Financial, Economic, Market Impact of Coronavirus

[jyl]

I’m as interested in the financial, economic and market implications of the virus, as in the medical and epidemiological aspects.

So I’m starting this thread. Ready, aim, post at will!

I’ll get us started:

https://www.bloomberg.com/news/articles/2020-03-29/mortgage-bankers-ask-sec-to-save-them-from-wave-of-margin-calls

TL-DR Fed buying huge amounts of MBS to save that market from blowing up but it may be backfiring.

[tabs]

Originally Posted by jyl

I’m as interested in the financial, economic and market implications of the virus, as in the medical and epidemiological aspects.

So I’m starting this thread. Ready, aim, post at will!

I’ll get us started:

https://www.bloomberg.com/news/articles/2020-03-29/mortgage-bankers-ask-sec-to-save-them-from-wave-of-margin-calls

TL-DR Fed buying huge amounts of MBS to save that market from blowing up but it may be backfiring.

Unfortunately you are behind the Eight Ball...about 12 years behind.

To reiterate one more time.

Americans are NOW OUTA WORK from those low paying Service jobs..they HAVE NO SAVINGS LIVING PAY CHECK T PAY CHECK, and are in DEBT up their eyeballs just to make ends meet. So being outa work and having no money they can not pay the Mortgage Payment, Credit Car and or the Car Payment let alone the Student loans. So the Banks who are holding the Paper and having Packaged it as Derivatives are left holding the bag. Couple that with the Corporate debt and Commercial RE Loans and the Corporations are looking shaky...Why even FORD has has it's Debt down graded to near JUNK Bond status.. BBB. Many corporations like BOEING borrowed money to BUY BACK STOCK, while the Execs sold off their own shares as the Equity prices rose...now that they are in trouble they want a Govt BAILOUT> Then we come to the UNDERFUNDED Pension Plans that NEED an 8% ROI to stay solvent...the only place to get that kind of return is in Equities which have just crashed.

So the FED in response has set about BUYING EVERYTHING TO BAIL EVERYBODY OUT...in one week the FED added 1,000,000,000,000.00 to their Balance sheet standing at around 5.3T... They are going to be adding another 4,000,000,000,000.00 to the balance sheet bringing it to North of 9,000,000,000,000.00. They are in essence MONETIZING THE DEBT which is turning the USD in CONFETTI....

Meanwhile the Congress has passed a 2,000,000,000,000.00 Bail Out Bill, with call for and talks beginning of ANOTHER BIG stimulus bill...That is on top of the 23,600,000,000,000.00 UP FRONT US debt which does NOT included Unfunded Entitilement Liabilities or State and Local Debt.

Your are screwed...without even a reach around...

[pwd72s]

Nevermind...crystal balls are always cloudy. I'm going to wait for crystal clear hindsight to kick in.

[sc_rufctr]

The BIG problem?

"We've" never done anything like this before so we don't know what the long term effects will be.

Or who long will it take for people to have confidence in the economy again?
... We could be feeling the effects of this for over a decade. (I hope I'm wrong)

IMO cars sales for one will tank to a level we've never seen before.
... What does that mean for the manufacturers who were barely breaking even before this happened?

And finally... The people who have always taken care of themselves and their families will do the best. This is no time for greed but a bit of selfishness could go a long way to making sure you come out of this in good shape. That doesn't mean you shouldn't help other but don't do it to your own detriment.

This is assuming we don't have a repeat of this with a new virus strain next year or the year after.

[tdw28210]

This is pretty significant:

• Johnson & Johnson said Monday human testing of its experimental vaccine for the coronavirus would begin by September and that it could be available for emergency use authorization in early 2021.
• Shares of Johnson & Johnson rose more than 5% in premarket trading.
• The company said it is also increasing its manufacturing capacity with a new site in the U.S. and additions to previously existing sites in other countries to produce and distribute the potential vaccine quickly.

BUT...CNBC is saying they may be selling this AT COST, so not necessarily accretive to earnings. I'll go buy some band-aids to show my support.

[wdfifteen]

I’m watching this thread. There are a lot of moving parts and I am clueless as to how it might shake out.

[tabs]

Originally Posted by sc_rufctr

The BIG problem?

"We've" never done anything like this before so we don't know what the long term effects will be.

Or who long will it take for people to have confidence in the economy again?
... We could be feeling the effects of this for over a decade. (I hope I'm wrong)

IMO cars sales for one will tank to a level we've never seen before.
... What does that mean for the manufacturers who were barely breaking even before this happened?

And finally... The people who have always taken care of themselves and their families will do the best. This is no time for greed but a bit of selfishness could go a long way to making sure you come out of this in good shape. That doesn't mean you shouldn't help other but don't do it to your own detriment.

This is assuming we don't have a repeat of this with a new virus strain next year or the year after.

Auto sales had already TANKED BEFORE THE CV...IN 2019 16M autos were produced in the USA and 4.2M REMAINED UNSOLD.

1. Mortgage lenders are giving a 3 month Mortotium on house payment.

2. In NV the governor put a 2 month moratorium on evictions

3. Credit card companies are also deferring paymnets without Penalties OR INTEREST for 30 days...

4. Last week the FED bought 183B in Mortgage backed securities to provide liquidity to Banks. For a total of 500B on the balance sheet last week. The falling Equities are sucking up banks liquidity as they make markets in stocks.

5 The FED is offering 1,000,000,000,000 A DAY AT THE REPO WINDOW.

6. GM is offering 4 month on payment on a 7 year 0% loan
Ford is offerin 6 mo NO PAYMENT nor interest.

7. The FED is buying Muni Bonds to provide banks liquidity so the MOney Market says solvent.

8. ABd the BIG ONE...the FED is contemplating BUYING EQUITIES,


SO PWD no crystal ball just FACTS.

[KFC911]

Originally Posted by wdfifteen

I’m watching this thread. There are a lot of moving parts and I am clueless as to how it might shake out.

Welcome to the club....

Methinks Tabby's optimism is understated....the US is a "cheap, easy, credit" addict .

[Chocaholic]

Not the intent of the OP but we've now got a thread tailor-made for Tabby to recycle all his doom and gloom material of the last 10 years. Beyond that it's my hope that we'll get some worth-while insight, devoid of hype and worst-case scenarios. But, who am I kidding?

Allow a brief bit of pontification: There is a concept called pent-up demand. We were well into historic stability in our market when the virus hit just a few weeks ago. The potential for rapid recovery is high once the dust clears...this spring/summer hopefully.

Restaurants will be very busy and rehiring as a result. Sporting events, entertainment venues, manufacturing (especially in healthcare), housing starts, auto demand and a plethora of new businesses that address the shortfalls we've experienced in this pandemic will thrive. To name a few.

The world has been conditioned to be insanely focused on just how bad things can become. It's almost like a contest every morning to see which news story can predict the most death and destruction. I'm tired of it. Reality and history say otherwise.

My thoughts.

[tadd]

Just wait till you see your taxes.

Trumps tax break is going to get hiked.

It will be interesting to see if montage interest get lowered to silly levels. Everyone will end up basically leasing. Nobody will own anything.

My goal of the last few years was to get the house paid off. I can collect bottles on the side of the road to pay the property taxes, but having the house paid is a big chunk of money I wont need to make anymore.

That said, if rates drop enough, I might just refinance the remaining and just accept an $800 a month payment till I die.

[Chocaholic]

That's another interesting point. We paid off our house a few years ago. It's value has done well since we're on a deep water, docked lake lot. Have been considering taking a low/no interest mortgage on it for the same reason. Perhaps that's fodder for a dedicated thread?

[KFC911]

Originally Posted by Chocaholic

...We were well into historic stability in our market when the virus hit just a few weeks ago. The potential for rapid recovery is high once the dust clears...this spring/summer hopefully.

.

Equites had been on the end of a decade long bull run, overpriced and a BIG correction was long overdue imo.

This was just the match that lit the burn....

All bubbles pop.

[KFC911]

Originally Posted by Chocaholic

That's another interesting point. We paid off our house a few years ago. It's value has done well since we're on a deep water, docked lake lot. Have been considering taking a low/no interest mortgage on it for the same reason. ....

Why?

[cabmandone]

Originally Posted by Chocaholic

There is a concept called pent-up demand. We were well into historic stability in our market when the virus hit just a few weeks ago. The potential for rapid recovery is high once the dust clears...this spring/summer hopefully.

Restaurants will be very busy and rehiring as a result. Sporting events, entertainment venues, manufacturing (especially in healthcare), housing starts, auto demand and a plethora of new businesses that address the shortfalls we've experienced in this pandemic will thrive. To name a few.

I think that's something a lot of people are missing. A lot of businesses are being hurt right now due to the fear and uncertainty surrounding this virus. I know several business owners who have told me they had customers just up and cancel planned job. That money didn't disappear. The people just aren't going to spend it in a time of uncertainty. As you said, once the dust settles there is going to be a spending spree.

[KFC911]

Originally Posted by cabmando

... As you said, once the dust settles there is going to be a spending spree.

You've indicated before that a lot (most) of your buyers did not use credit. For the unwashed masses....the spending for quite some time has been on credit.

Borrowing 7 years for a car, etc. and depending upon asset appreciation (on houses) to build equity is a "no win" for most.

I'm extremely conservative fiscally...jmho.

[Chocaholic]

Originally Posted by KC911

Why?

Cheap money. My wife has always wanted to start a small retail business (specialty cooking stuff) in our small tourist town. I've toyed with buying, fixing and selling boats as a part time retirement business when the time comes. Etc., without tapping retirement funds. Lot's of reasons an extra $100k or two for almost no cost could be interesting.

I'm extremely conservative fiscally also. But if mortgage rates fall much below the 2.7% level they're at now, it seems logical to evaluate your options in such rare times.

[KFC911]

Originally Posted by Chocaholic

Cheap money. My wife has always wanted to start a small retail business (specialty cooking stuff) in our small tourist town. I've toyed with buying, fixing and selling boats as a part time retirement business when the time comes. Etc., without tapping retirement funds. Lot's of reasons an extra $100k or two for almost no cost could be interesting.

I'm extremely conservative fiscally also. But if mortgage rates fall much below the 2.7% level they're at now, it seems logical to evaluate your options in such rare times.

I get that aspect....but abhor debt at this point in my life. Different strokes...

[wdfifteen]

Originally Posted by Chocaholic

Allow a brief bit of pontification: There is a concept called pent-up demand. We were well into historic stability in our market when the virus hit just a few weeks ago. The potential for rapid recovery is high once the dust clears...this spring/summer hopefully.

Restaurants will be very busy and rehiring as a result. Sporting events, entertainment venues, manufacturing (especially in healthcare), housing starts, auto demand and a plethora of new businesses that address the shortfalls we've experienced in this pandemic will thrive. To name a few.

My thoughts.

I’m not so sanguine. I agree people are going to be wanting the things they’ve gone without for 2 or three months or more, but I question how much they’ll be able to pay for after 2 or 3 months of being unemployed. Credit cards are likely to be maxed out from paying for necessities for so long. Banks may withdraw mortgage applications that were approved before March. After months of no paychecks people who go back to work may be spending their money paying back creditors. Banks are offering to delay mortgage payments, but that money is still owed, and they’re going to want it. There may not be any money for eating out or buying a car for months. I think we will see a sputtering recovery that takes many months or years to sort out.

[Crowbob]

I don’t think the demand will resume once this crisis is over. Most people are living pchk to pchk and in serious debt.

I think this crisis will resonate with people along the lines of how the Great Depression resonated with my grandparents. Their lives were dramatically and permanently changed. So much so that even their children (my parents) who were too young to have any direct memories of the depression, made financial decisions based on what their parents experienced.

Socially, with the distancing thing, the closing of venues and restaurants, bars and schools families are being coerced into becoming closer to each other. I think it’s quite possible our materialism, need for instant gratification, and credit culture will diminish.

[island911]

Good stuff tabs.

Of course I have to point out WW2.

In WW2 a whole lot of businesses stopped what they were doing and put all resources towards building weapons,

The men... So many competent men were taken from the work force, retrained to break stuff and kill people around the world.

2020: Wash your hands, don't go out. GM; build vents.