The 'Great Repression' is here and it will make past downturns look tame, economist say... - 0 views
-
In the “base case” for the U.S. economy, published by his firm, Rosenberg Research, the economy “reopens” in May, in a staggered approach across industries and regions. There are “periodic setbacks in terms of COVID-19 case counts…sufficient to make people less comfortable and confident about spending than they did prior to the crisis. A vaccine is not developed in this forecast, but treatment that alleviates the worst respiratory symptoms” is developed within the next six months, he writes.
-
A 30% contraction in real gross domestic product in the second quarter, negative year-over-year consumer price growth for 5 quarters, and an unemployment rate of 14.2% by the end of 2020, averaging 13% throughout 2021.
-
Investors in high-yield debt run for the doors, leaving those bonds more than 700 basis points more expensive than Treasurys at the end of this year.
- ...5 more annotations...
-
Rosenberg assumes stocks sink 30% in the coming months, then spend most of the next 18 months grinding higher to valuations about 10% lower than today’s levels.
-
Rosenberg also lays out a “best case,” which depends on a vaccine or treatment emerging in the next six to 12 months. That outlook includes an unemployment rate averaging about 9% for the next two years, a stock-market bottom of 2,500 for the S&P 500 in Q2, and a cyclical low of 29 basis points for the 10-year note in 2021.
-
The “worst-case” scenario is grim. It involves no vaccine, no treatment, and a second wave coronavirus outbreak next winter that severely saps business and household confidence. In this outlook, the jobless rate hits 20% — and averages 17.5% through 2021.
-
Outright deflation takes hold. “Think about what years of no pricing power is going to do to those corporate cash flows in the future,” Rosenberg writes. “Even government intervention is capable of suffering from the laws of diminishing demand. Japan is a classic template.”
-
But there’s a lot more damage done to the stock market. The S&P 500 bottoms at 1,800 in the second quarter and averages only 2,200 throughout 2021.