Advisor Talking Points: This Is Going to Be a Rough Week

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White House Coronavirus Task Force Speaks To The Media In Daily Briefing

WASHINGTON, DC – APRIL 05: Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, listens during a press briefing with members of the White House Coronavirus Task Force on April 5, 2020 in Washington, DC. On Friday, the Centers for Disease Control and Prevention issued a recommendation that all Americans should wear masks or cloth face coverings in public settings. (Photo by Sarah Silbiger/Getty Images)

TALKING POINTS
For Financial Advisors

by

Paul Dietrich
Chief Investment Strategist
B. Riley Wealth Management

This is going to be a rough and volatile week for the nation.

If Dr. Anthony Fauci of the National Institutes of Health is right, we could see in the next one to two weeks, the beginning of a predicted death toll of 100,000 to 240,000 deaths, in the United States.

These deaths will have an enormous psychological impact on all Americans.

Another University of Washington virus model predicts that we will see rolling peaks as the pandemic moves from the New York area to Detroit, Chicago, and New Orleans.  They predict that the U.S. will not dip below 100 deaths a day until at least June 11th.

The peaks reached in each state are expected to range from the New York area occurring over the next two weeks through the last week of May for the rest of the country.

This model uses deaths, rather than new cases, because the mortality numbers are more reliable.

The best estimates are that the New York area will peak in new cases and hospital admittances within the next six or seven days and that the daily death rate in New York will peak within the next two weeks.

Here Is an Update on Where the Cycles Are for Other Countries That Have Reached Their Peaks

Talking-Points-China-Deaths

 

As you can see in the chart above, the Chinese daily death rate hit its peak on February 23rd, and about 30 days later, daily death rates were fewer than ten a day.

Can China Data Be Trusted? There is no question that early on, the Chinese government hid the accurate data on the Coronavirus from their citizens, other governments, and international health organizations.  Even U.S. intelligence agencies agree on this fact.

However, after a public firestorm and protests erupted in major cities over the jailing and death of a Chinese doctor who blew the whistle on the government cover-up, the central government invited the World Health Organization (WHO) in early February 2020 to monitor the Chinese response.

The WHO placed its employees in all of the regional and major hospitals in the seven largest provinces in China.  The WHO says it can’t confirm Chinese data on new cases, but it is confident in the reporting of Chinese Coronavirus deaths.

These graphs show the daily cycle of new death totals in each country.

This week, Dr. Fauci said he thought the cycle of the virus in the U.S. would likely look more like Italy and Spain.

He said the U.S. cycle started about two or three weeks after both Italy and Spain.

 

Talking-Points-Italy-Deaths

 

Talking-Points-Spain-Deaths

 

When Will the Pandemic End in The U.S.?  

From all of the available data, it seems that we will reach a peak in deaths throughout the U.S. over the next three to four weeks or the end of April or the first week of May.  After that, deaths and new cases are expected to become negligible after the first two weeks of June.

Sometime at the end of May or the beginning of June, the government will lift most of the “stay at home” orders, and businesses will start to reopen.

The U.S. Economic Impact

The breathtaking speed of this global economic contraction is unlike anything the world has ever experienced in modern history.

And that makes it very difficult to project out what this two to three-month economic shutdown will mean economically.

Since this virus and economic shutdown is so unique, there are no historical stock market or economic data that can usefully give us any relevant or reliable answers.

However, this is what we know now:

China and South Korea have both reopened almost all of their businesses, and restaurants and retail stores are springing back to life, with pent-up demand after an enforced 70-day quarantine.

International economist, Ian Bremmer, a longtime China expert, says the Chinese supply-side manufacturing economy will be back to almost 100% this coming week.

We know this, not through Chinese government data, but primarily through private shipping and exporting data.

The Impact on Workers and Small Businesses

The objective of the recent $2.2 trillion emergency legislation and the $4 trillion Federal Reserve loan facility was to make sure every worker and small business was eventually made whole during this two to three-month economic shutdown.

The challenge will be the speed and execution of this legislation. The money has been appropriated, but how long will it take the government bureaucracy to distribute it to its intended recipients?

This Economic Shutdown Is Like a Medically Induced Coma

The best metaphor I have heard for this crisis is that it is like a medically induced coma, where doctors deliberately shut down a lot of the brain’s function to give a patient time to recover.

On many of the weekend Sunday news programs, you heard several medical doctors and journalists offering their opinions on whether we are in a recession or a depression.

Most of them haven’t the faintest idea what they were talking about.  I can’t remember when I have heard more economic misinformation spread through usually legitimate news sources.

Unfortunately, there are few good historical analogies as to what is happening now.

What we have seen so far is not a recession in the ordinary sense. 

A recession historically happens when there isn’t enough spending, or there isn’t enough demand for goods.

What’s happening now is the U.S. government has deliberately shut down a large part of the U.S. economy because we are trying to stop the spread of this pandemic.

What the government is doing is what has to be done

No one likes staying at home, but most Americans agree with the scientists and support the restrictions on social distancing.

Temporary Job Losses

We should look at the climbing unemployment rate more as temporary furloughs for the next couple of months, rather than something permanent or long-term.

The 10 million temporarily loss jobs recorded over the past two weeks (that will surely go up to 15 million this coming week) are because of this induced coma.

We could see unemployment numbers over the next two months temporarily spike up to depression-era numbers.  But once the $2.2 trillion in emergency assistance and the $4 trillion in Federal Reserve business loans kicks in over the next month, they will offset and reduce those unemployment numbers.

When Will the Economy Get Back to Normal?

The Administration would like to restart the economy as quickly as possible.

I think everyone wants that, but if we open up sporting events and other gatherings of large crowds before we have solved the pandemic virus crisis, we could do long term damage to the U.S. economy.

Everyone wants a return to the life we had, but trying to do that prematurely, is a recipe, not just for a lot more people dying, but also a recipe for a more prolonged economic slump.

Almost all economists agree we should not restart the economy until new deaths and new cases are negligible.

What the government needs to do now is to provide disaster relief and aid to the unemployed and small businesses for the next two months until we can safely reopen the U.S. economy.

The good news is that the U.S. economy is completely capable of pumping a large amount of money into our economy to offset this two to three-month crisis.

Will There Be A Second Emergency Aid Package?

There are already talks in progress between Nancy Pelosi and Mitch McConnell for a possible second emergency piece of legislation if it is needed.  They are also working on a $2 trillion infrastructure bill that could kick start the economy after this pandemic is over.

I know it feels like this has been going on forever, but we forget that the first Coronavirus death here in the U.S. was just a little over a month ago on February 29th.

We have to have patience, and this is not going to be over until the end of May.  At that time, we will all start back to work again and resume our normal lives the first part of June.

As I said last week, I believe the $2.2 trillion emergency economic stimulus legislation and the $4 trillion Federal Reserve loan facility will more than offset the $4.5 trillion economic damage caused by the Coronavirus pandemic economic shutdown through late May.

I expect economic growth to accelerate during the second half of this year as the Coronavirus is contained.

As investors, we have to remember that historically, about six months after the World Health Organization declares an epidemic a “Global Health Crisis,” the stock market has usually recovered and is on its way back to new highs.

For investors, the best strategy is not to be panicked into selling but to ride out this economic disruption for the next four to six weeks and solely focus on your health and the health of your family.

We know this is a very fearful time, but B. Riley Wealth Management is here for you, and we will continue to share our stock market views every Monday. Thank you for reading. 

NOTE: This Report is authorized for distribution to clients

Paul Dietrich is the Chief Investment Strategist for B. Riley Wealth Management.  B. Riley Wealth Management offers comprehensive financial solutions to clients through its network of

over 160 experienced financial advisors across 13 states. The firm manages more than $11 billion in client assets and serves approximately 34,000 client accounts.

 

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Comments (1)
  • Thank you for your level headed and straight forward assessment Paul. Your analysis is always a breath of common sense among all the hyperbole in the news. Hope you are well!

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