One Bank Explains Why No V-Shaped Recovery Is Coming, And Why The Fed Will Nationalize Everything April 13, 2020 394
In the past three weeks stocks have staged a substantial rebound from their March 24 lows, in big part thanks to an unprecedented barrage of Fed-driven bailouts, backstops, and asset purchases which at last count amount to over $5 trillion in committed capital in just the past month, and also due to the growing conviction that a V-shaped recovery is imminent one the coronacrisis pandemic fades away. Setting aside concerns about a second, even more powerful infection wave, the reality is that a V-shaped recovery – the underlying narrative catalyst for the powerful bear market rally – from the current quarter’s GDP plunge which according to JPM will be as big as 40% simply will not happen, and here is Bank of America with a clear and succinct explanation why:
There is a growing narrative in the markets that the end of the crisis is in sight. By some accounts, countries are bending the COVID-19 cases curve, allowing a relatively quick reversal of social distancing policies and a V-shaped recovery in the global economy. In sum, it is time to look through the dark hours ahead and focus on the approaching dawn.
We agree with part of this narrative, but disagree with the bottom line. It does appear that a number of countries and regions are starting to bend the curve. The growth in cases has slowed significantly in most of the Euro area and the biggest hotspot in the US, New York, is showing hints of slowing. Areas that shut down early, like Austria, are now debating what a reopening should look like. Of course, the number of deaths will lag and that ugly reality will be with us longer.
Unfortunately, we are also getting more information on what a reopening looks like and the dangers of premature reengagement. China, with its authoritarian controls on population movement, has opened up significantly in the past six weeks or so and now is roughly at 80% of capacity by some metrics. However, a number of other countries have found it hard to completely reopen their economy even with a much better pandemic health system than in Europe and the US.
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Poster Comment:
Chart at source.