The IMF adds to shifting narrative and mood

We need no reminder of the headline news, just look at the pop in the “fear index” aka S&P 500 VIX to understand a change in the narrative, and definitely the mood may be underway.

Link to report

IMF Revised Forecasts

More than 75% of the global economy is stepping into phase one reopening and several countries are experiencing a new second wave.

Without a vaccine anytime soon,

“the strength of the recovery is highly uncertain”

and

“We are now projecting a deeper recession in 2020 and a slower recovery in 2021.”

Projected Cumulative Loss

$12 trillion over 2 years

(2018 US economy was about $20 trillion)


Crisis & Recovery

“This crisis like no other will have a recovery like no other.”

Upside Risks

Better news on vaccines and treatments

Downside Risks

  1. “Further waves of infections can reverse increased mobility and spending, and rapidly tighten financial conditions, triggering debt distress.”
  2. “Geopolitical and trade tensions could damage fragile global relationships at a time when trade is projected to collapse by around 12 percent.”

Debt is an issue and challenge again

“Public debt is projected to reach this year the highest level in recorded history in relation to GDP, in both advanced and emerging market and developing economies. Countries will need sound fiscal frameworks for medium-term consolidation, through cutting back on wasteful spending, widening the tax base, minimizing tax avoidance, and greater progressivity in taxation in some countries.”

 

Full Summary

“At the same time, this crisis also presents an opportunity to accelerate the shift to a more productive, sustainable, and equitable growth through investment in new green and digital technologies and wider social safety nets.

Global cooperation is ever so important to deal with a truly global crisis. All efforts should be made to resolve trade and technology tensions while improving the multilateral rules-based trading system. The IMF will continue to do all it can to ensure adequate international liquidity, provide emergency financing, support the G20 debt service suspension initiative, and provide advice and support to countries during this unprecedented crisis.”

Read moreThe IMF adds to shifting narrative and mood

An important reminder as we head into what could be a very ugly week for stocks

Before we get to the “important reminder,” the following chart is from the dynamic web-report, OECD Economic Outlook, June 2020, put out by the Organisation for Economic Co-operation and Development (OECD) twice a year. This highly followed report illustrates what Fed Chairman put into words in his recent speech, following the central bank’s two-day policy … Read more An important reminder as we head into what could be a very ugly week for stocks

Aggregate Demand & Back to Normal

One only needs to look at the trend in railroad traffic this year vs the trend in railroad stock prices to see that investors are defining a “return to normal” economic activity as the pre-recession level. However, utilizing a reasonable 2% economic growth pre-recession rate (since 2007, economic growth has barely averaged 2%) and current … Read more Aggregate Demand & Back to Normal

Three salient facts about the jobs report which make it underwhelming

3% of unemployed workers mistakenly classified themselves on the BLS survey as “employed but absent from work due to “other reasons.” The BLS caught this and noted the unemployment rate is actually 16% (not 13%) with 25.3 million (instead of 20.5) out of work if you count these misclassified workers. The private sector added 3.1 … Read more Three salient facts about the jobs report which make it underwhelming

Will an inflation narrative soon have an impact on the direction of stocks?

Inflation Direction

The Cleveland Federal Reserve Bank estimates future inflation using a “nowcasting” model to calculate headline (including food and energy) and core consumer inflation (CPI) in addition to the Central Reserve Bank’s favorite gauge for inflation, headline and core personal consumption expenditures (PCE).

Trade-Off: A study in global systemic collapse

Contagion in the monetary framework

A Paper: As indicated by David Korowicz of FEASTA in his paper: ‘Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse,” it diagrams how contagion in the monetary framework could set off the semi-independent virus in supply chains comprehensively, even where purchasers and dealers are connected by dissolvability, sound cash, and bank intermediation. … Read more Trade-Off: A study in global systemic collapse