Hindsight and Foresight

| July 6, 2020

For your entertainment today, I have two financial forecasts to amuse you and possibly make you think about something besides those quarrelsome brats out defacing and damaging everything they see.

Analyst Elliott Smith published this forecast for CNBC in March 2020 shortly after the realization that a CV19 pandemic was likely, and all that went with it.

https://www.cnbc.com/2020/03/20/analyst-anticipates-worst-crisis-since-1929-amid-recession-fears.html

Key Points of the author’s article are as follows:

– Alvine Capital’s Stephen Isaacs said the coronavirus crisis is “unprecedented” since there were already record levels of leverage and overbought stocks.

– IHS Markit on Wednesday (March 18, 2020) revised down its forecast for world real GDP growth in 2020 to 0.7%. Growth below 2.0% is classified as a global recession.

– Goldman Sachs has sharply downgraded its 2020 growth forecast to 1.25%.

Since this forecast was published in late March 2020, we have an opportunity to review what has happened since the original publication and what is current in both the financial markets and the CV19 issues. That allows a valid comparison between the March projection and what has happened since the article was published, hence the second article from Deloitte International below.

Now the coronavirus is spreading again, which probability was brought up several weeks ago on the news.  This time it is increasing in states where it was sparse before.  The infestation itself is likely to be a long-term event that will occupy our attention for the foreseeable future. At some point, like all such things, it will begin to recede. The probability of an effective vaccine is growing stronger, but do not take its availability for granted. It has to be properly tested first, and meantime, we’ll just have to cocoon at home.

Things are changing in society in general, as indicated below.

There are people who have decided to work from home permanently instead of returning to their offices. Depending on its permanency, for the foreseeable future it may change the workplace substantially. It will have an economic effect on businesses such as restaurants and bars that were dependent on “downtown workers” for a substantial part of their income. But how much impact occurs, and how long it lasts, remain to be seen. There are several restaurants in my AO that have had signs out for months now that they will happily take orders for takeout and will deliver it to you at the curb or in their parking lots. It also includes Jimmy’s Hot Dogs & Italian Beef, about a 20 minute drive from my domicile.  Make sure you tip the waitress when she brings your order to the car. It’s certainly better than KFC, too, although KFC does make good gravy.

And last but not least, because people still want to go to the movies, drive-in movie theaters are returning. Some of them were still around.  Three drive-ins in my general area were concerned last year about having to close, although they had made adjustments to keep up with new formats and equipment. Now, the drive=ins are springing up all over the place, so that a family gets to go to the movies, with plenty of space between vehicles and room for the kids to play, and the movie-goers can take their own refreshments along or order in advance from the concession, stand just like old times. What’s old is new again, except you probably can’t get Strawberry Ripple any more.  (What!?! I didn’t buy that; he did.)

The following economic forecast for the USA from mid-2020 through to 2025 comes from Deloitte International Services. It was published June 15, 2020, three months after the CNBC article was released. It takes both a backward look at what has happened, and a forward view of the probabilities in a sluggish economy.

https://www2.deloitte.com/us/en/insights/economy/us-economic-forecast/united-states-outlook-analysis.html

This author indicates a further economic drop, which will bottom out. Per his article, over the next 5 years, recovery will be slow through 2021/2022, but will begin to pick up by 2023 and continue into 2025. It will be slow, not spectacular, but that indicates a more solid, sustainable recovery. The author also indicates bluntly that the USA should consider uncoupling manufacturing  of our goods from foreign entities, in particular, China, and bring those jobs back here.

I have indicated prior to this that the current recession was projected and forecast back in 2018, but no cause was given other than a somewhat overbought market. And you will probably recall the drop in oil prices on the commodities markets and the price drop of gas at the pump. There is about a $0.40 to $0.45 difference between the price in February and March, when gas at the pump dropped below $2.00/gallon, and now, 3 months later.  This is not to say that another price drop won’t happen again. That one was caused by people not going to work or not shopping or dining out.

I suggest either copying the two articles to a Word document or printing them out and doing the comparisons between March (the CNBC article) and what has happened since then, as in the Deloitte article. In addition, pay attention to the probabilities noted in the Deloitte article. The author’s forecast is that the strongest growth will be after 2024.

When the original forecasts in 2018 were for a downturn and a sluggish economy by 2020, no reason for that was included other than the economy was over-ripe and likely to drop substantially by 2020 to 2021. No cause, other than an overbought market was given, but there is always a root cause for something to happen, and it did. If you look at the turmoil that has been going on, as well as the side effects of it, it was almost like a stick of dynamite waiting to be lit.

Perhaps we needed a shakeup, to be wakened out of whatever complacency we were in.

Take nothing for granted.  We can’t afford it.

Category: "The Floggings Will Continue Until Morale Improves", China, COVID-19, Economy

Comments (12)

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  1. 5th/77th FA says:

    “Take nothing for granted!” I never did. That was why I always had a bottle of Sloe Gin instead of Strawberry Ripple when I took young Ms Thang to the drive in back yonder. In my immediate AO where the drive in motion picture places were are now a Fed Ex/Pepsi Cola Warehouse, an industrial park, Kia/Buick/GMC Dealership and a trailer park. Oh excuse me…a Mobile Home Community. Just as well, one of them was named the Dixie Drive In, so even if it was still there it would have the screen pulled down and a new historical marker placed putting it into the historical perspective. But, again, I digress.

    Good article that was a little more easy for me to relate to v the weather/climate/sciencey stuff. I was in a little better position this past Feb, since I had sat down with my financial adviser guy back in Nov when I officially came off the payroll and the disbursement of pension and 401K monies were done. He knew that I wanted to be more conservative, NO investments in Chinese firms, and to keep it domestic as much as possible, heavy on defense industry. Another thing that helped was the Company had transferred the funds into a check form that wasn’t sent out until the end of March, so I dodged a bullet on that drop too. He feels, and his other people do too, that some of the gloom and doom that is out in the media is exactly that…gloom and doom. He does agree that the growth over the next little while will be smaller than they had estimated this time last year, but overall, Imma semi OK. Naturally, if the bottom falls out we’re all screwed, so any disposable income is going to dry goods, staples, and seed. No need to stock up on ammo since the tragedy of the leaky boat during the hurrinado.

    I will endeavor and I will persevere. If I run out of money before I run out of life, I plan on looking for every old Artillery Man’s dream girl; A rich nympho that owns a liquor store. Remember, I can cook too.

    • Ex-PH2 says:

      Same here, Gun Bunny. Grocery prices haven’t gone up here in my AO. In fact, they’re lower now that the panicky people have gone back to buying carry-out stuff. I’m sticking to a tight budget and socking away every spare cent possible, just to be on the safe side. My plan is working.

      Now all I have to do is get a few more pieces of cast iron cookware and a new popcorn popper, and get the stove oven igniter replaced, because it isn’t working properly. Don’t want to go BOOM!

      • NHSparky says:

        Not per unit.

        Portions, cans, etc., are getting smaller, and have been for years.

        I just went to Wally World near Casa de Sparky. 80/20 hamburger that was $3.49/lb in January is over $5. Canned goods that were 15-16 oz are now 13-14. Coffee? 10 oz.

      • David says:

        Popcorn popper… a 1 qt. Revereware saucepan is all you need. Have used one exclusively for over 40 years.

  2. 26Limabeans says:

    Been riding the nice CD rates after Trump was elected.
    Unfortunately I have two that are due the week before
    the election. They are 2.6 and 2.3 percent. The best
    offer right now is 0.5 percent.

    Never played the market. Even my 401k’s with defense
    contractors was 100% guaranteed income funds. Did not
    lose a dime in the 1987 crash. Did not lose a dime this
    time either.

    If Dustin Hoffman were to be given advice today as he
    was in “The Graduate” it would be “one word, ammo”.

    https://youtu.be/PSxihhBzCjk?t=2

    • Slow Joe says:

      You don’t lose with 401k, unless you cash out while your fund is down.

      I am TSP C-Fund 100 percent, and loss 30 percent value with the covid19 in MAR and APR, but it is back up.

      You only lose when you cash out, otherwise, if you can ride the downturn, your shares will get their value back.

      Investing in government bonds or in guaranteed income funds is wasting your money, because it doesn’t grow. Put your money to work.

      • 11B-Mailclerk says:

        For me, a downturn is a buying opportunity.

        As one approaches “cash out” time, one needs to be more cautious, but if you structure right you can still ride out the hiccups, and maybe even bargain shop in the “outflow” phase.

        It helps if you start in your twenties. But a late but disciplined start still works.

        Owe no debt is a big help.

  3. Mustang Major says:

    My second career was in investment management. At one point, I managed large institutional portfolios and a small-cap growth mutual fund. I was supported by analysts that usually didn’t know what they were doing, even though they sounded like they did if you listened to them. That went for stock, industry, and economic analysts.

    My advice is any report that you read that is forward-looking, take it with a grain of salt. The person writing the report probably has no idea what the future holds.

    • Ex-PH2 says:

      That is very good advice. I knew that someone might bring that up, which is why I included the earlier report from March as a comparison with what has happened in the real world.

      Since those were fairly generalized, I saw no reason to not include both of them as a comparison with what did happen, and what may/may not happen.

      Besides, there’s nothing wrong with being prepared, right? Never expected to see snow on Hallowe’en and now we get it every year, and the furnace runs until mid-June. Had someone told me that might happen, I’d have been skeptical. Now, I’m not. We have a long road ahead, and the public disturbances or only a symptom of something else.

  4. 11B-Mailclerk says:

    So.

    Apparently there was a study done on the effectiveness of hydroxychloroquinine “cocktail” for treatment of Coronavirus/SARS

    In -2005-

    By our NIH.

    -Fifteen- years ago.

    https://truepundit.com/deadly-cover-up-fauci-approved-hydroxychloroquine-15-years-ago-to-cure-coronaviruses-nobody-needed-to-die/

    Folks, if this is true,this whole wretched mess was unnecessary.