- Long and winding road to "recovery"
- Where have all the startups gone?
- Menacing on-again, off-again shutdowns
- Lineup of big-business borrowers
- Awful unemployment (more or less)
- Americans and the federal “piñata”
- Empty Seoul soccer stands… and sex dolls?
- A longtime reader, first-time contributor (gold)… Minimalist office furniture… Dave’s work-from-home backup plan… and more!
The following chart is not new. But it goes a long way to explain why the coming economic “recovery” will be agonizingly slow…
If you’re a longtime reader, it might look familiar. If you’re a newer reader, this chart depicts the formation of new businesses (the blue line)… and the demise of existing businesses (the red line)… going back to the late 1970s.
The declining blue line represents fewer and fewer startups across the decades.
That’s a very bad thing, because according to a landmark study by the Kauffman Foundation we cite now and then, “Without startups, net job creation for the American economy would be negative in all but a handful of years” since 1980.
For a while during the “Great Recession,” more firms were going defunct than coming into existence. Even now, the gap between the two lines on that chart is still alarmingly small… and the number of startups remains well below any time in the decades preceding the Panic of 2008.
Yes, the data go up only to 2016. We were supposed to get the 2017 figures last fall, but the Census Bureau is revising its methodology and won’t issue a new report for several more months.
But does that even matter now? We’re all but certain by the time the 2020 data come out in 2023, the red line on that chart will once again be higher than the blue line.
After all, who in his or her right mind would start a business now? Unless you can totally run it from home or have it classified by bureaucrats as “essential,” you could be shut down at any time with no warning. The threat of on-again, off-again lockdowns will persist until there’s a coronavirus vaccine, and that could be years.
While startups get strangled, big business gets bigger — thanks to easy credit courtesy of the Federal Reserve.
“Highly rated companies including Disney, Apple and Exxon Mobil, have borrowed $1 trillion in five months as they seek to fortify their balance sheets against the coronavirus-induced economic downturn,” reports the Financial Times.
That $1 trillion total is nearly double the figure for the first five months of last year.
Boeing tops the borrowing list despite its endless litany of problems. Little wonder the firm is passing up a bailout from Congress; who needs it when you can borrow so much at such low interest rates?
“The borrowing spree comes in the face of a significant deterioration in economic conditions because of the COVID-19 crisis,” says the FT, “increasing the risk that businesses are unable to repay their debts.
“But big support packages from central banks across the globe have helped keep conditions stable, and meant that some investment-grade companies even managed to cut their borrowing costs compared with what they had to pay before the pandemic.”
And with the Fed starting to buy corporate bonds? Even better!
Of course, that does exactly nothing for the job market. As we said a few moments ago, it’s startups that create jobs. Meanwhile, Boeing is delivering 13,000 layoff notices this week.
Which, it being Thursday, brings us to this week’s edition of the little chart of horrors…
First-time unemployment claims totaled 2.12 million for the week ended last Saturday.
The only thing you can say in this chart’s favor is that the trajectory continues moving steadily down from its peak eight weeks ago.
But for perspective, the pre-pandemic record for a single week was 695,000 — a third of last week’s total — set near the end of the 1981–82 recession.
Yes, many of these jobs lost since March will come back; a few are already. But a “return to normal”? Forget it. Not with three charts like the ones we’ve shown today.
And yet in the growing disconnect between the stock market and the real economy… the major U.S. stock indexes are climbing higher.
At last check the S&P 500 has tacked on another 12 points, solidifying its hold on the 3,000 level. Gold is perking up too, the dip below $1,700 not lasting long at all; as we write, the bid is up to $1,722.
On top of the jobless claims this morning comes another rotten economic number — durable goods orders, which measures new orders for anything designed to last three years or longer. The monthly number collapsed 17.2% in April.
Much of that drop was driven by a collapse in orders for civilian aircraft. If you back out aircraft and military gear, the drop was a less-catastrophic 5.8%.
For all the devastation across the real economy, you’d think the feds would have more to show for the $3 trillion in “stimulus” to date.
Matt Welch at Reason ran the numbers. It’s $9,000 for every man, woman and child in these United States.
You, presumably, are not $9,000 better off than you were a couple of months ago. Where’d the money go? “Where government payouts usually go,” says Welch — “to entities with better connections than you.
“There was the $50 billion to airline companies — $25 billion in loan guarantees, $25 billion in grants — which promptly slashed worker hours while burning fuel on empty flights at the government's request. There were the concierge-service clients of banking behemoths Citibank, U.S. Bank and J.P. Morgan Chase, who got to the front of the line for the feds' $349 billion loan program for small businesses. And don't forget the Federal Reserve, which is propping up Wall Street by doing what Fed Chair Jerome Powell recently characterized on 60 Minutes as ‘a multiple of the programs that were done during the last crisis.’”
The last crisis? Right, because that worked out so well. Then, the rescues totaled about $7,000 per U.S. resident.
If Uncle Sam didn’t act, President Bush warned us that “more banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs."
Oh, wait, that all happened anyway.
‘’Governments, unlike businesses, have guaranteed (if fluctuating) revenue streams, in the form of taxes,” Welch reminds us. “The federal government has the added leeway of borrowing, apparently without limits.
“The more of GDP that gets soaked up and spit out by this process, the more that economic and political activity will be about directing and capturing the flow to line the pockets of bankers, corporate executives and union bosses.”
We come back to an analogy by the radio host Charles Goyette after the last crisis: “America’s national government has moved way beyond a political spoils system. America has become a piñata: Everybody gets a crack at it. Presidents and other elected officials pass the big stick around as a reward to those who help keep them in charge of the piñata party.”
As sports leagues around the world tentatively return to action… but without fans in the stands… there are sure to be complications. But we didn’t see this one coming…
As perhaps you’ve heard, teams in Asia are resorting to measures like cardboard cutouts of fans holding up signs, just to keep it interesting.
But the FC Seoul soccer team wanted to up its game and use mannequins. Which is fine on its own, but… well, we’ll let The New York Times pick up the story from here.
“Some on social media noted the telltale signs, like the business logos for sex toy marketers on the dolls’ clothing, or their strikingly buxom physiques. Of the roughly two dozen dolls in the stands, nearly all were women.”
No, nothing suspicious there at all!
The club has apologized. “We failed to make detailed checks,” said an official statement skirting the question of whether this happened — uhhh — accidentally on purpose, on the theory that any publicity’s good publicity.
“As a longtime reader, I finally have some meaningful feedback to share,” begins today’s mailbag.
“Regarding the manipulation of gold prices, I'm not sure I totally agree with your assessment that the sale of a large volume of futures contracts has a significant causal downward effect on physical gold prices.
“I brought your point to a gold salesman that I've worked with and he responded by explaining that investors buy an equal amount of physical gold, in ounces, as they sell, again in ounces, in the form of futures contracts.
“Would love to hear your thoughts on this. Really enjoy reading the daily 5. Thanks!”
The 5: The problem is that for every one ounce of actual metal that exists, there are (give or take) 100 “paper ounces” in the form of futures, forwards, options, swaps and so on.
As for the March sell-off, we’re not fully convinced these large-volume futures contracts are the major factor; the rush for liquidity certainly figured into the equation. But the research — which originated with the CryptoMarketRisk team at the University of Sussex in England — was novel and worth spotlighting. Thanks for weighing in.
“This working from home I imagine will affect the big three in the office furniture manufacturing industry,” a reader writes on another topic from yesterday — “Steelcase, Haworth and Herman Miller and other smaller furniture manufacturers.
“Who needs fancy office furniture in their house? All you need is a six-foot folding table and a comfy chair. Need a change of pace? Use the company card for a $69 room at the Sheraton.”
The 5: Up to a point, sure. But eventually, the folding table will get old and people working at home will want a proper, dedicated workspace. And not everyone lives within easy distance of a hotel offering day rates.
True, the major names you identify will likely see less demand; but that could translate to more demand for consumer-grade office furniture. I’ve been living the telecommuting life for a few years now and a Canadian outfit called Bestar has gotten a fair amount of business from me.
If working from home is going to become a thing, then your editor has some not-so-common guidance for newcomers.
Advice-on-working-from-home articles are a dime a dozen, but I’ll share a thing or two about my setup that I’ve not run across elsewhere…
I have two — count ‘em two — uninterruptible power supplies. One is for my desktop computer and monitor in the office. The other is in the room where the cable modem and Wi-Fi router are located.
If there’s a power outage, I can quickly shut down the desktop computer and switch to a laptop and not miss a beat.
If the outage lasts long enough to drain the UPS supplying the modem and router, I can switch to tethering on my phone.
I also have one of those Goal Zero camping batteries to keep the phone and the laptop charged, and a 100-watt Renogy solar panel to keep the battery charged.
I’ve not had to resort to any of these more extreme steps, but there’s peace of mind in knowing I could. Bottom line: Think about backups for your backups.
The 5 Min. Forecast
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You can seize on a strange phenomenon that takes place in the first moments of the trading day, just after 9:30 a.m. EDT. It can put $1,000 or more in your pocket before lunchtime.
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