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sdholloway56
Senior Advisor

NY Fed GDP nowcast

https://www.newyorkfed.org/research/policy/nowcast.html

Ouch. Q2 estimate takes a notch down to -35% after a couple of stable weeks. Say what you will, it is a data driven exercise.

There will be some recovery in the final month of the quarter but the prospect for -25%, or worse, for Q2 seems real, on top of -5% in Q1.

Even if Q3 hits an unprecedented +20%, that puts output 10% below Q4 '19 and implied unemployment on 10/30/20 still above anything in the GFC. *

For ag, expect ethanol demand to continue to lag. Also food service, and don't expect school demand to rebound completely between altered schedules, lower enrollment etc.

My remedy is for the government to buy milk, meat and poultry and produce and give it away- food insecurity is skyrocketing while food is going to waste. Retailers might oppose but they've done very well here- haven't had to do much price cutting to attract sales. It would amount to a pittance compared to what's been thrown at zombie airlines, hotels, real estate- a lot of which are going to go bankrupt later anyway.

I'm at a loss on what to do for ethanol- particularly given the sway that fossil fuels hold with this administration. Oil prices probably go higher sometime but not yet, with this economy- so higher blends will continue to struggle.

*I'm skeptical- I don't see the necessary progress on the 'rona.

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10 Replies
sdholloway56
Senior Advisor

Re: NY Fed GDP nowcast

Corps going bankrupt isn't that big of a deal- mostly just stock and bondholders who wrongly assessed risk.

If they're good for anything, somebody re-organizes, buys then etc.

Airlines are already lining up the plans for mass force reductions once the 6 month terms of their bailouts are through.

I suppose we have to "save" Boeing for national defense reasons. Too bad- but the farm kid who walked away with the $60M golden parachute after burning through their cash with buybacks is one lucky duck.

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rickgthf
Senior Advisor

Re: Bailouts, the same old, same old.

Early on there was talk about the government taking equity positions in these companies that get bailouts but you don't hear about that anymore.  I think taking equity would be a good thing, when the companies recover the government could just sell the stock and pay back the debt.

   As it is, any bailout now will just become company buybacks and inflated dividends, essentially a give-away to the stockholders with the taxpayer holding the debt.  

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rickgthf
Senior Advisor

Re: NY Fed GDP nowcast

Fed nowcast was pretty grim, funny, the Fed is far more concerned and alarmed about the economy than the Senate republicans.  You might think the politicians would be the ones shouting the loudest with the most to lose but no.

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sdholloway56
Senior Advisor

Re: NY Fed GDP nowcast

The Fed has actually spent very, very little of the threatened ammo- just saying they would do whatever it takes and naming 11 different alphabet soup programs was enough to ramp bond and stock prices.

As I said over at Business, you don't need a financial crisis on top of a full blown economic crisis, so all fine and good. But as the saying goes "the market is not the economy." In the end it requires the economy to perform.

BTW, worth remembering that before this extreme shock we were stagnating below 3% growth, even with a $T deficit. 

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sdholloway56
Senior Advisor

Re: NY Fed GDP nowcast

The GFC was, of course, a financial crisis that morphed into an economic crisis.

But in those worst years in memory for many, GDP lost a fraction in '08 and a little under 3% in '09.

BTW, even before anyone could imagine that the US would let itself be hit so hard, there were real concerns that the global slowdown alone would be enough to create at least the technical definition of a recession- 2 successive quarters of negative growth.

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sdholloway56
Senior Advisor

Re: NY Fed GDP nowcast

Clarifying- those numbers are quarterly, on an annualized basis. So effectively if this # prints, output would be around 90% of Q4 '19. Sounds better but actually be about 2 1/2 times worse than the two big negative quarters of '08. 

No reason to think that CBO etc. aren't about right in predicting late '21 or early '22 before we get back to the previous level. 

If a vaccine is available in sufficient quantity by early '21, there's widespread acceptance (a current concern) etc. might be a bit quicker.

You accidentally pull onto the 'rona freeway and it is a long way to the first off ramp. The trick is to not get on, as many places managed to do.

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sdholloway56
Senior Advisor

Re: NY Fed GDP nowcast

https://ritholtz.com/2020/06/gdp-update-52-8/

I generally just follow the NY Fed- no point in getting too far in the weeds. But Atlanta is at -52%.

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sdholloway56
Senior Advisor

Re: NY Fed GDP nowcast

Should bounce back up by a fair bit on the jobs report.

A major scandal though- according to the government at least 6M people are receiving unemployment benefits while employed.

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sdholloway56
Senior Advisor

Re: NY Fed GDP nowcast

In trying to make any sense of the number, one thing would be that businesses that got PPP had to make 80 pct payroll for 8 weeks in order to get loan forgiveness.

Since most the PPP went out in April that may even continue through the June survey period.

Still very hard to reconcile with continuing claims.

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