How much worse will coronavirus fallout get?
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Last week, financial markets achieved more dubious milestones than we’ve seen in a long time. The Dow Jones Industrial Average fell more than 17%, the biggest single-week drop for that index since October 2008. The other key U.S. indexes weren’t far behind. The S&P 500 sank more than 13%, and the Nasdaq Composite tanked 12.6% – their worst weeks since the 2008 financial crisis.
Tuesday, as the government moved closer to passing a massive stimulus package, markets enjoyed a rally. However, experts say the crisis is a long way from being over. For one thing, according to some, the U.S. is looking at a frightening unemployment increase in coming months. One Federal Reserve Bank president says unemployment could reach 30%, greater than during the height of the Great Depression. This week’s Touchpoint begins with a closer look at that grim unemployment projection.
- An unemployment increase may be one of the most stunning pieces of economic data to emerge from the current crisis. Here is some perspective: During the 2008 financial crisis, the most jobs lost in a single month was 800,000. By contrast, during this April alone, said Ian Shepherdson, chief economist at Pantheon Macroeconomics, 5 million jobs could be lost. Federal Reserve Bank of St. Louis president James Bullard said recently he sees the U.S. unemployment rate increasing to a mind-boggling 30% in the next few months. If that happens, U.S. unemployment would be higher than during the Great Depression. Augusta Precious Metals’ senior economic analyst Devlyn Steele shares some additional perspective on the economy and an unemployment increase in this 90-second Augusta update video.
- What a difference two weeks and a worsening global pandemic make. Analysts polled by Reuters a couple of weeks ago pegged the probability of a U.S. recession at 30%. Now they’re telling the news agency that chances of a U.S. recession this year are a whopping 80%. That number is the highest since Reuters began polling on recession probabilities in January 2008. Even that year, which featured the monumental Lehman Brothers collapse, the figure reached “only” 60%. According to Sharmin Mossavar-Rahmani of Goldman Sachs, the U.S. economy will see “the sharpest quarterly contraction since the global financial crisis in the second quarter.” As for a recovery, Mossavar-Rahmani says a host of unknowns must be clarified before there’s any hope of seeing one. Topping his list of unknowns? “The severity and length of the outbreak.” Many analysts now say those are the most significant determinants of how bad the current financial crisis ultimately becomes.
- According to experts, global recession is now a foregone conclusion. However, one analyst says financial markets are looking at a near-term outcome reminiscent of the Great Depression. “This is an unprecedented situation, this is worse than 2008, this is worse than 1987, this is the worst crisis to hit financial markets since the Great Depression,” says Stephen Isaacs of Alvine Capital Management. Appearing on CNBC’s “Squawk Box,” Isaacs said the current pandemic has set the stage for a worst-case scenario. The reason is that it has unfolded against a worrisome economic backdrop that includes record debt and massively overvalued markets. The S&P 500 index is already down roughly 30% from its all-time high set in February. However, Isaacs says it would have to drop another 20% or so before he would consider it “oversold.”
- The quantitative easing (QE) buys made by the Federal Reserve during the 2008 financial crisis were enormous. However, they may end up being nothing compared to what the central bank does now in its attempts to stabilize markets. Last week alone, the Federal Reserve made roughly $317 billion in QE purchases. Per Investor’s Business Daily, the Fed’s balance sheet is growing faster than it did during the 2008 financial crisis. The figure also represents $275 billion in Treasury purchases. That’s more than half of the $500 billion in Treasury purchases the Fed said on March 15 it was prepared to transact “over coming months.” There’s no telling how much QE will be transacted by the time the crisis is over. Barclays economists Ajay Rajadhyaksha and Michael Gapen think Treasury buys alone could go as high as $1 trillion. They believe “the Fed needs to signal it is prepared to do ‘whatever it takes’” to keep capital markets functioning.
There is great anxiety over the degree of economic damage the coronavirus pandemic could do, including an unemployment increase. Sources featured in two of the news items above refer to the Great Depression. The fact that the Great Depression is even mentioned right now speaks volumes about the seriousness of the current crisis.
We are ready and waiting to help you secure your retirement portfolio. If you do not own any genuine safe-haven assets at this time, please call Augusta Precious Metals at 800-700-1008 or visit Augustapreciousmetals.com. Our customer success agents will carefully explain how easy it is to defend your hard-earned savings using physical gold. When you contact Augusta, be sure to ask how you can reserve a seat for the live Profit & Protect Web Conference hosted by Augusta’s lead economic analyst Devlyn Steele. It’s the same conference hall of fame quarterback Joe Montana saw that turned him into an Augusta customer – and now our corporate ambassador!
We look forward to hearing from you.