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The stock market has ignored historically bad unemployment and needs to take into account record-setting declines in core CPI inflation and retail sales and industrial production.

The market seems to be numb to all the bad news and so its eyes might be set on the market pricing in a negative future fed funds rate. Fed Chair Powell’s appearance on Wednesday with a focus on his negative interest rates policy. He said on March 15 that “we do not see negative policy rates as likely to be an appropriate policy response here in the United States” so the expectation is that he will re-emphasize this.

This is important because how will the Fed be able to provide support to an economy facing a shock to aggregate demand if yields are at record low levels and negative interest rates are not an option?

Deutsche Bank expects real GDP to plunge nearly 40% annualized in the second quarter and that back half of the year growth will be ~10%! And DB expects real GDP to be 5% lower than 2019 through the end of 2021!

With the CPI report tomorrow (Tuesday), expect declines in prices of airfare, lodging, apparel, and car prices. Although the main one to watch is primary rents which may fall too…

Across the nation, states are loosening restrictions and opening up the economy again. The key thing I am watching is if we will have a big second wave of COVID infections. If we do and have to lock down again, I fear it would cause a depression.

In California, roughly 70% of the economy can reopen with restrictions as the state progressed to its second phase of activity. Schools opened in France, Norway and the Netherlands. Shopping malls reopened in Denmark and bars / outdoor restaurants restarted in parts of Spain. Shanghai Disneyland welcomed visitors for the first time since January.

The U.K. government released a road map for easing its lockdown, saying it will soon implement a two-week quarantine for some travelers arriving into the country. It plans to further loosen measures in June, which would allow schools to partially reopen, sports to privately resume, etc. In July, it hopes to open some other businesses, including pubs and restaurants.

South Korea reported 35 new cases, its biggest single-day rise since April 9, with a wave related to clubs and bars in Seoul.

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  1. I think that there is a general societal misinterpretation about “flattening the curve”. The whole point of flattening the curve was to never get less infections. In theory, the infection # should not change over time. FTC is done so the healthcare system doesn’t reach capacity and people won’t have to be turned away for care and die as a result. We have increased capacity in all the high risk areas almost too much, with the ship and makeshift hospital in the convention center in NYC being almost empty. There will be an increase in cases, but I think we will see that the infection rate is much larger than we think, which lowers the death rate and the perceived risk in many people’s minds of “getting back to normal”. States will have to be run based on their circumstances. Everyone was freaking about about Georgia, but it’s been open for 2 weeks and today was the lowest new cases day in a while. Texas and Florida have more people than NYC, but with a 1/10 the infection rate. No reason to keep them under the same guidance. It looks like the elderly and high risk groups should still be taking a lot of caution and isolating while the rest of society, especially the 18-40 year olds, gets back to work and push towards herd immunity.

    1. Yep that’s the bullish case I believe. And I do believe in the bifurcated opening approach based on health risk. That we have a really quick bounce back and that reinfections don’t increase. The one thing I would think about, though, is that if we reopen and increase movement by 10x and hospitals are at half-capacity, then obviously we run into the same hospitalization problem, right?

      1. My (hopeful) theory would be that now hospitals have increased capacity, we have knowledge of the virus which will lead to less spread, and that it has spread to a large majority of our most vulnerable. So yes, we would see a rise but it’s a manageable rise.

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