• GB Davis

Don't Buy into the V-Shape Recovery that Will Not Happen - 5/11/20


  • Carl Q of CNBC out pushing an MS piece stating that all Recessions are "V-Shaped" Recoveries, with MS committing Chart Crime zooming out and drawing cute circles around trough US GDP inflection points?!  Every buysider worth a nickel, is going to be scratching their heads on that one - thinking, this is MS, WTF I am missing here?  (IF you zoom out far enough and have enough years on your x-axis, those will like look Vs)  If you, by comparison, don't compare 70 years of data, but maybe 20 years at time - then the difference in the DEPTH (peak to trough to peak) and DURATION of Recessions - is more apparent on a chart- and this one, as many Macroeconomists have noted, is going to be BIG (it's already historic in its accelerating downside velocity and depth - and - it just started.  Those factors define the shape, L, V-, Nike Swoosh, whatever.

  • Also, while we hope that things go back to normal, we know a few things that are serious headwinds to that:

  • Unemployment - we do not believe that workers who were told, politely, that a pink slip was "temporary" (misclassifications in the scheme of reality) and identify as such - will actually materialize for many reasons including but not limited: (a) the political ease of delivering such bad news in such capacity at such time; (b) the COVID backdrop and false hope; (c) a lack of understanding that the elements of this Recession were in play BEFORE the COVID accelerating catalyst; (d) access to credit (Fed as shored up some, and for now, and likely for the foreseeable future keep costs low for credit worthy borrowers); (e) supply chain interruptions; and, (f) shifts in end demand - ALL MAJOR FACTORS and headwinds.

But don't "blindly" take our word for it - here is NBER with a paper on the FACT that this will MOST CERTAINLY NOT BE A V-SHAPED RECOVERY FOR EMPLOYMENT (see most all Street Macro baselines for GDP hits and recovery periods, no legit Vs out there)- FACTS (more than just opinion)

Pandemic Recession: L or V-Shaped? Victoria GregoryGuido MenzioDavid G. Wiczer NBER Working Paper No. 27105 Issued in May 2020 NBER Program(s):Economic Fluctuations and Growth We develop and calibrate a search-theoretic model of the labor market in order to forecast the evolution of the aggregate US labor market during and after the coronavirus pandemic. The model is designed to capture the heterogeneity of the transitions of individual workers across states of unemployment, employment and across different employers. The model is also designed to capture the trade-offs in the choice between temporary and permanent layoffs. Under reasonable parametrizations of the model, the lockdown instituted to prevent the spread of the novel coronavirus is shown to have long-lasting negative effects on unemployment. This is so because the lockdown disproportionately disrupts the employment of workers who need years to find stable jobs.

PDF here - and is a good paper, have read most of it at this point -- > https://www.nber.org/papers/w27105?utm_source=dlvr.it&utm_medium=twitter#fromrss

Also, NOT COINCIDENTALLY - the subset of jobs lost, low wage - and many may be subject to robotification / automation - perhaps, as pensions everywhere are underfunded, states are in dire need of federal assistance, the Treasury is spending ungodly sums of money - the SOCIAL STATE of AMERICA is arriving, replete with Mass COVID Surveillance and biometric metadata collection.  Not too far fetched. In the interim, we wait for European Theatre and 2Q earnings, mostly.

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