Don't Expect a Return to Normal This Year

Mish

Those expecting a quick economic rebound are seriously mistaken.

No Return to Normal

US states are slowly lifting lockdown restrictions now, 

Countries in Europe are doing the same, with France lifting restrictions on May 11..

But then what?

In a May Day address, French president Emmanuel Macron warned that Life Won't Return to 'Normal' After Lockdown Ends

"May 11 will not be the passage to normal life. There will be a recovery that will need to be reorganised," Macron said in a speech at the presidential palace after a meeting with horticulturists.

French President Emmanuel Macron warned on Friday that the end of the national lockdown on May 11 would only be a first step as France looks to pull out of the crisis created by the coronavirus pandemic.

In a controversial move, Macron's government has decided that schools will gradually reopen from May 11, despite the reservations expressed by its scientific advisors.

The US should hear a similar from president Trump, but I doubt we do.

Back in France ...

Emergency Travel Quarantine Until July 24

Health Minister Olivier Véran announced France would extend its Covid-19 "state of health emergency" through July 24.

Kiss the French Travel industry goodbye until August as Travelers Face Quarantine for 12 more weeks. 

A bill to be put to parliament on Monday says plans this month to lift the public health emergency, which began on March 24, would "be premature" and "could see a risk of the outbreak" intensifying.

 "We are going to have to perform a long-distance run," Véran told a news conference, saying he was aware that the French people had already been asked for "colossal efforts" in the fight against the virus.

Travelers to France, including French citizens returning home, will face a compulsory two-week quarantine and possible isolation when they arrive in the country to help slow the spread of coronavirus, the health minister told a news conference.

French Tourism

Daniel Lacalle commented on Twitter: "Tourism in France represents 9.7% of GDP and supports 2.9 million jobs (10.9% of employment)"

Rebounds Slow Everywhere

Rebounds will be slow across Europe and in the US as well. 

The finances of too many individuals and corporations have been wrecked. 

Many Scars

Bankruptcies and the drain on savings will leave permanent scars everywhere, even if there was an across-the-board lifting of all the lockdowns,

Don't Expect "Normal" for Years 

  1. Those struggling to make rent or payments will have had the scare of their lives. Attitudes about the need to save will change. More savings means less spending and lower profits for businesses. 
  2. Car buying, travel, dining out, etc. will not return to normal this year or next after this kind of economic hit. The wealth impact alone will take years if ever, given boomer retirement needs.
  3. On the corporate side, kiss goodbye just-in-time production strategies with dependencies on China and no inventories. This will lower corporate earnings.
  4. To reduce expenses, frequent business travel will give way to more teleconferencing. This mean lower hotel bills  and less air travel.
  5. More people will work at home permanently. This will lower gasoline usage and dining out.
  6. Even boomers who did not do much online shopping had to learn new tricks. Many will now be hooked on the convenience of Amazon and will not go back to their old ways. This is another kick in the teeth to struggling malls.

Slow, Choppy Rebound

All of these things point to a very slow, choppy rebound  with many struggling restaurants and businesses not surviving.

If the initial rebound is too fast, it won't hold. 

A double-dip recession may very well be in the cards.

Normal is not the way things were two months ago.

Mish

Comments (78)
No. 1-32
MATHGAME
MATHGAME

The COVID-19 pandemic might have (emphasis on might have) created what the business and investment community fears most ... a prudent and responsible American consumer buying only what they can afford and really need, living within their means, and saving for that "rainy half-year" ... rather than a profligate spend-thrift living high-on-the-hog on endless credit.

Nah ... "go out and buy stuff!" ... a blast from the past ...

Sechel
Sechel

Warren Buffett sold all his airline stakes. Regardless of any actions taken by governments corporations are not going to suddenly authorize pre Covid-19 level business flights. That will take a long time Individuals are not going to suddenly feel comfortable about sitting in close contact with other passengers on a leisure trip. Airlines cannot make money if planes are flying at 25% or 50% capacity.

Same will happen with restaurants. Public is not going to rush out to dine and those same restaurants cannot operate profitably at 25% or 50% capacity either.

Not only will more people work form home, permanently or part time but I see changes in retail. The move to online shopping will only accelerate. I suspect supermarkets will ramp up their delivery services.

I don't think we've adequately thought through telling renters they don't have to pay. Two family home ownership has been a hallmark of the middle class or purchasing a 2nd home as an investor property. In later years this is an important source of income. Nobody has thought much of this.

As far as businesses. I think larger companies are going to try to reduce their dependency on any particular geographic. This means companies will try to source not only from China but from Vietnam and Mexico. This was already ongoing. It will accelerate. For companies it means the work force will be spread out across different states and maybe involve having workers in Ireland, China, India etc. The virus could actually promote having more non U.S. workers.

I also think we're going to see commercial properties take a huge hit with many businesses decided operating at 50% capacity is not a viable business model. It's 50/50 odds that we have a vaccine in 12-18 months. A lot has to go right, a lot can go wrong.

Six000mileyear
Six000mileyear

Outsourcing, regardless of the trading partner is useless in a pandemic. We've learned that pandemics spread to different countries at different time. That gives countries where the virus did not originate time to close borders to prevent the virus' spread. And leaders are going to be quicker to shut borders. More manufacturing at home will have to be done to reduce risks of supply chain shocks.

lol
lol

Coronascam (TARP2.0) was simply cover,a convenient excuse to launch the largest bailout of world govt in history.Repo disaster was the first sign that BRICS and US banks were collapsing fast and had to be bailed out again,and CB's needed a bag man to blame and wala........CORONA BS!

caradoc-again
caradoc-again

2nd, 3rd and 4th order effects will be next to impossible to fully predict. Within those effects could be what you might call Black Swans, even only showing up after a few years.

thimk
thimk

Airlines will reinvent themselves , less people , more per trip. Airplane passenger seating space will be retrofitted to be more enclosure like . you might need a covid19 test though to fly. All of the infection control mechanisms we deploy now , will also be useful in preventing other types infections down the road; kinda of a health dividend. but all and all a brave new world and makeover. it will be interesting.

dr smock
dr smock

Don't you think that Putin is furious at China just like the rest of the world? Covid-19 collapsed Russia's economy and now Russia is setting records for the most Covid virus infections on record, over 10,000 in one day.

wootendw
wootendw

"In a controversial move, Macron's government has decided that schools will gradually reopen from May 11, despite the reservations expressed by its scientific advisors.

The US should hear a similar from president Trump, but I doubt we do."

One of the silver linings of the virus is the closing of public 'schools'. A child's education should be the responsibility of his parents (who freely choose to have children), and not of their neighbors'.

Education is practically free on the internet; all it needs is accreditation. And there are already programs like Kumon and Sylvan (the latter sucks, IMHO) that assist children in and out of school, to learn.

Piano teachers often do it in their own home and there is no reason math or reading teachers couldn't do the same thing.

And there is homeschooling which requires a lot of work on the part of parents but which allows them to control what kind of things their children learn. Much of the HS movement is Christian-oriented, or 'Fonicks'-oriented, but it doesn't have to be. The fact that Harvard education professors are worried about homeschooling is a good reason to look into it.

Sechel
Sechel

Would be interesting to see how the covid-19 impacts cattle car seating on airlines.
airlines can't make money doing all business class flights .consumers can't afford it.

BrainDamagedBiden
BrainDamagedBiden

If Covid follows the Spainish flu model, there may be a second, even more deadly recurrence next year. Welcome to the new normal. The old days of globalism and money printing are over. There's a new day dawning of personal responsibility and self sufficiency.

Realist
Realist

Long Term Pandemic Effects

The virus isn't going away anytime soon and we will suffer second, and more waves until effective vaccines are developed. Eventually, you will probably get an annual CV shot along with your annual flu shot.

Until that time, for the next 2-3 years the biggest effect for developed countries will be increased costs for business and governments, resulting in increased prices for consumers and increased taxes for taxpayers.

This will mean higher prices and lower standards of living for all but the wealthy.

A few examples:

Restaurants will not be able to have as many seats. Theatres and Hair salons too. Etc. This means higher prices.

Airlines, trains, busses, subway will have fewer seats and higher prices.

Supply chains will spread to more participants in more countries and more home grown suppliers, so as to spread the risk; but it will increase costs.

Just-in-time delivery will change slightly to account for more on-hand inventory buffers; resulting in higher costs.

Government deficits at local, regional and national levels are unsustainable and will require less spending and higher taxes for all participants.

Future promise of pensions and health care will be lowered, and feature more claw backs and co-pays.

Once the crisis is behind us and the new reality sets in, people will begin to understand that the era of growth is over.

Zero growth for the foreseeable future.

We were headed there anyway. The virus just fast forwarded it.

Tony Bennett
Tony Bennett

"All of these things point to a very slow, choppy rebound with many struggling restaurants and businesses not surviving."

...

Yes.

The impact on local and state government revenue (since they can't "print") will be dreadful. Dare anyone mention the P* word re civil service workers?

*Pensions

SteveVT
SteveVT

my wife's company (and mine) was essential because we work with the post office. I am able to work remotely in my DOD programmer job. There has been no change. The biggest impact is the service industry. Our favorite restaurant closed. My hair cutter of 15 years is out of work. It is a tremendously orthogonal impact. Recovery? I have no clue and neither do you. This is a human interest story. The whole macro thing means little at this point.

ColoradoAccountant
ColoradoAccountant

The Ant and the Grasshopper on YouTube. Not just for children:

Jdog1
Jdog1

There is an old saying that nothing matters until it does. And then it matters a lot.

There is only so much debt a system can tolerate, before debt service and loss of productivity cause it to implode.
There is only so much you can inflate asset values beyond wages before people can no longer afford them.
There is only so far you can dumb down the population until they can no longer make rational decisions.

So now all these factors are converging to make a situation where debt is defaulting, assets are depreciating, people are confused, going broke, and they are beginning to revolt.
Even though they are not really smart enough to understand the problem, they do on a gut level know something is very wrong. The wheels are coming off the bus and no one knows how to avoid the inevitable crash.

tokidoki
tokidoki

Don't forget the sharing economy companies. They are probably mostly toast. AirBnb, Lyft, etc. Uber supposedly will fire a ton of engineers.

PPK
PPK

a lot of this discussion is speculative... at this point i only care about the market and my life savings. little as it is... 30 million not working... will not be adding to 401ks, but will be taking out what they have to muddle through... stocks are heading down... can't say how far... but in CASH...now... till after november!!

MiTurn
MiTurn

Mish, to add a #7 to your list, what about real estate? How do you think people will approach buying a home vs renting (asset, risk)? And living in urban areas?

JohnB99
JohnB99

I believe there's also a big change coming with automation, and not just because my wife works for a huge automation supplier.

A lot of jobs are on the verge of disappearing and this virus will be a catalyst in making that happen. It will push businesses decisions towards investing in replacing workers.

This virus has shown the fragility of humans in an outbreak.

BaronAsh
BaronAsh

If the main narrative holds (that this is an unfortunate medical event that won't be going away completely any time soon), then I think Mish is calling this one right.

If the main narrative gets replaced somehow, then this could be a game changer heralding in some sort of major new (and probably positive) shift.

Both things are quite possible. It's like the Russia collusion story. Although it has been well and truly debunked - quite some time ago, but again recently in a more definitive fashion - most of the country believes it because of where they get their data. So the facts don't matter all that much (which has been true for decades now, but is of late becoming more obvious perhaps). Interestingly, the fact that it hasn't been debunked in the national consciousness also implies that most of the country hasn't stopped to consider the implications of such a huge whopper having been promulgated and accepted as gospel for so long. How can such huge lies take hold? What other huge lies are out there all the time? Enquiring minds want to know. Luckily (for the bad guys), there aren't many enquiring minds out there (mainly because of the media's success at distracting).

It will be the same with Covid19. If too much of the curtain is pulled back, the implications could shatter many of the core columns and pillars of the current regime (which is not run out of the WH or by elections, btw). If the narrative structure holds, then things are going to get far worse before they get better.

Epictitus
Epictitus

Thanks Mish. Very thoughtful analysis. I wonder if we may not also face headwinds in the market in the future as the natural constituency (boomers) for the reduced government and tax minimization policies since the Reagan/Thatcher years give way to a new, younger, constituency. This generation has now watched many of their parents lose their retirement benefits, unable to pay the cost of healthcare and perhaps now lose their jobs prior to their self funded retirement. Having needed the government to save the economy in 2008 and now again in 2020 might there now be a natural shift to acceptance of higher personal taxes and increased capital gains rates. As investors we've had the best of times for the past 40 years (reduced personal taxes, reduced corporate taxes,reduced capital gains, reduced tariffs, more individual responsibility)..and unfortunately, for many and for a multitude of reasons, it didn't work out. Perhaps the pendulum may start to swing the other way for a time. There seems to be a natural sympathy for an increased role of government by the next generation of student loan and healthcare burdened voters.

aqualech
aqualech

Yes, France as an example - one elderly person has died per every 2500 total population. No friggin way can tourists be allowed to go near that hell hole,

Webej
Webej

No mention of a get out of Jail card if you've had it and presumably are no danger to others or the health care system.

If we had a get out of Jail card, presumably a large part of the population would go to Corona parties so they can get it over with and get on with life.

anoop
anoop

I'm calling for a new all time high in stocks by year end. Economy is dead, but who cares about that anyway? It has been on life support since forever.

GoodTimes32
GoodTimes32

Confidence and perception are both keys to our recovery. We are definitely entering new and uncharted territory and the companies that survive (and thrive) will be the ones that adapt.

WildBull
WildBull

1932, anyone? Is no one seeing the magnitude of this? Stop the foolishness now and things might recover. Continue, and it will be a decade or more to get back, with some terrible years in the middle.

Jdog1
Jdog1

Where we were before the virus was not exactly normal. Normal is not spending more than you earn, or paying half your life's earnings for a roof over your head.

Casual_Observer
Casual_Observer

I expect a positive GDP in Q4. We will get back to 1/1/1 (GDP/FFR/inflation) by Q1 2021. People will wonder what happen to Covid-19 and how it disappeared so quickly. The situation will improve vastly after September 24.

doofus13
doofus13

Nickelodeon
Nickelodeon

For perspective, people who lived through the 29' crash didn't have life return to normal until the early 50's. Though WWII might have been a factor. ;-)


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