The Limits of DFTF?

Mulveych

Non-economist, non-MBA here. If we stipulate that the real economy is worsening and will continue to worsen, with or without the obviously-necessary and delayed shutdowns (I AM a healthcare provider), I would like to ask for some clarification regarding the notion of DFTF: might the bulls be missing the point that, yes, federal largesse in its many forms might, in various ways, inflate asset prices...but if the economy continues to re-crater, it might be propping up still disastrously-low prices? Put more clearly, rather than seeing continued increases in major indexes, the stock market will still crash...just less than it otherwise might. Instead of American Airlines being $1/share, it’ll be $2/share. Instead of the SPX going to 1,200, it’ll go to 2,100. No cause for exuberance, irrational or otherwise. Am I missing something here? For the record, I actually think it is time to accept that this isn’t a one-off, weird shutdown-induced recession, but rather now a regular, soon-to-be-cascading economic sh*tstorm and with that, we should allow failed businesses to die and give unemployment insurance to folks to prevent a lived Depression. Romer said last week that we should stop the stimulus until the virus is under control; to me seems like pissing into the wind at this point—except the piss is hydrochloric acid that will cripple the economy in the longer run. Thoughts?

Comments (4)
No. 1-3
Curious-Cat
Curious-Cat

What is DFTF?

Mulveych
Mulveych

I’m aware that the stock market is oft noted to be a “prediction machine”. Nevertheless, I’ve long been baffled by what seems obvious on its face: the US federal government’s economic response to the pandemic only made sense if we scaled up testing, tracing, and isolating processes during the spring shutdown (which was necessary to prevent hospitals from becoming completely overwhelmed, let us remember as we head into flu season). The shutdown, and its nuclear weapon level federal economic response, was essentially wasted but for the lives (temporarily?) saved. I have a spectacularly hard time understanding the current stock market levels when any amount of stimulus now is essentially a band-aid on a shotgun wound. The fall will see a huge number of layoffs, defaults, bankruptcies, foreclosures, and the like. We just kicked the can down the road with the PPP, prohibitions on evictions and foreclosures, and generally propping up insolvent businesses. Again, made sense if we did what we needed to do. We didn’t. Where is the optimism? There’s no cause for it aside from market distortions that will not persist indefinitely. How good is a prediction machine that seems not to grasp that diagnoses lag infections, hospitalizations lag diagnoses, and deaths lag hospitalizations—all by quite a range of 4-8 weeks total? The mistakes of the late spring are only now, in August, going to hit home. How good is a prediction machine that seems not to realize that the people who will be expected to buy iPhones next year won’t have the incomes to do so when upwards of 50% of business closures are expected to be permanent and enhanced UI Will not persist in its more generous state? Sure, Amazon should see a one-time surge in online shopping, merely accelerating extant trends. Will that continue to grow when people have less money in the bank to shop? I feel like I’m taking the proverbial crazy pills.

Mulveych
Mulveych

And this vaccine mania (again, hardcore pro-vaccine healthcare provider writing) is maddening. Fauci has already said that far too few people appear willing to get any possible future vaccine to achieve herd immunity quickly (many assumptions in that sentence alone). Actual experts have cautioned repeatedly that having one or more vaccines that appear safe and effective is quite distinct from manufacturing, distributing, and administering the vaccine. Sure, exciting and hopeful results might be published in the fall and early winter. Even on the most optimistic of timelines, we’re talking about scaling up a vaccine campaign to be ready in time for NEXT FLU SEASON (hopefully, the right pieces in place by neXt summer). Now add in that, as of yesterday (reported on TPM), we essentially have a physician whistleblower on the FDA’s vaccine advisory committee saying that they feel the creeping hand of the Trump administration inching its way into the committee’s cookie jar with the serious concern that Trump’s “October Surprise” will be announcing an emergency use authorization on a less-than-fully-studied vaccine. That will shatter public confidence if/when things go south. Again, at a loss.