restaurants will continue to work. A lot people will shop on Amazon & Ebay, binge watch Netflix & Prime, listen to Spotify, read Kindle books, surf Facebook & Twitter, and businesses will run more & more on cloud computing.

The downturn will also be smoothed by the $6 trillion which is getting pumped into the US economy in the coming weeks. There is a long catalogue of measures ( reuters  marketwatch). A lot of US tax payers will receive a direct payment of $1,200, with additional payments of $500 per child. The millions who lost their jobs - or will in the coming weeks - will start getting additional unemployment benefits from the federal government. Small businesses will have access to $350 billion in forgivable loans. There are programs for airlines and other big corporations and much more. And the Federal Reserve started to add about $4 trillion by giving loans & purchasing bonds.

Nobody knows how long the quarantines & lock downs will last. Clearly the evidence shows that quarantines, travel bans, the temporary closing of factories & gathering places (pubs, gyms, restaurants, beaches etc), social distancing and cautious behavior (intense hand washing, fewer body contacts etc.) will flatten the curve and constrain the epidemic. Fortunately the infection curves are already flattening! On March 24 the Johns-Hopkins-University reported that the US number of cases had a daily growth of 39%. On March 31 this growth rate had dropped to 21% (tables below, red columns on the right sides). Italy, Germany, Iran and other countries are also reporting falling growth rates. In China the infections have already peaked and the country is going back to work. Warmer weather in the coming months could also help to slow the contamination ( marketwatch). It is reasonable to expect that the US infection wave will peak around Easter.

 (source)

Following the experience from China, Korea & Japan we might notice some signs of economic recovery beginning in May driven by the tsunami of government money and the growing Internet sector. We might suffer a downturn over 2 or 3 months (counting from Mid-March), not the historical recession minimum of 6 months. The second half of the year should show an economic boom starting in the third quarter. There is a huge backlog demand. People are tired from sitting quarantined at home, they will be happy to go back to work and to visit shops, bars, restaurants. The recovery will be still be fueled by the $6 stimulus tsunami which works as financial steroids. There also will be strong tailwinds from record low interest rates. Oil prices dropped on a level last seen in the 1990s when cheap oil fueled a long economic upswing.

 (oil price history on log-scale & inflation adjusted  macrotrends  )



COVID-19 might change the whole economy. We learned from China that the epidemic altered the behavior of many people. More people are working, learning & shopping from home which is fostering digitization and raising efficiency & productivity of the economy ( driveby ).

Eventually the downturn should be not longer than 3 months and the US should avoid the usual definition of a recession.  But it is an election year and some groups might be happy to announce a recession.

Science Fiction: Rainbow`s End - So Much Technology, So Little Talent

 (Drivebycuriosity) - Vernor Vinge belongs to the stars on the firmament of America`s science fiction scene ( wikipedia). The author has a reputation for popularizing the idea of continuously accelerating change. This drew my attention to his novel "Rainbow`s End ", published in 2006, which earned the Hugo Award (amazon ). The plot is set in San Diego in the year 2025.

I was disappointed. The book has some interesting technological ideas but the novel reads like a young adult book. The confusing story circles around a grandpa who is recovering from Alzheimer thanks to technological progress (Beavis & Butt-Head would love him). There are also a lot of teens plus 3 intelligence agents who are officially working for "The Great Powers". The plot happens often in school classes of course, sometimes in the school library, and sometimes a virtual rabbits appears. It doesn`t help that Vinge is obsessed with puerile acronyms like a fictional "YCBM technology" - "You-Gotta-Believe-Me". No I don´t!

Vinge does not play in the league of Ted Chiang, Nancy Kress, Liu Cixin, Greg Benford or Alastair Reynolds. One chapter is called "So much technology, so little talent". A very good description of the whole book. Giving this novel the Hugo Award is like awarding a Michelin star to McDonald's.

Economics: Big Pharma - From Villain To Hero?

 (Drivebycuriosity) - Not long ago Big Pharma was the pariah. The big pharma corporations were criticized for selling drugs that were way too expensive and were accused of benefiting from the opioid crisis. But these days we need urgently their help - against the COVID-19 pandemic. And they are urgently working on it.

The Wall Street Journal reports "no fewer than 30 Big Pharma and small biotech firms are racing for treatments and vaccines. Moderna turned around a vaccine batch in just 42 days. Gilead Sciences is already in Phase 3 trials for its remdesivir treatment for Covid-19.  Straight off President Trump’s announcement of FDA approval for antimalarial drugs to treat the disease, Bayer announced it would donate three million chloroquine tablets" (  marginalrevolution).

It is an open question if and when they will succeed.  But 30 Big Pharma plus small biotech firms is an impressive number. And they are working hard & fast - brute-force. Something positive should come out - soon.

If Big Pharma delivers the weapons against COVID-19 some politicians might complain that they want too much money for that. What is it worth to save the life of hundreds of thousands, or at least to spare them an enormous amount of agony? And to save the economy as well.

. 

Stock Market: Why The Longest Bull Market In History Might Be Followed By The Shortest Bear Market In History

(Drivebycuriosity) - We are experiencing a new bear market for stocks. This bear market started on Thursday March 12 when the S&P 500, the gauge for the US stock market, plummeted to 2,480.64 points and finished the day 26.7% below the all-time high from February 19 (chart below). A drop of at least 20% defines the end of a bull market and the beginning of a new bear market. The 16-session plunge into a bear market was the quickest in the S&P 500’s history, writes The Financial Times ( ft.com). This bear market will end when the S&P 500 climbs more than 20% above a former trough. The new bear market might be the shortest bear market in history. The record is held by the bear market of 1990, which lasted just 3 months ( apnews). It was caused by sharply spiking oil prices as a result of the 1st Iraq war.

It seems paradox, but the deeper and the faster stocks drop, the sooner a bear market ends. A new bull market starts when the S&P gains more than 20% from a former trough. At the moment, the calculation basis is from Monday March 23, when the closing value of the S&P 500 dropped 2.9% to  2,237.40 points, about 33% below the peak. In this case the S&P would need to climb above 2,685 points to reach bull territory again. If, in the coming days, the S&P 500 closes even deeper then the basis of the bull market would begin from a lower value.

The charts above show that stock markets often snap back after an extreme fall. It seems there is an invisible rubber band. This phenomena can easily be explained. In the final bear phase the market often overshoots - driven by panic & accelerated no thanks to short selling. Hedge funds and other speculators borrow stocks only to sell them immediately as a bet on lower prices. But suddenly the panic wave rolls over,  bargain hunters are attracted by sharply reduced prices & valuations, short sellers start buying back, new information dampens pessimism, people become tired of listening to the prophets of doom and panic will ebb down. We observed the invisible rubber band in the beginning of 2019 when the market snapped back after the Christmas 2018 panic and in the spring of 2009 when the big meltdown turned suddenly into a steep recovery rally (charts above).

 (bloomberg  )


This time the stock market might have overshot again. The crash is overdone, driven by panic & massive short selling - not anymore by fundamentals. The market is oversold and due for some recovery. Today stocks are already pricing-in worst case scenarios. There is talk that in the US 50% will be infected and everything will be shut down for many months. Based on what facts? In China the crisis has already peaked and the Peoples Republic is slowly going back to work. Korea & Japan also are reporting falling numbers of new corona cases. Even in hard hit Italy & Iran the curves of new cases are flattening.

I think that quarantines, travel bans, the temporary closing of factories & gathering places (pubs, gyms, restaurants, beaches etc), social distancing and cautious behavior (intense hand washing, fewer body contacts etc.) will flatten the curve and constrain the epidemic in the US. We are already seeing this in China, Korea, Japan & Taiwan. Warmer weather in the coming months could also help to slow the contamination ( marketwatch).

It is unlikely that the US will experience the international definition of a recession which is two quarters of falling GDP back-to-back. 2020 started on a solid foot with record low unemployment & solid retail sales. On March 18th, the Federal Reserve Bank of Atlanta, which uses all available information, still calculated a GDP growth of 3.1% for Q1 (frbatlanta ). The second quarter GDP might shrink but the 3rd quarter should already show a recovery and a positive GDP growth rate, so the US should miss the international definition of a recession.

The economic carnage by COVID-19 is immense in the moment and the coming weeks. We see sharply slowing business investment, in many regions people aren`t  traveling, aren`t visiting bars, nightclubs, concert venues or restaurants, but on the other hand, consumer spending for rentals could be immune to the virus, consumer spending for health services is spiking and government spending is exploding (there is talk about a $6 trillion stimulus, including the $2 trillion from Congress and $4 trillion from the Federal Reserve Bank).

There is also a big fundamental change going on. We learned from China that more people are working, learning & shopping from home which is fostering digitization and raising efficiency & productivity of the economy ( driveby ). Online sales in the US are already surging, more people are binge watching Netflix & Amazon Prime, listening via Spotify, reading Kindle books, surfing Facebook & Twitter and businesses are running more & more on cloud computing. Amazon already hired 100,000 people to deal with the exploding demand and Facebook reports explosive demand.

Following the experience from China, Korea & Japan it is likely that we will experience an economic air pocket in last days of March and in April (many businesses are closed and the panic buyers will consume their huge provisions they are amassing now), but in May we may already notice some signs of economic recovery driven by the internet sector which is currently booming. Ultra low oil prices & interest rates will also support the recovery by reducing transportation costs (shops still need to be filled and online purchases still need to be delivered) curbing the costs for those who still are working & commuting or will restart it.

The stock market is always forward looking. As soon as the market notices that things don´t get worse it will recover. When the news flow becomes less depressing buyers will jump back and stocks will rally led by the internet sector.

Books: Global Economic History - A Short Introduction

 

 (Drivebycuriosity) -  The world is divided into rich & pour countries. How did that happen? Economic historians try to give an answer. Robert C. Allen presents in "Global Economic History - A Short Introduction" his own ideas on 196 pages (amazon). I find Allen`s explanations interesting and I am impressed how many facts he collected, processed and displayed. The little book is spiced with a lot of valuable tables & charts about standards of living,  national incomes (GDPs) and other economic data of the past. If you want to know how much a Florentine worker earned in the 17th century or how workers in London thrived in the 18th century, this is the book for it. I was impressed how sharp living standards in the Western World spiked in the recent 3 centuries - a real explosion.

Global economic growth was fueled by a lot of innovations, including the development of the square-rigged sailing ships, global navigation, the steamship, the Suez Canal, the railway, the telegraph, the Panama Canal, the automobile, the airplane, the container ship, the telephone, the motorway, the Internet. All of these innovations reduced the cost of international transactions, integrated markets, and brought countries into more intense competition with each other. The author observes that nations realized their "comparative advantages", an idea worked out by the economist David Ricardo in the early nineteens century. A nation focuses on the production of those goods which she can make cheaper (more efficient) than other goods. But Allen ignores other important factor, especially that book printing fostered the spreading of information and promoted so science, economics and later the industrial revolution. He also ignored that double accounting (developed in Italy in 14th century) made it possible to manage banks & other big corporations which were necessary for economic growth and to start the industrial revolution.

Allen claims that the economic development of nation was shaped by regional wages. He notices that America had high wages in the 19th century which was caused by the abundance of land. "Why should people work for low salaries in New York when they could have a farm in the West?" According to Allen the high cost of labor provided the incentive to mechanize (because machines were cheaper than workers). "High wages induced more capital-intensive production that in turn led to higher wages".

I am not convinced, this is basically the chicken-egg question. I rather believe that a high capitalization ( thanks to investments and  inventions) raises productivity and permits higher wages. But anyway. Allen claims that the successful response (to high wages) required a large pool of potential inventors. "The interplay between challenge and response made the USA the world`s productivity leader by the First World War."

Allen tries to explain the different developments of Europe, Asia, Africa, North & Latin America. He writes to understand why Africa is poor today, we must understand why it was poor in 1500, before the Europeans arrived. He explains that some tribes in West Africa specialized on cultivating yams and harvesting oil & wine from palms which did not require much work and provided enough food for subsistence. "People grew enough food to meet their own needs but nothing more, since there was nothing to buy with surplus... cultivation took only part of the year, and for the rest they enjoyed leisure". This differs from Switzerland where people had to work hard over centuries in order to deal with a harsh environment ( driveby). We also learn that slavery was common in Africa before the Europeans arrived and was the basis of many states. History is not always PC.

The little book is a good introduction and gives many suggestions to think of. The Kindle version costs in the moment of writing $6.17, less than a pint of lager.

Economics: The End Of Opec As We Know It

 (Drivebycuriosity) - Oil prices are in a free fall. Since last year Brent Crude, the gauge for international oil, dropped 59% to $27, WTI, which represents US oil, crashed 65% to $20 (charts below). Oil prices had been already under pressure for a while because the US frackers raised the global oil supply. The spreading coronavirus crisis - and factory shutdowns & travel bans -  cut the oil demand sharply and accelerated the oil price drop and then Saudi Arabia started a price war and began flooding the global market, which lead to the crash in the recent days.

 (source )

What brought the Saudis to it? In the beginning of the year the Saudis, who control Opec, wanted to cut the oil supply, as response to rising US production and sinking global demand. Opec alone is not strong enough to hike the global price, their market share is too small. So they need the cooperation of Russia. But Putin refused and the Saudi´s responded in a childish way and started to flush the already oversaturated market.

Today the Saudi`s - and maybe also the Russians - try to destroy the US competition, especially the frackers, by driving the oil price sharply down. The Saudis claim that they can produce oil even for just $10 a barrel which would ruin most of the US frackers (many of them are highly indebted).

 ( source )

The price war reminds of the years 2015/16 ( driveby). "Opec is about to crush the US oil boom", wrote Bloomberg in October 2015 ( bloomberg). Then the Saudis also flushed the market, to get rid of the frackers like today, and oil prices melted from about $120 to around $30 (chart above). Their aggressive strategy worked for a while, many frackers went out of business. As a result global oil supply dropped and the oil price shot up again and reached $80. But - unfortunately for Opec - rising prices made oil production profitable again for the frackers and the US production came back - stronger than before. In the beginning of this year US oil production climbed to new record highs and the oil market was oversupplied again.

The current oil price crash might squeeze most of the US frackers out of the market and might give Opec the chance to curb global oil supply and hike oil prices again, as they did in 2016. But the recent history shows that this strategy works only temporarily. If the oil price swings back then fracking will become profitable again and the frackers will come back - as they did in 2017 and the following years.

The US oil in the ground won´t disappear, however deep the oil price might drop. And the technology behind fracking will not be forgotten either. The recent crash might even be an initiative to cut cost and to make fracking even more efficient. The productivity of fracking is rising swiftly which leads to shrinking costs (economics21  oilprice  econbrowser). A study by BP explains that fracking is "a standardized, repeated, manufacturing process" and "manufacturing productivity has led to a trend decline in the prices of goods relative to services" (forbes). So the break even point for producing oil has been moving lower and will continue to fall in the coming years, making it more challenging for Opec to hike the price of oil to former highs.

Opec has a big enemy, called technology, which will destroy the cartel - even if Opec survives this crisis. Machines are getting more & more energy efficient thanks to technological advances. Cars, trucks, airplanes & ships burn on average less fuel per mile. Refrigerators, washing machines and other devices need less electricity. And electric cars are getting more & more popular, even though these vehicles are still expensive.  The pioneer Tesla is not alone, traditional automakers, including Volkswagen, Honda, Toyota, Renault, Chevrolet, Mercedes and more, are already offering electric cars as well. 

The next oil flood is already around the corner. We are observing the end of Opec as we know it.

Science Fiction: And Shall Machines Surrender By Benjanun Sriduangkaew

 (Drivebycuriosity) -  We don`t know what the future will bring. But war, treason and political manipulation might still be around for centuries. Benjanun Sriduangkaew, a young author from South Thailand, tells her own version of the future. Her elegant novella "And Shall Machines Surrender" puts the readers in a distant future - with strong Asian & female aspects - and on an exotic luxurious world called Shenzen Sphere, an artificial planet which circles around a red star (amazon). SS is created and controlled by AIs. Some citizens, member of a chosen elite, incur a symbiotic relationship with an AI, which turns them almost into half-gods, but there are problems.

Dr. Orfea Leung, a refugee, is granted temporary residential status in Shenzen Sphere, apparently the rulers have some use for her. Soon she meets another immigrant, her former colleague & lover  Krissana Khongtip (I don`t tell you more about the plot. This is a spoiler free blog).

I indulged into Sriduangkaew´s utopia, or is it a dystopia? Shenzen is a future Byzantium with complex rules, a fascinating and a kind of baroque world. "Spindly buildings with spacious balconies and roofs the color of antique gold; flocks of replicants with petal-plumages of peonies and chrysanthemums; spiral hanging gardens thirty meters high". And Sriduangkaew`s universe is dominated by interesting & strong women. I would like to visit this place.

I indulged into the author`s imagination, her wonderful descriptions of images, sceneries & food and I love the names of her characters, like "Nataku Contemplates a Flight of Sparrows" or "Benzaiten in Autumn" (referring to a Japanese goddess). Who else gets such ideas? I was impressed & fascinated how Sriduangkaew plays with the English language. And I was entertained by the high-tech supported combats and enjoyed the all-female sex scenes ((even though she is no Sarah Waters).  The merge of humans & AIs into highly complex powerful & dangerous persons is a fascinating idea. I want to read more about this topic.

Sriduangkaew`s dense novella (143 pages), the Kindle version costs in the moment of writing just $2.99,  is a gem of hard science fiction. I plan to read more by this author.


 

Stock Market: Will The Longest Bull Market In History Be Followed By One Of the Shortest Bear Markets In History?

 (Drivebycuriosity) - We are experiencing a new bear market for stocks. This bear market started on Thursday March 12 when the S&P 500, the gauge for the US stock market, plummeted to 2,480.64 points and finished the day 26.7% below the all-time high from February 19 (chart below). A drop of at least 20% defines the end of a bull market and the beginning of a new bear market. The 16-session plunge into a bear market was the quickest in the S&P 500’s history, writes The Financial Times ( .ft.com). This bear market will end when the S&P 500 climbs more than 20% above a former trough. The new bear market might also one of the shortest bear market in history. The record is hold by the bear market 1990, caused by a sharp oil prices spike as a result of the first Iraq, which lasted just 3 months (apnews).

It seems paradox, but the deeper and the faster stocks are dropping, the sooner a bear market will end. A new bull market starts when the S&P gains more than 20% from a former trough. The calculation basis is in the moment the closing value from Monday March 16, when the S&P 500 dropped 11% to 2,386 points. In this case the S&P would need to climb above 2,863 points to reach bull territory again. If the S&P 500 closes in the coming days even deeper than the bull market would start at a lower value.

 ( source )

The charts above show that stock markets often snap back after an extreme drop. In the final bear phase the market often overshoots. Then the panic wave rolls over and bargain hunters are attracted by sharply reduced prices & valuations, short sellers, who have borrowed stocks and sold them immediately as a bet on lower prices, will buy back, new information will damp pessimism, people will get tired of the prophets of doom and the panic will ebb down. We observed that in the begin of 2019 as the market snapped back after the Christmas 2018 panic and in spring 2009 when the big meltdown  turned suddenly into a steep recovery rally (chart below).

( source )

We might have reached again an overshot situation. I think that the recent stock crash is overdone, driven by panic & massive short selling - not by fundamentals any more. The market is oversold and due for some recovery. Today stocks are already pricing in worst case scenarios. There is talk that in the US 50% will be infected and everything will be shut down for months. Based on what facts? In China the crisis has already peaked - Apple reopened all shops there - and the Peoples Republic is going back to work. Korea also reports falling numbers of new corona cases. 

I think that quarantines, travel bans, closing gathering places (pubs, gyms, restaurants, beaches etc), social distancing and cautious behavior (intense hand washing, fewer body contacts etc.) will flatten the curve and constrain the epidemic. We are already seeing that in China & Korea. Warmer weather in the coming months could also help to slow the contamination (marketwatch ).

In the coming weeks the economic carnage will slow business investment, people won`t  travel,  won`t visit bars, nightclubs, concert venues & restaurants, but consumer spending for rentals should be immune to the virus and government spending is exploding (huge stimulus programs are in the making, there is talk about $trillion and more). Consumer spending for health services is also spiking - and so are online sales, binge watching on Netflix & Amazon Prime, listening Spotify, reading Kindle books, surfing Facebook & Twitter and businesses are running more & more on cloud computing. Amazon already hires 100,000 people to deal with the exploding demand and Facebook reports explosive demand (seekingalpha ). 

Following the experience from China it is likely that in April we will experience an economic air pocket (many businesses are closed and the panic buyers will consume their huge provisions they are amassing now), but in May we might already notice some signs of economic recovery driven by the internet sector which is currently booming. 

The stock market is always forward looking. As soon as the market notices that things don´t get worth it will recover. When the news flow gets less depressing buyers will jump back and stocks will rally lead by the internet sector. 

Contemporary Art: Tanya Merrrill @ Half Gallery New York

(Drivebycuriosity) - Contemporary art is full of diescoveries. While walking Avenue B in Manhattan`s East Village I spotted a new art gallery: Half Gallery. The art dealer has an interesting exhibition. They display paintings by Tanya Merrrill, the show is called "Woman Laughing Alone in the Woods at Night" ( halfgallery ).

I display my favorites here, a very subjective selection as usual. I love Mrs. Merrill`s humorous and fresh style. Some of these paintings remind me of the Austrian artist Maria Lassnig, who`s work I discovered in a Barcelona museum some years ago ( driveby)
 .

Funny & Wild

The painting remind me of classical Chinese watercolors.

To be continued.....

Economics: Why The Coronavirus Won`t Push The US Economy Into A Recession

(Drivebycuriosity) - There is a lot speculation that the coronavirus will cause a recession in the US. In most countries a recession is defined as two back-to-back negative gross domestic product (GDP) quarters. The US goes her own way, as usual. Here a board, the National Bureau of Economic Research (NBER), decides when a recession starts and when it ends. They focus on economic indicators such as real income, employment, industrial production and retail sales.

The US economy started the year on a strong note. The job market created 546,000 new jobs in January & February together, the unemployment rate dropped to 3.5%. The Weekly Initial Unemployment Claims, the most recent economic indicator, decreased to 211,000, close to an all-time low. And the US Energy Information Administration reported that domestic oil & gasoline demand increased early in March ( aaa). The Federal Reserve of Atlanta, who uses published information like retail sales, unemployment rates & industrial production, said on their website (estimate from March 6) that the US GDP grows 3.1% in this quarter (frbatlanta). The recent shutdowns, travel bans and other events will shrink this number, but the quarter is almost over and it is unlikely that some bad days pull the GDP growth rate below zero.

I doubt that this year`s second & third quarters will have a shrinking GDP back to back - which would meet the international definition of a recession - or that real income, employment, industrial production and retail sales will drop over months. I am aware that big events like the Coachella Valley Music and Arts Festival or the Austin Music & Arts Festival are cancelled or postponed and that airlines, hotels, cruise ship operators and others are suffering. On Saturday here in Manhattan, where I live, were streets, subways, shops  still full and places, which serve local customers,  crowded as always. And I noticed long lines at Trader Joe and similar shops. And this happens nationwide. According to the The Wall Street Journal retailers like Target where struggling to meet the spiking consumer demand ( seekingalpha).  But Sunday afternoon the Union Market on Manhattan`s East Houston Avenue had fully stocked shelves with coffee & pasta from Italy and lots of sparkling water from Germany (Gerolsteiner). Apparently the panic buyers are pushing the retail sales now.

In China the crisis has already peaked - Apple reopened all shops there - and the Peoples Republic is going back to work. Korea also reports falling numbers of new corona cases. I think that quarantines, travel bans and cautious behavior (hand washing, fewer body contacts etc.) will constrain the epidemic.  In a briefing to a House committee, Anthony Fauci, the head of the National Institute of Allergy and Infectious Diseases (NIAID), said he is "hopeful" that the first patient will receive a coronavirus vaccine in a few weeks (/seekingalpha). People below 50 have a very low risk, the younger the lower, kids even don`t get it. 

Fortunately, there are already two very strong market movements which are compensating most of the perilous coronavirus influence on the general economy. Oil prices are in free fall! Brent Crude & WTi, the futures for global & American oil, dropped about 50% since begin of the year (charts below). Gasoline prices are following swiftly. Today gasoline & diesel at US pumps cost already about 10% less than a year ago. There are 3 reasons for that. There is rising oil glut, thanks to American fracking, the coronavirus is shrinking the oil demand (less traveling) and the Saudis started a price war on the oil market in order to wipe out their US competitors (as they did in 2016).

 

(source)

Dropping costs for gasoline & natural gas work like a giant tax cut. The price war on the oil market is a gift for the global economy. Imploding oil prices are a huge stimulus program because consumers have more money to spend and corporations have less costs. Dropping prices for oil & gasoline work like a tax cut. Consumers worldwide have more money to spend for other goods & services. So cheaper energy prices stimulate consumer spending which accounts about 70% of the US economy. Dropping energy prices also translate into lower transport costs - thanks to cheaper diesel - which leads to lower prices for food and other goods. They also reduce the cost to produce steel, cement and many other energy intense goods. Many things which are made from oil, like cleaning fluids, laundry detergents, paint, pharmaceuticals, cosmetics, hygiene products, diapers & plastics, also get cheaper.

( source )


Interest rates also have been falling sharply, caused by ongoing flight into safe haven and swiftly rate cuts by the Federal Reserve (chart above). The Fed and other central banks are also pumping billion of dollars into the ailing global economy. Lower costs for consumer credits & mortgages support investments & consumer spending. I assume that the double package of cheaper energy prices & sharply reduced credit costs will compensate large parts of the perilous impulse of the corona epidemic. 

It it is highly unlikely that the whole nation will be shut down for months. It never does. The economic carnage might slow business investment in the coming days, people travel less,  go out less and visit fewer shops & restaurants, but consumer spending for rentals should be immune to the virus and government spending is jumping (huge stimulating programs are in the making). Consumer spending for health services is also spiking - and so are online sales, binge watching on Netflix & Amazon Prime, listening Spotify, surfing Facebook & Twitter and businesses are running more & more on cloud computing. 

Following the experience from China it is likely that April will have an economic air pocket (the panic buyers will consume their huge provisions they are amassing now), but in May we might already see some signs of recovery. It is possible that the virus - and measures against it like quarantines - alter the behavior. We learned from China that there more people are working, learning & shopping from home which is fostering digitization and so rising efficiency & productivity of the economy ( driveby ). I believe that the negative coronavirus impact on real income, employment, industrial production and retail sales will be constrained and short lived - not more than a quarter - and will be be followed by a v-shaped economic recovery. Therefore the GDP in the next quarter might slow down - but not shrink -  and it will re-accelerate in the third quarter of this year. No recession!

 
   

Books: Lurid & Cute By Adam Thirlwell

 (Drivebycuriosity) - .Adam Thirlwell is a rising star on the firmament of British literature. The Independent claims that Thirlwell "has been the next big thing for a few years now" ( independent).
 I had really enjoyed his debut novel "Politics" - funny, intellectual & brilliant. Therefore I bought his newest book "Lurid & Cute" (amazon). What a disappointment.

There is no real plot, just a menace of random musings. The novel is told in first person, by a young man, unemployed, living with his parents and financed by his wife, named "Candy (!), on whom he cheats - a package of clichés. Thirlwell writes "This man looks like an idiot like a corrupt idiot and acts like one, but don`t let that corrupt you. He is a corrupt idiot" obviously refering to his lead character.

In the beginning I found Thirlwell´s unconnected thoughts amusing, but reading got more & more tedious. Thirlwell`s attempts to provoke and to be lurid are boring and are just lukewarm clichés. Browsing this book was a wast of time.

Stock Market: Bull Market R.I.P. Killed By Fearmongering & Incompetence

(Drivebycuriosity) - Finally, the bull market for stocks, which started March 2009, came to an end. Yesterday the S&P 500, the gauge for the US stock market, plummeted to 2,480.64 points and finished the day 26.7% below the all-time high from February 19. A drop of at least 20% defines the end of a bull market and the beginning of a new bear market. The 16-session plunge into a bear market is the quickest in the S&P 500’s history, writes The Financial Times .ft.com ).

The bull was killed by a wave of hysteria, panic & fearmongering. The media focus on negative news and they present them as alarmist as possible. Fear brings them clicks and more advertisers. The meltdown was aggravated by massive short-selling (borrowing stocks and selling them immediately in the hope to repurchase them later much cheaper).

The crash was also caused by the incompetence of American politicians & bureaucrats. We have still to wait that the IRS postpones the tax deadline from April 15, which could give some relief. President Trump mulled about tax cuts, but nothing happened so far. The authorities are quick to imply travel bans and quarantines, but the bureaucrats take time to deliver the economic stimulus which would be necessary to sooth the panic. What about temporary helps for airlines, hotels and other industries who suffer from the panic, what about a tax holiday?

There are also some political groups who are surely happy with a crash and a bear market because sharply falling stocks could reduce the chance that President Trump will be reelected in November. Some people might celebrate the recent sell-off - and they might even have helped it by massively short-selling.
 
Anyway, I believe that the longest bull market in history will be followed by one of the shortest bear markets in history. “The stock market has predicted nine of the last five recessions” joked once economist and Nobel prize winner Paul Samuelson (wikiquote ). The coronavirus won`t push US economy into a recession, even though some political groups hope that an economic downturn could kick Trump out of office.

In China the crisis has already peaked and the Peoples Republic is going back to work. I think that quarantines, travel bans and cautious behavior (handwashing, fewer body contacts etc.) will constrain the epidemic and economy & stock market will recover soon. In a briefing to a House committee, Anthony Fauci, the head of the National Institute of Allergy and Infectious Diseases (NIAID), said he is "hopeful" that the first patient will receive a coronavirus vaccine in a few weeks (/seekingalpha).

I am aware that big events like the Coachella Valley Music and Arts Festival or the Austin Music & Arts Festival are cancelled or postponed and that airlines, hotels, cruise ship operators and others are hit. But the majority of the US economy is still sound. New York City, where I live, shows business as usual. Streets, subways, shops, restaurants, delis, pubs, gyms, public pools and other places are crowded as always. The Weekly Initial Unemployment Claims, the most recent economic indicator, decreased to 211,000, close to an all-time low. And the US Energy Information Administration reported that domestic oil & gasoline demand increased ( aaa). Where is the crisis?

 ( source)



There are already two strong market movements which are compensating most of the perilous coronavirus influence on the general economy. Oil prices are in free fall. Brent Crude & WTi, the futures for global & American oil, dropped about 50% since begin of the year (charts above). Gasoline prices are following. There are 3 reasons for that. A rising oil glut, thanks to American fracking, the fear that the coronavirus reduces oil demand (less traveling) and a price war started by the Saudis to wipe out US competitors.

Dropping costs for gasoline & natural gas work like a giant tax cut. The price war on the oil market is a gift for the global economy. Imploding oil prices are a huge stimulus program because consumers have more money to spend and corporations have less costs. Therefore consumer spending, which is about 70% of the US GDP, should stay robust. Spending for renting should be immune to the virus, spending for health care might even rise. People might travel less, might go out less and visit fewer shops & restaurants, but they may shop more online and many might work from home.  It is possible that the virus - and measures against it like quarantines - alter the behavior. We learned from China that there more people are working, learning & shopping from home which is fostering digitization and so rising efficiency & productivity of the economy ( driveby ). I believe that the negative coronavirus impact on real income, employment, industrial production and retail sales will be constrained and short lived - shorter than a quarter - and will be be followed by a v-shaped recovery.

 (source )

Interest rates also have been falling sharply, caused by ongoing flight into safe haven (chart above). Lower costs for consumer credits, mortgages support investments & consumer spending. I assume that the double package of cheaper energy prices & credit costs will compensate most of the perilous impulse of the corona epidemic. As a result the US economy will avoid the recession the alarmist are predicting and the stock market will come back sooner than many think.
 

Contemporary Art: Philip Pearlstein - Nudes & Other Landscapes @ Betty Cuningham Gallery New York

 (Drivebycuriosity) - Philip Pearlstein likes naked women, even when they aren`t young anymore and show the tolls of their age. The artist also likes to travel and to paint what he observes. Betty Cuningham Gallery on Manhattan`s Rivington Street has an exhibition which combines both, called: "Nudes & Other Landscapes" (through April 5, 2020  bettycuningham ). I display my favorites here, a very subjective selection as usual.

Above some erotic & funny combinations.

Above some cityscapes, maybe from Thailand and some Arabian place.

To be continued