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Newsletter: The American Jobs Machine Has Shut Down

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This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

Keep an eye on the weekly U.S. jobless claims report out today to gauge how quickly and deeply the coronavirus pandemic is crashing into the economy. Jeff Sparshott here with the latest on the labor market and broader economy.

Welcome to the Machine

The great American job machine just ground to a halt. As a result of the coronavirus pandemic, more than 1 million Americans are forecast to have filed for unemployment benefits last week, marking a dramatic end to a historic national job expansion that started in 2010, Eric Morath and Jon Hilsenrath report.

Until March, U.S. employers added jobs for a record 113 straight months, causing payrolls to grow by 22 million. In the process, millions of people—including low-wage hourly laborers, disabled people, minorities, former inmates and others—found work. The unemployment rate had been at levels not seen since the 1960s. Wages started picking up after lagging during the early stages of the expansion. The strong labor market kept the U.S economy humming straight through a European debt crisis, Japan’s tsunami, a Chinese economic slowdown, a domestic manufacturing slump, volatile energy prices and a global trade war. And then in a matter of days it stopped.

Millions of Americans, already fearful the new coronavirus could infect them or their families, now have another worry: When will the job machine start again and can they hold out until it does.

WHAT TO WATCH TODAY

The Bank of England releases a policy statement at 8 a.m. ET.

Group of 20 leaders hold a video teleconference at 8 a.m. ET.

U.S. jobless claims are expected to rocket to 1.5 million from 281,000 a week earlier. That would top the previous record of 695,000 set in 1982. (8:30 a.m. ET)

U.S. advance trade in goods figures for February are out at 8:30 a.m. ET.

U.S. gross domestic product growth for the fourth quarter is expected to advance at a 2.1% pace, unchanged from an earlier estimate. (8:30 a.m. ET)

The Kansas City Fed’s manufacturing survey for March is out at 11 a.m. ET.

The White House coronavirus task force holds a press briefing at 5 p.m. ET.

China’s industrial profits for February are out at 9:30 p.m. ET.

Note: This is a partial listing of key economic events and subject to change.

TOP STORIES

It’s a Start

The Senate approved the largest economic stimulus package in recent memory, moving the estimated $2 trillion bill to the House as Congress seeks to give American families and businesses a financial shield against the ravages of the new coronavirus pandemic. The House is set to consider the legislation on Friday.

The emergency relief package would help stabilize the coronavirus-battered economy—but likely isn’t enough to bring it back to health. Preliminary data suggest that the U.S. economy is already shrinking, as businesses close and unemployment soars. The depth of the economic decline in coming months will depend on how quickly Washington can deliver checks to cash-strapped households and businesses, as well as whether a treatment is found and how soon shutdowns are lifted, Kate Davidson and Josh Mitchell report.

Underscoring the rapidly changing outlook, JPMorgan Chase revised down its growth outlook for the third time in three weeks on Wednesday. “Such is the pace of events,” economists Michael Feroli and Jesse Edgerton wrote in a note to clients.

What’s in the emergency aid bill? We’ve broken it into four parts: the top lines, households and workers, business and banking, and personal finance and taxes.

$2 trillion could be just the start. If the stimulus isn’t doled out fast enough or the pandemic drags on longer than expected, even this historic rescue package might not be enough, Justin Lahart writes.

President Trump said restrictions on economic activity could be lifted in some parts of the country but not others as his administration works to develop a plan for how Americans could return to work in a few weeks without exacerbating the spread of the virus in the U.S., Rebecca Ballhaus and Stephanie Armour report.

The U.S. now trails only China and Italy in the number of confirmed coronavirus cases, with almost 70,000 infections on Thursday morning, according to Johns Hopkins data. India, meanwhile, implemented the world’s most extensive stay-at-home order.

How much should U.S. households be willing to pay financially to reduce the risk of deaths from the new coronavirus? University of Chicago researchers Michael Greenstone and Vishan Nigam did some calculations and came up with a number: $7.9 trillion. The figure is based on a measure known as the “value of statistical life,” a calculation of how much people already pay in day-to-day life to reduce the risk of mortality in the coming year, Gwynn Guilford reports.

The novel coronavirus is creating an economic doom loop. Western retailers are suspending and canceling clothing orders, threatening millions of factory jobs in Asia just as China shows signs of recovering from the worst of the coronavirus outbreak. Among the first to be hit by the consumer shutdown in the West are suppliers to the world’s “fast-fashion” giants, like H&M. They are now pausing or canceling factory orders, boding ill for Asian manufacturers of other, slower-moving consumer goods like cosmetics, smartphones and cars, Jon Emont reports.

What is essential? In Europe, the answer can depend on where you live. Across the continent, government rulings on what are essential products and services vary widely, even over short distances. In France, baguettes are sine qua non. Across the border in Belgium “french fries” are vital, and next door in the Netherlands, coffee shops—selling legal marijuana—are a must, Valentina Pop and Nick Kostov report.

The WSJ has lowered its paywall for live coronavirus coverage. Follow along here.

TWEET OF THE DAY 

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WHAT ELSE WE’RE READING 

Saving lives and saving the economy aren’t in conflict. “Our paramount concern at this moment should be to slow the spread of this virus and equip our health care system to effectively respond,” the Aspen Institute’s Economic Strategy Group wrote. “We will hasten the return to robust economic activity by taking steps to stem the spread of the virus and save lives.” The policy group includes four former Treasury secretaries—Timothy Geithner, Henry Paulson, Lawrence Summers and Robert Rubin—as well as former Federal Reserve chairs Ben Bernanke and Janet Yellen.

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Real Time Economics has launched a downloadable calendar with concise previews forecasts and analysis of major U.S. data releases. To add to your calendar please click here.



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Economy

Recessions, Bear Markets Need Time to Develop

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Is this a Dead Cat Bounce or End of the Bear market?

My method for understanding which is admittedly peculiar: I concoct a novel, often unpopular narrative whose construction yields insight into what is unfolding. It helps if this “variant perspective” is both plausible and not widely held. The less people who share this particular view, the more likely it is not reflected in market prices.

Step two considers the opposite point of view:  What if the counter to this outlook is more accurate, and the entire prior thesis is incorrect? As is so often the case, the truth may be found somewhere between these extremes.

Last week, we considered one scenario: perhaps the Coronavirus didn’t end the bull market. The drawdown is merely a counter-trend rally within a longer secular bull market; it is similar to the 1987 crash, a temporary setback within the longer 1982-2000 secular bull market. If the economy is merely experiencing a temporary contraction, once shelter-in-place orders are lifted, it will quickly recover. Pent up demand will send 330 million Americans, all with a bad case of cabin-fever, out to shop, dine, play and celebrate! Companies will rehire 10 million+ workers. The bull resumes its prior trend, eventually making new all-time highs. Happy happy, joy joy!

My colleague Batnick is somewhat incredulous about this thesis. But our investigation does not end there. Step two in our methodology is to consider the opposite position: What if the economic expansion is over, and the secular bull market is dead?

We have had prior crashes, economic collapses, and recoveries before. Winding our way through this unprecedented period of 10 million jobs lost in a month, and a 35% collapse in market prices (plus the recent 21% recovery), there is simply nothing comparable in prior experience. Pearl Harbor? Stagflation? Tech Wreck? GFC?  None are parallel, but the one commonality in these prior events is time.

These events all unfolded over a long period, both in the run up to- and the subsequent recovery from- each.

As an example, the diplomatic, trade, and economic factors that preceded the Pearl Harbor Attack, bringing the United States into World War 2, were years in the making. The 1960s and 70s bear market had multiple price shocks, high inflation and high unemployment that unfolded against a decades long malaise of the Viet Nam war and the Watergate scandal. Or consider the dotcom boom – by many measures, the market was overvalued years before the peak. The “irrational exuberance” speech  by Fed Chief Alan Greenspan was in 1996. The causations of the GFC were literally decades in the making.

Time might just be the most important, yet least well-understood aspect impacting how investors behaved during these prior market crashes.

We are pattern-recognizing creatures, looking to make sense out of a jumble of confusing and often contradictory information. Out of the chaos, the human primate confabulates a comforting narrative (as I try to do above). We are so uncomfortable with the idea that our lives are random, we desperately seek a storyline that is cohesive, understandable, and fair. We collectively lose our minds when some form of rationality is not present.

We find repeatable patterns.

Our psychology is such we keep doing what works until it no longer does. Since the end of the great financial crisis in 2009, the “Buy the dip” mentality has been amply and consistently rewarded. Every pullback has eventually led to new highs; each 10, 15, 20% drop has proven temporary, at least so far.

Traders recognize this pattern, whether it turns out to be random, temporary, or destined to eventually fail. When confronted with what trade set ups that have worked in the past, we mice run through the maze to get our pieces of cheese. This behavior is unlikely to stop until the behaviors stops getting rewarded.

Consider what traders did following the tech peak in March 2000. It took several years to see the dip buying behavior end. Before that top there was nearly two decades of new all-time highs. (Even the 1987 crash was a temporary 31% setback within the longer 1982-2000 secular bull market). When the Nasdaq peaked at 5100, the subsequent fall saw repeated recover attempts. The Nasdaq 100 Index, a popular trading ETF of the era, fell 30% from 107 to 75, rallied back 30% to 101, fell 15%, then rallied 18% to 102, before saw-toothing all the way down to a ~80% drawdown at $22 in October 2002.

Hope springs eternal among those who have been rewarded in the past for their faith. It takes time to break those money-making habits.

It is unclear if this has occurred yet.

The speed of this collapse is part of the reason why. Psychological damage that occurs in “normal” bear markets typically takes time to surface. Consider the Great Financial Crisis (GFC). U.S. equity markets peaked in October 2007; they made their final lows in March 2009. Over the course of those 18 months, investors became worn down by a relentless flow of bad news. Banks were imploding, massive layoffs were being announced, mortgage defaults were exploding. It really felt like the economic world was ending. But that did not happen in a month – it took 18 months before investor negativity turned into panic, culminating in capitulation. The definition of the word capitulation is surrender: Investors simply give up. They had to do something, anything, to stop the pain. This exhaustion of sellers is how lasting bottoms are made.

We have yet to see anything remotely like that in 2020.

The post Recessions, Bear Markets Need Time to Develop appeared first on The Big Picture.



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Economy

The COVID-19 Fraud – It’s Massive

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Whenever the government creates a program, they alter the incentives within society. I mentioned I have a friend in London whose mother went to the hospital and he knew she was near death. After two days, the hospital claimed she died of the Coronavirus. He said how since she did not go in with that? The joke in London is that COVID-19 is the miracle cure. Nobody in London has died from a heart attack, only COVID.

Senator Dr. Scott Jensen of Minnesota came out to expose how the AMA is encouraging American doctors to overcount coronavirus deaths across the US. He showed a 7-page document coaching him, as a doctor, to fill out death certificates with a COVID-19 diagnosis without a lab test to confirm the patient actually had the virus. Why? Because of the package for this relief, hospitals are paid more to attend this virus. NOBODY is dying of the flu any more – only COVID-19

The numbers will then be used to justify keeping the money flowing to misrepresent this as an epidemic. This fraud will then come back to justify keeping the economy locked down longer and the AMA is now contributing to the destruction of everyone’s livelihood, pension, and this exposes the corruption that always emerges with government programs.

This is when the lawyers need to see the dollar floating in the air. It is time for a class-action lawsuit against the AMA for misrepresenting this virus which is destroying small businesses and drastically increasing unemployment. Come on – we have plenty of lawyers reading this. Now’s the time to do something constructive. What the AMA is encouraging is FRAUD and to classify a death to COVID-19 without testing is actionable FRAUD. This is no different from Medicare Fraud which is a crime – For Medicaid and Medicare fraud, federal law establishes (1) a civil statute of limitations of six years (42 U.S.C. § 1320a-7a(c)(1)), and (2) a criminal statute of limitations of five years (18 U.S.C. § 3282).

Student Loans are a classic example. If you want to become a billionaire, it is simple. Create a product that is ABSOLUTELY worthless, nobody will ever use, get politicians to support it, and then claim it is so vital to the future that the fools who sign up can never go bankrupt on it and will have to pay for the rest of their lives.

This is how our future is utterly destroyed by the corruption inspired by such governmental programs.



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Economy

The next coronavirus relief package must include funding to safeguard our democracy

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An essential component of any ‘phase four’ coronavirus relief and recovery package must be additional investments to protect our right to vote. Lawmakers must act now to establish safe, alternative voting methods—like vote by mail and online voting—especially before November’s general election.

The CARES Act included $400 million in “election security grants” to prevent, prepare for, and respond to the coronavirus domestically for the 2020 federal election cycle. This is far less than fair election advocates argued was necessary to protect our elections during the pandemic. The Brennan Center for Justice, for example, released a plan calling for a $2 billion investment to ensure that the 2020 election is free, fair, accessible, and secure.

As more states explore alternative ways of casting ballots, Congress must provide resources responsive to the magnitude of the challenge. A failure to provide sufficient investments to safeguard elections is the most successful effort at voter suppression and disenfranchisement since the expansion of the franchise. We must demand investment in our democracy infrastructure and more voting options.

While most people think of voter suppression as voter ID laws, felon disenfranchisement, and gerrymandering, our archaic voting system also routinely suppresses votes. As our ancestors have done for hundreds of years, we are required to vote in person, despite many other aspects of our lives being updated to include newer and more convenient methods. We can complete the 2020 Census survey online or by mail. We can order groceries online and have them delivered. We can file our taxes or deposit checks from our smartphones. We can have prescriptions refilled by mail.

Yet, some politicians—like Republican lawmakers in Wisconsin—want us to risk our health in order to have a chance to cast a ballot. It shouldn’t have taken a global pandemic for us to realize that we need more accessible voting methods.

One promising alternative method is a vote-by-mail system. Five states—Colorado, Hawaii, Oregon, Washington, and Utah—already conduct their elections through mail. Several voting rights groups have expressed support for a vote-by-mail system for the general election. Democrats included a proposal for a national requirement of 15 days of early voting, no-excuse absentee voting, and mailing ballots to all registered voters during an emergency in their relief bill. However, Republicans blocked consideration of the measure.

Online voting must also be considered. While online voting may seem farfetched, it has already been successfully implemented in some U.S. elections. For example, earlier this year, the greater Seattle area held the first election in U.S. history where all voters could cast a ballot by smartphone, while West Virginia has allowed voters living overseas to vote using a mobile app. Given that 81% of Americans own smartphones, studies show that online voting could dramatically increase voter turnout.

So, why have these voting methods not been implemented? The most prevailing and unfounded belief is these methods are risky and fraudulent. But these methods have already been implemented in various states with no evidence to support a claim of greater risk. Instead, this unsubstantiated narrative has kept Americans with limited voting options, all while voter rolls are purged, long lines form in primary elections during a global pandemic, and economic policies are enacted that do not benefit all Americans.

Some politicians believe it is risky to make voting easier. Last week, President Donald Trump admitted that if voting were easier “you’d never have a Republican elected in this country again.” But it shouldn’t matter which party Americans vote for. What matters is that we have a healthy electorate that represents all Americans.

Congress must include investments in our archaic voting system to make it easier for everyone to participate in our democracy, and funding for a vote-by-mail system and other alternatives must be included in a ‘phase four’ recovery and relief package. A failure to do so amounts to voter suppression.



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