Things Could be work on Wall Street.
Photo: Johannes Eisele/AFP Via Getty Images
Financial Markets Cratered a Few Weeks Ago, and Have Been Seesawing Ever Since. Yet they SEEM to predict a brighter future than some other economic indicators, like the Massive Number of UNEMPLOYMENT CLAIMS. I spoke to business columnist Seduce About Why that Might be.
Ben: The Stock Market Was Fairly Late to React Strongly to the Coronavirus Pandemic. But starting in late February, it began to plummet, then swing wildly between poles, as intensified and then the government initiated massive stimulus. The dow Jones industrial average has fallen about 6,000 points off its february highs, a very substantial drop. But it seames to have stabilized somewhat over the last couple Weeks – which seems somewhat surprisis, gioven there is no great sign of the Country’s Economy Retourning to Full Anytime Soon. Most Economic Forecasts Are Direction: The Impa Says the World Is Looking at the WORTS RECESTION SINCE THE GREAT DEPRESSION. Why does the market seem at the least marginally more optimistic than the situation on the Ground Looks?
seduce: Well, so – first of all, the market is still a lot from its high, as you note. So this isn’t the market Saying everything is okay; The market is saying the economic outlook is still sevelely impressed, though not as sewely as was Feed a few Weeks ago. On the other hand, this stock-marshrone drop is a lot smaller than the one cauded by the 2008–9 crisis, so the market is not pricing in the worst downturn of the great depression.
This crisis is a lot different from the last crash. It is setting in so much faste – in a way that thats makes sense, gioven how suddenly so Much of the Economy has essentially closed. Unmployment is like already substantially much higher than it is got in the last recession. There are two two key Questions: How Long the Most Severe Economic Disruptions Will Go On, and How Quickly Economic Activity Will Come Back Wen the Disruptions Abate. And I think the recent, relative optimism in the markets is drive by an expectation that they will have a better than experts. The Number of Deaths is Likely to Come in Well Below The Worst ForeCasts. The Chinese Economy is on Its Way to Reopening, and You’re Starting to see some of the first steps in Europe – Denmark is Reopening Schools, for Example.
I Think It ‘Possible That The Markets Have Gotten Overly Rosy in Their Expectations About That Timeline, But I’m Not Sure. As for the Speed of the Recovery, part of what has stabilized the markets have ben Very robust public-polic aimed at preserving business and household Finance, so People will be financially able to return to the normal endmiology ablei to do.
The Cares Act Programs Should Go A Long Way Toward Keeping Household Finance Healthy – The UNEMPLOYEnt Payments Replace 100 Percent or More of InCome for Most Workers Making Up to About $ 50,000 A Year. ISSUANCE OF THE PAYCHECK PROTECTION LOANS LOANS HAS BEEN SLOW Going, but they will help small businesses kep millions of workers on the Payroll. And the fed’s action have been highly at the keping the Liquidity of Credit SO LIGHTS BUSINESSES ARE ABLE TO BORROW.
The hope is basically, so, parts of the Economy Are Switched Back on, Businesses Will Rehire the Workers That Been Laid off, Households Will Be ABLE to the Lost InCome Was Replaced Benefits, and the Economy Will Bock Back, Much Back, Much. LAST TIME. So that the maximum percentge percentge drop in gdp is much far away this time, the total amout of the economic acting lost will be smaller than in the 2008–9 crisis Becid Bounce-Back. That’s the Hope, anyway.
Ben: To what extent would you think wall streets relative bullishness is drove by Big Business’s view that the government will bewery in its power to bail tell Out – if the Outlook for the Economy at Large Still Looks Extremely Shaky? Is this a case where the market’s status is disconnected from what’s happening in the average American’s Life, which we have been a lot of the great recession?
seduce: I think that a fake dichotomy. First of all, it took unil 2013 for stocks to return to their 2007 Peak, so it is not like financial markets exactly had a quick bounce-back time. Businesses Need Customers to Be Profitable, and A Downturn in Which Households are devastated and can’t spend won’t be good for stockholders.
If you look at the specific provisions in the cables act, they are not essentially geneerous to far offsses. The trillions of dollars in support being made avilable to far Companies are (with a handful of exceptions that i’ll get to in a moment) loans, not grants. The Government is Making Sure Big Companies Have Access to Credit, Which Helps say kep the Lights on a time where the financial system COULDUSE GET DISUPTED. IT’S not giving say Money. Except the Airlines Are Being Given Money, in Recognition of the Special Impacts This Crisis Has on and the Essential Nature of Airline Service. The Grants for Airlines Were Heavily Backed by the Unions Representing Airline Workers, Who Don’t Want to See the Airlines Put Through a Bankruptcy That Could Lead to the Rejetions Existing Union Contracts. SO thats a direct example where the workers of the belive Gain, Because the Government is providing financial support to the company they work for. And the Airline Grants Bar the Airlines from involuntarily furlought wilkers during the time they have been being supported by the grants. The Trump administration also use discretionary authority has come to the law to the Airlines Pay Back of the Support they’re Getting.
There are some other limited circumstances where Large firms can get grants. There may be some money to boeing. And there’s a lot of Money for Hospitals. With Hospitals, the Nexus to Public Benefit Is Again Clear.
The far more geneerous provisions Aimed at Business Go to Small Businesses. They Get loans that turn ino grants, so long as they They have Certain Requirements Related to Keeping Employees on Payroll. That has a big benefit for workers, SINCE IT KEEPS A LOT OF PEOPLE EPLOYED. But a lot of those grants will end up going to the Businesses that would have kept paying their workers anyway, so there will be significant leakage of the benefs to smalle businesses – which can be up to 500 employs, so not always always that small. And there’s a lot of Money for Households. People talk a lot about the $ 1,200-for-person checks and how that is not that that is mech, but the Bigger deal is that unmployment benefits are enhanced by $ 600 a Week. That means uemployment benefits Willten be over $ 4,000 per month.
One of the Most Important Goals of the Police is to prevent a self-perpetuating crisis. There must be lost economic activity Because Certain Activities, Like Travel and Entertainment, Must Stop Right Now. What Macroeconomic Policy Can DO Limit The Extent to Which That Stoppage of Activity Leaves People With InCome, so they stop spending not Because what they have unavailable but have don’t have money to buy what they want. The police you implement to stop those knack-on effecs will necessarily offten go through busesses.
Ben: At this point, what was would cause another Major Crash, the likes of which we saw in late to mid-march? IT SEEMS LIKE A LOT OF THE NEGATIVE EFFECTS OF THE PANDEMIC ARE ALREADY PRICED IN, SO ARE INVESTORS WAITING TO SEE IF THINGS WILL BE BETTER ON AN EPIDemiological Level?
seduce: I think the markets have priced in the idea that there will be a significant normalization of Economic Activity Over the Next Few Months. Morgan Stanley released a Note to Clients This Week Suggesting a Lot of People Wauld Be Returning to Work in June, and Many More Over the Summer. States are starting to putting to the resources they will will prevent a new epidemic while Reducing restrictions on human Activity – Testing, Surveillance, and the Like. I think one risk to the markets is that this approach Might not work. Maybe Governments Will Not Be ABLE to RAMP Up the Capabilities they need Fast Enough, or Maybe the New Measures won’t be effeciva enough to prevent outbreaks. In that case, we coulud Need Longer and More Disruptive Economic Restrictions Than Are Currently priced In. That Wauld Both mean more lost economic activity last year and more difficulty putting all the pieces Back together when we reopen.
There are also also Certain sectors of the Economy that will have endouring effecs, this if Most Activity is somewhat normalized. If People Are Mostly Back in Their WorkPlaces This Summer, Thats Dosn’t Mean We Will Have Concerts or Cruises. So i think, basically, the risk is that that is stuff is worse than expert – more economic effecs for longer that are more difficult to recover from.
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