Thoughts on the Economy amid Covid-19: Short Response on the past week

This week probably was confusing. We registered record highs in the stock market, saw a decrease in the bond market yields, and certain alternative funds made billions of dollars this week. The government passed a stimulus plan. The Federal Reserve bought more bonds, loosened regulations on banks’ ability to lend, and increased bond and equity purchases. This week did not seem as dire as the week before. Here is what we still know:

1)   The US Government is still not responding at the same rate the virus is spreading and is instead playing politics. There are conflicting messages with what is going on with the virus. Some governors have kept their states “open,” and some have issued orders for businesses to close and people to stay home. There is no clarity yet on how the stimulus will work, nor a rush to get the money out.

2)   There has been a rapid increase in the number of confirmed cases and deaths. It took 27 days to have the death toll rise to 1,000 in the US. It took an additional 3 days to double that. We are not at the peak yet.

3)   We have not seen the worst of the markets, the economy, or the virus. The worst is yet to come.

4)   We have hit all the metrics that show we are in a recession.

What is Next

There is no accurate way to determine when our economy and our markets will hit their bottom: we just know we are not yet there. I still believe our market bottom will be when the DOW hits roughly 14,000-15,000. I would love to be able to say that will be in 35-40 days, but we are still at the start of this. As the market is trying to find the proverbial bottom, we will see huge swings of 7-12%, and that indicates market volatility. The market cares about things like economic data, corporate revenues, labor numbers, quarantine cycles, vaccine/treatment, and if the stimulus actually halted the drop. Currently, the markets don’t trust the response of the US government.

We are entering a time where data will be weighted improperly and shared with bias. Q1 includes January, February, and March, and we will not see those numbers until the end of April. Since we didn’t see the sharp decline until mid-March, the data at the end of Q2, which will be available at the end of July, will be a much better representation of corporate revenues. The data fog also includes unemployment numbers. Managers can report their employment numbers at any point in the month, plus the stimulus will need time to implement. Thus, the unemployment number will not be accurate until at least the beginning of May. I had previously believed we would reach 15%. However, last week alone we jumped 1.9% in unemployment. Even though that number is skewed, it is the start of the story and the unemployment claims will only increase. My new projection is that we will see 18%-21% unemployment.

The resurgence probability of the virus is still high without a vaccine or a way to universally combat it, and we cannot restart the economy if the pandemic prolongs. According to IGM in Chicago (panel of economists), the recession will drag on if we do not quarantine and if the government does not do more and invest more in fighting the virus. The lockdown is certainly bad for our economy, but a prolonged pandemic will cripple us.

Stimulus and what to do now

The US Government responded by passing legislation to halt the blow. Their stimulus package however, is confusing, frustrating, and truthfully lack luster. Though it will provide vital aid, there will undoubtedly be some kinks.

The stimulus is confusing for small businesses and the gig economy. It is not entirely clear if everyone will qualify, what you have to do (or have had done) to receive a loan, how long it will take to get funding, or if this will be enough. Large corporations have already made clear that this will not be enough.

There are plenty of articles available describing the package, and here are two that are especially helpful:

https://www.forbes.com/sites/advisor/2020/03/27/your-guide-to-the-federal-stimulus-package/#6ac37442711e

https://www.rubio.senate.gov/public/_cache/files/28e8263e-e7d4-4da7-a67b-077c54ba4220/9F7B494B2E355791B24536DC2162CF16.final-one-pager-keeping-american-workers-paid-and-employed-act-.pdf

How to respond personally

5 ideas for your personal finances:

1)   Cut expenses. I can’t stress this enough. You need to start cutting expenses.

2)   Quarantine.

3)   Adopt the philosophy of paying shelter, food, and utility expenses above all else and in that order.

4)   If you can, save the $1,200 for some time. If you can’t, there’s no shame in using it right away. I would encourage it to be used towards shelter, food, and utilities.

5)   Seek assistance and mentoring. I encourage you to ask questions on unemployment, financial assistance, and financial coaching… reach out.

For Christians

The correct response: generosity. Our concern should be growing for our neighbors. While Christians should also take deep care of fellow Christians, we must also be aware of all neighbors. Of strangers. Of all persons in need.

We were in need, and our Savior responded. One way we respond to our Savior is by pouring out generosity on our communities. Put aside judgments, put aside litmus tests, put aside all characterizations of those whose lifestyles you disagree with, just as Christ did with us, and become abundantly generous. Our standard for loving our community, our family, our friends, our neighbors, was set by Jesus. We do not do this recklessly, or with abandon. We do this with intentionality. I am not calling you to ignore CDC guidelines and go care for folks at a hospital, but be intentionally creative for how you can support. Don’t assume a meal you picked out is good enough. Don’t donate ratty clothes and call it good. Step up to the plate, close your mouths, open your ears, and then respond.