Pandemic Economic Valuations

Looking out at trees and few cars and walkers, taking a break from the sour TV news, the pandemic precautions have exposed a fault-line in economic valuations that is striking.

Economic Markets Today

The stock market has dropped 30%. It might pick up 5 or 10% today. It’s a sign that financial traders don’t know how significantly the economy is being hurt by the wide spread lockdown of people into their homes and not at their jobs.

Fortunately, our necessities (food, shelter, medical care, remote schooling, and safety) are hobbling along. Grocery stories and delivery services are doing a booming business. Medical care may not do so.

Everything beyond the necessary (and their supporting) sectors, we now see are discretionary. That includes vacations, entertainment, restaurants, etc. Many of the things we like most about living. They have declined the most in the stock market.

Return to New Normal

Social distancing will continue. That will affect workplaces as well as leisure activities. Both will be affected negatively. Productivity will suffer as will spending on non-necessary goods and services.

Goldman Sacks forecasts a 24% fall in GDP this quarter and a rapid recovery netting to -4% for the year. I fear they are too optimistic. Unemployment and layouts are already rising.

Government Actions

The federal government should guarantee long unemployment benefits for the millions dislocated by the economic fallout of the pandemic.

Congress should not bailout companies except those associated with satisfying primary needs of people. Airlines, for example, should not be bailed out. Fed Ex and the other companies deliver the demand that guides capacity usage.

Merging of airline industry since 2005

Let the free market do its creative destruction. Let them merge, combine, and adjust to the amount of travel that follows the current chaos.

The Fed should not be leading the effort of recovery, but supporting the actions of the Congress and the financial system.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.