The stock market is surging. The economy is not.

 All eyes are on the stock market. The Dow topped 30,000 last week for the first time in history before slipping back and is on track for its best month since 1987, more than three decades ago. The bull market is powered by good news about Coronavirus vaccines and the prospect of an end to the trade wars, but so far that optimism is not reflected in the greater economy.

COVID-19 is still raging and despite the fact that the election is over, some jurisdictions are enacting new restrictions to combat the winter wave of infections. If you live in California, New Jersey, or even red states like Oklahoma and Texas, you may have been subject to new social distancing guidelines aimed at slowing the spread of Coronavirus over the Thanksgiving holiday.

While your 401k is probably looking really good these days, you may have taken a pay cut or lost hours due to the pandemic. You may also be on the cusp of a layoff as many parts of the economy slow once again. Conversely, you may be one of the many unemployed or underemployed Americans watching the stock market enviously, having already cashed in your retirement accounts to make ends meet.

The viral surge that is spawning these new restrictions is also responsible for economic data that indicates a slowing economy. For example, personal disposable income fell by a whopping $134.8 billion (0.8 percent) while personal expenditures rose by $70.9 billion (0.5 percent) per the Bureau of Economic Analysis‘s report last Wednesday. Similarly, a Department of Labor release from the same day indicated that unemployment filings have risen for the past two weeks. This is the first time since July that unemployment has increased over consecutive weeks. Although unemployment is down from the highs of last spring, the reports indicate that the jobs recovery is losing steam.

The slowing jobs market can be blamed on both the surging virus and the expiration of the CARES Act. Passed in March, many aspects of the COVID relief bill expired in September. The popular Paycheck Protection Program, which provided federal funding of payrolls for companies that did not lay off workers, was one of the first programs to lapse. Many of my friends who work in the airline industry got their furlough notices shortly after and are now being laid off.

Unless Congress acts to pass a new relief bill, there are several other federal programs that will expire at the end of the year, just as more workers are likely to be finding themselves unemployed as seasonal jobs come to an end and the winter virus surge forces more shutdowns. These include:

• An extra $300 added to weekly payments by presidential Executive Order expires Dec. 27
• An extra 13 weeks of unemployment benefits (for a total of 39 weeks) under the CARES Act expires Jan. 1
• Pandemic Unemployment Assistance for people who wouldn’t normally qualify for unemployment benefits expires Dec. 31
• A CDC moratorium on evictions for renters expires Dec. 31
• A federal student loan deferment under the CARES Act and extended by President Trump expires Dec. 31

You may notice that I use the term “relief” instead of “stimulus.” That’s because the CARES Act and any follow-on bill would be designed to prevent an economic crash by providing relief to affected Americans rather than trying to stimulate the economy. For example, if Americans become unemployed due to the COVID crisis and burn through their savings, it may lead to a real estate crisis as they get behind in rent and mortgage payments. If you remember 2008, you remember how a collapsing real estate bubble can cascade throughout the economy.

Further, the middle of a pandemic is not a good time to lose a job that provides your medical insurance. While many COVID patients are asymptomatic, about 15 percent require hospitalization. Patients with health insurance can be faced with bills totaling thousands of dollars. Patients without insurance could face financial disaster. COBRA insurance is available for people who lose their jobs but the cost is often prohibitive.

To be fair, not all of the economic news is bad. Like the stock market, consumer confidence is still high, owing largely to good news about upcoming vaccines.

And therein lies the rub. As I’ve said from the beginning, repairing the economy depends on defeating COVID. We won’t get back to normal until the virus is defeated.

We are getting very close to a victory over the Coronavirus, but it will take several months before a vaccine can be fully deployed. Until that time, we need to maintain social distancing and other mitigations such as staying home when you display symptoms and quarantining if you’ve been exposed.

In order to make that financially possible, many American businesses and citizens are going to need assistance to make it through the winter. The difference in having a relief package and going without may be the difference between the status quo and a much deeper recession with many more failed businesses and unemployed Americans.

Originally published on The First TV

The Election Is About To Turn Ugly

I wrote earlier this week that the Trump campaign was being buried under a tsunami of bad news. Since then, the news has only gotten worse for the president and it doesn’t look as though things will be changing anytime soon.

The most obvious piece of bad news from today is the revelation that the president and First Lady have tested positive for COVID-19. Although I have frequently offered criticism of the president and his Coronavirus policy, I am not one of those who delight in this news. I pray that President and Mrs. Trump will have a mild case and recover swiftly.

President Trump’s infection does put him at a severe disadvantage for the last month of the campaign, however. It is likely that, with the president and much of his staff under quarantine, the remaining debates, rallies, and appearances will be canceled even if Mr. Trump never develops symptoms. The president’s disdain for masks and insistence on holding mass rallies made it likely that he would contract the virus, but the timing could scarcely have been worse.

Broad polling over the past six months has shown that voters don’t believe that Trump has handled the pandemic well. His diagnosis will not help matters and especially if the president’s case is severe, many voters will see it as confirmation that the Trump Administration did not take the Coronavirus crisis seriously enough. The diagnosis also raises concerns about the president’s long-term health.

If, God forbid, President Trump dies or becomes incapacitated before the election, the Republican National Committee could replace him with another candidate. Professor Richard Pildes, an election law expert at NYU, described in the Washington Post how the 168-member RNC would cast votes to select a new nominee with each state getting the same number of votes that they cast at the nominating convention. Vice President Mike Pence would be the obvious choice.

If Trump wins the election but is incapacitated, the Electoral College might choose another candidate. However, in this scenario, the Republican electors, who would constitute a majority, would probably select Mike Pence to succeed Trump.

Even before the news about the president’s battle with Coronavirus came out, his re-election campaign was in trouble. After Tuesday night’s debate debacle, the president seems poised to plunge in the polls. The first post-debate poll was released Thursday by Change Research and showed a 13-point lead for Biden while a new Georgia poll showed the Democrat up by two points in the Peach State. A handful of other polls released on Friday show Biden with a lead ranging from 8 to 10 points, indicating that the Democratic candidate has received a slight boost from the debate.

As Biden surges, Trump’s COVID quarantine means that he can’t hit the campaign trail to stem the tide. If the nation sees the president suffering from a severe case, his decline in the polls is likely to be accelerated.

The flip side, however, is that Trump’s enforced isolation may help his campaign. I’ve said for years that he would be more popular if he could simply shut up and stay out of the spotlight. A Coronavirus quarantine may help him do just that, but it may be too late.

The bad news does not end there, however. The CARES Act, which was passed in March, is expiring and the White House has not been able to reach an agreement with congressional Democrats to pass a new relief bill. Without new federal funding to keep employees on the payroll, the country will take another economic hit as businesses begin to lay off employees. The more than 30,000 airline employees who have received furlough notices are merely the tip of the iceberg.

The effects of these massive numbers of layoffs will likely cascade through the economy if Congress and the president cannot reach an agreement. Consumer spending will fall, which could lead to more layoffs in retail stores as well as manufacturing. Mortgages, rent, and other loans will go unpaid. Ultimately, the unemployment crisis could cause a collapse in real estate values.

It is difficult to say how quickly the economic crisis will spread, but, for a president already lagging in the polls, tens of thousands of newly unemployed workers is not a good sign. This is especially true if the newly unemployed view the president’s party as the obstacle to federal programs that would have kept their paychecks – or enhanced unemployment benefits – coming.

The president’s campaign has been in trouble for quite some time, but the new round of bad news is shifting the election from a Republican loss to a rout. At this point, it looks as though the swing states are gone and red states such as Georgia, Iowa, and Texas are within Joe Biden’s grasp. Meanwhile, quarantined in the White House, all President Trump can do is tweet about it.

Originally published on The Resurgent

Why America Needs Another COVID Relief Bill

Congress is talking about another Coronavirus relief bill. Sources say that Mitch McConnell will propose a $1 trillion bill this week that will, without a doubt, trigger much weeping and gnashing of teeth from both sides of the political spectrum. Congress should come together and pass another relief package for the American people.

If you’ve been reading my stuff for very long, you know that I’m typically a budget hawk. For years, I’ve been very critical of Washington’s out-of-control spending and I consider the mounting national debt to be one of the greatest long-term threats that we face as a nation. So, why then, am I arguing in favor of another massive pandemic bailout?

The answer is that the pandemic is a true national emergency and one of the few instances in which, as Barack Obama put it, shoveling money out the door is the right response.

The word “emergency” gets bandied about a lot these days. Often, the emergency is really a matter of marketing. That is not the case with the pandemic. We have a real, honest-to-goodness, life-and-death public health crisis on our hands.

The correct response to the very infectious disease that presents that public health crisis is to stop or at least slow the spread of the infection. The way to contain the infection is stop people from interacting. People who are not in essential occupations need to stay home so that they neither contract nor transmit COVID-19. This needs to go on at least until hospital capacity can be assured. Continuing the isolation until new Coronavirus cases reach near-zero would be even better.

If all this sounds familiar, it’s because it is. We did this back in the spring and it worked. If you look at charts of Coronavirus cases in the US, you see explosive growth in the latter half of March followed by a slow decline until June.

In June, several things happened. Many states had already reopened. Warmer weather brought more people out and increasing confidence led many to abandon social distancing. The George Floyd protests brought thousands into the streets, again without social distancing and often without masks.

Now, Coronavirus cases are spiking around the country and the death toll is already starting to rise again. Our situation is similar to March except that the virus is much more widely spread around the country. Where New York was the epicenter in the spring, we now have hot spots in Arizona, California. Florida, Georgia, Texas, and elsewhere.

Nevertheless, the prescription is the same. People should isolate when possible, wash their hands frequently, and practice social distancing. When social distancing cannot be maintained, masks should be worn. More importantly, masks should be worn correctly. If these steps cannot be taken voluntarily by enough people, then we will need additional government-mandated shelter orders.

That brings us back to the COVID relief bill. Congress passed the CARES Act in March but the bill has proven to be woefully inadequate for the emergency at hand. The law included one-time payments to taxpayers, supplemental unemployment payments, and loans to businesses with many strings attached.

The bill was constrained by the Republican belief that people should not be rewarded for not working. Normally, I’d agree with that logic but rewarding people for staying home in a deadly pandemic is the appropriate course of action. If the government wants people to stay home and not spread the disease, then they need to be compensated for lost income and businesses need to be compensated for lost revenues.

A problem for the upcoming bill is that it is far from clear that this is what the Trump Administration wants. Axios reports that Mitch McConnell’s proposal will include such items as educational funding to prepare schools for reopening, liability protection for businesses, a payroll tax cut, and an extension of the Paycheck Protection Program in addition to increased funding for COVID-19 testing. Much of the Republican plan will focus on encouraging people to go out when they really need to stay in.

Other countries are handling the pandemic much better than the US. That includes their strategies for economic relief. Rather than offering minimal one-time payouts and loans, many other countries directly subsidized wages to encourage companies to keep employees on the payroll. This is an improvement on the bureaucratic difficulties of the American PPP as well as the financial limitations of the one-time payment. This strategy also prevented the problem of paying unemployed workers more than they earned while they were working.

The new relief package should be based on metrics that show the virus is contained rather than being time-limited. Reopening shouldn’t adhere is a strict timeline but should be based on objective data of our progress in containing the virus. These metrics are going to differ in various places as some areas become virus hot spots while others are clear.

If that sounds familiar again, it’s because it is. The CDC and the White House both recommended guidelines for reopening the country back in May that included data-driven phases for restarting the economy. Unfortunately, these plans were generally ignored and forgotten as states rushed to reopen.

As a result, now we have to do the hard part of containing the virus again even as much of the country has pandemic fatigue. As the old saying goes, “pay me now or pay me later.” If you don’t take the time to do a job correctly in the first place, you often end up doing the same job again. That’s the case here. The country would have been much better off, both economically and in terms of lives lost, if we had handled the pandemic right the first time.

And we are going to have to redo the job of containing the virus. Forging ahead and going back to normal while the virus rages around us is not a viable option. President Trump is already trailing Joe Biden by double-digit margins based largely on voter dissatisfaction with the Trump Administration’s handling of the pandemic. If the president’s strategy continues to be to deny the reality of the catastrophe, he will lose in a landslide and in January the Biden Administration will enact the measures that Trump should have taken months earlier. The cost of waiting will be 100,000 or so dead, a depressed economy, and destroyed Republican credibility.

Am I concerned about the deficit and effect of adding trillions more to the national debt? Absolutely. But the pandemic is a legitimate national emergency whose impact is likely to be much worse than the impact of running up the national debt. If your house is on fire, you put it out before you worry about paying off credit card debt. 

At the risk of repeating myself, we can’t solve the economic crisis and get back to normal until we solve the Coronavirus crisis. We have to prioritize and tackle our problems one at a time. If we don’t address the pandemic first, we will be forced to deal with an even deeper economic depression plus the health problems of the pandemic at the same time.

Originally published on The Resurgent

Why Is The Stock Market Increasing While The Economy Contracts?

Alot is going on the economy these days, but one thing that has been fairly consistent, at least since the end of March, is that the stock market has been clawing its way back toward the pre-pandemic highs. With much economic news that is decidedly mixed, why is the stock market doing so well?

Back in February, the Dow Jones Industrial Average was flirting with the $30,000 level. A few short weeks later, the Dow bottomed out 18,591 on March 23. Now, despite the pandemic, the ravaged economy, and racial unrest, the Dow has regained much of that lost ground. Trading has often been turbulent, but the Dow closed yesterday (today is a market holiday) at 25,827, which is only about 12 percent below its high for the year and up 92.39 for the week.

As with many things, there is no single answer for why the stock market is booming while the rest of the economy is hurting. One immediate factor is that this week’s jobs report was better than expected, which encouraged investors.

Job losses in March hit record highs but the return to work has also been historically swift. The June jobs report showed that 4.8 million jobs were created last month, which was much better than expected. The unemployment rate fell by 2.2 points to 11.1 percent. Despite the fact that the unemployment rate is 7.6 points higher than February, the June numbers are an improvement over the depths of March and April.

There are other factors at work as well. Not all companies are equally vulnerable to the pandemic and the associated economic decline. Travel companies, such as hotels and airlines, have suffered while other types of companies are better able to weather the storm. As with other areas of life, size also matters in pandemic economics.

“Large companies have fallen much less than smaller companies. It is likely that as a result of this crisis the strong will get stronger … and so the stock market is reflecting that in its relative valuation,” Peter Orszag, Financial Advisory CEO at Lazard and former OMB director under Obama, told CNBC in May.

Others point to the fact that the computers that do much of the trading are not as emotional as their human counterparts. News reports of rioting across the country can make individual investors tuck tail but not the algorithms at the big trading houses.

“The market always seems heartless, without any emotion, without caring, without empathy. But that’s the nature of the market,” Quincy Krosby, chief market strategist at Prudential Financial, said on CNBC. “The algorithms almost certainly have no shred of empathy. They’re not supposed to.”

Still, sometimes news does trigger a run on the markets. Often, however, this is economic news such as jobs reports or geopolitical events such as attacks on oil facilities in the Middle East.

An additional factor this year was the government’s economic impact payments. These “stimulus checks” started going out in April as part of the CARES Act. With few places open to spend the money, many consumers put the windfall into the stock market.

An analysis of bank transfers in March and April by software and data company Envestnet Yodlee found that stock trading ranked third behind increasing savings and cash withdrawals as a use for the government funds. The analysis, which was reported in CNBC, found that the government payments increased spending by 81 percent and that trading stocks, which include contributions to 401k and IRA plans, was among the most common uses for the funds at nearly every income level.

One effect of pouring so much money into the stock market would be increased demand. And, as any ECON 101 student can tell you, when demand increases, so do prices.

Even though the stock market has proven resilient so far, there are warning signs. Much economic data, such as the June jobs report, is backward-looking. Even though jobs were created in May and June as much of the country reopened, the report does not reflect the potential layoffs that may be occurring as I write this due to the resurgence of the virus in many areas around the country.

The pandemic is not over yet. Coronavirus will not cease to affect the economy until either the disease runs its course or a viable treatment and/or vaccine is developed. As a result of COVID flare-ups, there will be economic ups and downs for the foreseeable future, but, over the long term, the stock market has proven to be a good investment. That is most likely true in 2020 as well.

Originally published on The Resurgent

Fauci: US Could See 100,000 New COVID Cases Per Day

Afew weeks ago it seemed that the US had Coronavirus whipped. A lot has changed since then.

One of the changes is that Dr. Anthony Fauci of the Coronavirus Task Force has reemerged. Fauci testified before the Senate Health, Education, Labor, and Pensions Committee on Tuesday, telling lawmakers that the US was “going in the wrong direction” on the pandemic.

“We are now having 40-plus thousand new cases a day. I would not be surprised if we go up to 100,000 a day if this does not turn around and so I am very concerned,” Fauci said, reported by CNN.

Fauci blamed both the widespread protests and the fact that people were disregarding mitigation guidelines in areas that had reopened for the sharp increase in new cases.

“We’re going to continue to be in a lot of trouble, and there’s going to be a lot of hurt if that does not stop,” Fauci said.

When asked if the pandemic was under control, Fauci answered, “I am not satisfied with what’s going on because we are going in the wrong direction if you look at the curves of the new cases, so we’ve really got to do something about that and we need to do it quickly.”

“Clearly we are not in total control right now,” he added.

Dr. Robert Redfield, director of the CDC, singled out young Americans, saying, “It is critical that we all take the personal responsibility to slow the transmission of Covid-19 and embrace the universal use of face coverings. Specifically, I’m addressing the younger members of our society, the Millennials and the Generation Zs — I ask those that are listening to spread the word.”

“We recommend masks for everyone on the outside, anyone who comes into contact in a crowded area,” Redfield said. “You should avoid crowds where possible and when you’re outside and not have the capability of maintaining distance, you should wear a mask at all times.”

The resurgent outbreak is a trend for much of the nation. CNN reports that 36 states (Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming) have reported increases of at least 10 percent over the past week. Only two states, New Jersey and Rhode Island, have reported an average daily decline of more than 10 percent.

The increase is not merely due to increased testing. Many of the hot spots are reporting an increased positivity rate for testing as well as increased hospitalizations. In Texas, one of the factors in delaying reopening was the fact that the state was nearing maximum capacity for its ICU beds.

The serious nature of the situation is underscored by the reversal of reopening policies in several Republican states. Arizona, Florida, and Texas are among at least 18 states and cities where reopening has been paused. States with Democratic governors such as North Carolina and California are also experiencing surges in new cases that have led to the decision to suspend reopening plans.

On Monday, Georgia’s Brian Kemp became the latest governor to reverse his reopening plans and extend the Peach State’s state of emergency. The two executive orders extend the testing and health procurement rules, which were set to expire on June 30, through August 11 and extend social distancing guidelines through at least July 15.

In a split from President Trump, Vice President Pence appeared in a mask over the weekend and urged Americans to follow suit, saying, “Wearing a mask is just a good idea and we know, from experience, will slow the spread of the Coronavirus.” The president has yet to wear a mask in public or advocate that his supporters do so.

The pandemic’s effect on the economy is becoming an election issue. A new Gallup poll this week found that President Trump’s rating on the economy had fallen by 16 points since January. While the president is not responsible for the onset of the pandemic, he is responsible for the Administration’s reaction to it. President Trump has long been a major proponent of quickly reopening the country.

Even before the recent uptick in cases, the US had the highest acknowledged number of Coronavirus cases and deaths in the world. On a per capita basis, the US ranked ninth in terms of deaths and and 12th in cases per Worldmeters.

At this point, many or most Americans on both sides of the political spectrum seem to have discarded mitigation strategies of social distancing and masks. It makes no difference to the virus whether it is transmitted by leftist protesters, conservatives at church or in businesses, or millennial partiers. The science is the same.

It is no longer clear whether Americans have the will to continue the inconveniences of social distancing and wearing masks. Given the broad spread of the virus, it may be too late to contain the outbreak even if we redouble our efforts. The United States may be about to experience the worst of both worlds with an economic recession paired with an out-of-control plague.

Originally published on The Resurgent

Nearly Half Of Pandemic Job Cuts May Be Permanent

It has been assumed by many that the economy would return to normal quickly after the pandemic runs its course. A new study suggests that the downturn may be more prolonged and that many job losses will be permanent due to fundamental changes in the economy, however.

“We find three new hires for every 10 layoffs caused by the shock and estimate that 42% of recent layoffs will result in permanent job loss,” wrote Jose Maria Barrero, Nick Bloom and Steven Davis from the Becker Friedman Institute at the University of Chicago, quoted in Forbes.

The unemployment rate currently stands at 14.7 percent representing more than 20 million lost jobs. Many of the Americans who are still employed are being paid to stay home through the Paycheck Protection Program.

“It’s worse than it looks,” says Michael Reynolds, an investment strategist. “The labor force participation rate is even worse.”

The labor force participation rate fell to 60.2 percent in April, a level not seen since the early 1970s. The number is all the more startling because at that point there were far fewer two-income families.

It may get worse. If Congress does not extend the PPP and the economy does not recover, employees whose pay is currently being funded by the program may be laid off after it expires in September.

Even the lifting of stay-home restrictions may not be an immediate boon to the economy. Two new reports from the National Bureau of Economic Research suggest that states that did not have shelter-in-place orders fared just as poorly as those that did.

Rather, the economic destruction was wrought by people voting with their feet to not go into public places that they saw as a hot zone. My observations around Georgia, the first state to reopen, confirm that many, if not most, Georgia residents are not ready to return to business as usual. The same is undoubtedly true around the country, a new poll shows that 53 percent want shelter-in-place policies to remain for another month, and the world even though reopening activists are a vocal minority.

Without a vaccine or treatment, the global economy cannot return to normal without sparking a second wave of the pandemic. Rather than the “v-shaped” recovery initially hoped for by many, it now looks as though the recovery may follow a shape similar to the Nike “swoosh,” a steep downturn followed by a slow, shallow recovery.

Going forward, it is likely that there will be permanent changes to what we think of as normal. The online economy will grow while sectors that rely on close personal contact will decline. Many of the jobs in those sectors won’t come back.

The new economy will come with new jobs but the downside is that many low-income workers won’t be qualified for the new jobs. It’s also possible that the shift will mean a net loss of jobs for the foreseeable future.

The world was already undergoing a transition due to automation and the internet. That trend is going to be accelerated by the pandemic. It will get better but we are in for a rough few years.

Originally published on The Resurgent