by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author:Ā Greg Valliere
April 27, 2020
LIFE WILL BE FAR DIFFERENT, perhaps for years to come, but a turning point is coming in May, which begins this Friday. Five more states are gradually opening up this week, on the heels of four that already have eased restrictions (eight states never did lock down).
MOST PEOPLE ARE WILLING to accept social distancing, more testing and tracking, the use of masks, gloves and sanitizers, etc. Itās the new normal. The key is that the world will simply adapt ā no handshaking, no sold-out Yankee Stadium ā while accepting the grim reality of new infections until a vaccine is available.
THIS IS STILL DEADLY SERIOUS: U.S. fatalities are headed higher, perhaps approaching 100,000 by late summer. Some battered states, like New Jersey, will need many more weeks before re-opening. Still another stimulus package will be necessary.
THE FINANCIAL MARKETS HAVE PRICED THIS IN: A terrible second quarter will be followed by a halting recovery in the second half; interest rates will stay ultra-low. A depression is unlikely ā just one hellacious second quarter followed by a choppy recovery.
THE TIPOFF COMES FROM THE āSCARF LADY,ā Dr. Deborah Birx, who said this weekend that while social distancing will have to persist through the summer, a ādramaticā decrease in infections and fatalities is likely by late May. That gives cover to most governors, who will open up by Memorial Day ā or perhaps even by May 15.
THIS IMPROVING SCENARIO may come too late for Donald J. Trump. The one thing that politicians dread ā ridicule ā is now an albatross for him after his bizarre suggestion that disinfectants could be ingested or injected. He wasnāt being sarcastic.
A GREAT IRONY is that an improving economy by the second half may not be enough to save the Republicans. Democrats will retain the House on Nov. 3, and their chances of capturing the Senate have improved (more on this tomorrow). Trump has no better than a 50-50 chance of winning re-election.
THUS HE WILL HAVE NO CHOICE but to accept more stimulus, placing him at odds with Mitch McConnell and GOP fiscal hawks. The next package will cost at least $1 trillion, most of it going to state and local governments. McConnell worries about the deficit but Trump couldnāt care less ā money is no object.
THE FOUR GREAT QUESTIONS THIS SPRING: First: Can Washington prevent a depression? Yes. Second: Will the public come out of hiding? Yes, but maybe not immediately. Third: Will Trump win re-election? Too early to make that call. Fourth: The biggest question of all ā will there be a second wave of the virus? Canāt rule that out by winter, but weāll be ready for it, weāve turned a corner.
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This post was first published at the AGF Perspectives Blog.
