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Short Take on the Long Line to Recession

As stocks took a morning breather while I enjoyed my coffee and pulled together the first recession stats since the Coronacrisis,

 I came across a heart-ripping prediction from Goldman Sachs for this week once the week's data is in. We've walked down a long line of facts together over the past months on our way to this recession, if you've been following me, but the last step this week was a doozy! It brought us to where even the big boys agree now we are fully in a recession.

Bank of America warned investors on Thursday that a coronavirus-induced recession is no longer avoidable — it’s already here“We are officially declaring that the economy has fallen into a recession … joining the rest of the world, and it is a deep plunge,” Bank of America U.S. economist Michelle Meyer wrote in a note. “Jobs will be lost, wealth will be destroyed and confidence depressed.” The firm expects the economy to “collapse” in the second quarter, shrinking by 12%.

I have no argument with where they say this is going and certainly not with stating a recession is already here. Why wouldn’t it be? A recession was already clearly coming down on us and, at least, partially here. I do think calling it the “coronavirus induced recession” could be an attempt by BofA to blame all this on the coronavirus and take the pressure off of banksters and the rest of Wall Street for their roll in assuring it would come.

Nevertheless, it’s certainly fair to say the coronavirus is a massive contributor to what was already building; but look at what was already here economically (red line), and look at what is happening in stocks (green line)

Zero Hedge

This shows in a picture why I said in January an imminent stock market crash would easily build up spectacular momentum (as it clearly did) because it has a long way to fall to “catch down to” the actual Main Street economy. You can see in the graph above that every bubble in stocks has always fallen back to economic reality. Since this bubble (BALLOON!) was stratospherically higher than the Main Street economy, it has a lot further to fall. That assures more room to build up momentum, in order for the market to get back down to where it belongs.

The real picture, however, is much worse than the graph because the graph shows where the economy was up to the moment when the virus first hit China. Imagine how much worse the entire global business economy is (US included) now that the virus has spread throughout the world. The market has that much further to fall to price down to match the new economic reality. Then imagine how much further the entire global economy (US included) will fall this month, and know the stock market has to fall that much further, too. Then next month as the viral-induced damage continues.
That is a summary in one snapshot of why I called this, back in January, “the most perilous stock market in history!”

Charting unexplored waters

Now, here are a few stats showing where we went at the tail-end of February just as all of this was beginning to take hold in Europe, Australia, and the US.
First, Zero Hedge published a hint of the jobless claims that BofA says will be quickly rising:

Zero Hedge

 Looking at what people are looking for gives you a good idea of where they’re headed. Then the actual report came out and confirmed a perfect match:

 Zero Hedge

That was for the week that ended on March 14. So, the last holdout in a recession that was already forming (a change in unemployment) is now fully in due to the Coronacrisis kicking our butts down into the recession hole, which we were already leaning far out over. We were an easy kick.

But it gets a lot worse quickly … almost immediately. Not to be outdone by Bank of America, Goldman Sachs weighed in with its own heavy predictions:

That is not anything compared with what is in store.
David Choi, an economist from Goldman Sachs, says initial claims for the week ending March 21 may jump to a seasonally adjusted 2.25 million. His analysis is based on recent anecdotes from press reports as well as company announcements. Over 30 states have provided preliminary data. He said that even the most conservative assumption would be claims reaching over 1 million, which would top the record high of 695,000 in 1982.

And with that, the market ended its morning rest, plunged another 900 points down and closed off its worst week since the big crash of 2008.
Bridgewater Associates, a prominent hedge fund manager, says the economy will shrink over the next three months at an annual rate of 30 percent. Goldman Sachs pegs the drop at 24 percent.... “We are looking at something quite grave,” said economist Janet Yellen, the former Federal Reserve chair.
Even Yellen, 73,… has not escaped the anxiety. She’s hunkered down in her District of Columbia home running economic forecasts that all look grim. Her son … is self-quarantining in the family’s basement to avoid endangering his mother. Yellen, one of the world’s top economists, leaves plates of food for him at the top of the basement stairs
The Hour
Gold plates, I’m sure.

Maybe that’s media scare, but remember GS is usually the perennial optimist as it tries to pump the market up. Of course, I wouldn’t put it past them to have shorted the whole market in order to make a vast fortune and then to stomp it down as hard as they can.

Regardless, it is fully safe to say the virus quickly knocked down the blip of hope that had spiked onto the economic radar screens in February, taking the Philadelphia Fed’s Business OutlookSurvey back to where it was at the end of the Great Recession:


After dealing with a long down trend since the summer of 2018 (those stimulus tax years), hopes had broken through “biggly” to the upside’ but they are now biggly lower. (From +36.7 to -12.7.) Easy come, easy go. Under the hood, this reflects a huge dump in new orders, shipments, inventories, employment, and prices received.

You can see the Empire State’s March survey looked just as bad, except that it didn’t show as much of a spike of hope in February — same protracted decline since 2018, falling off a cliff this month.

Read Complete Editorial Here
Zero Hedge

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