Weekly Rundown: The Irrational Market
Weekly Rundown 4.19.2020
The theme of this week is - don’t believe what you see. We are witnessing a serious decoupling between the financial markets and reality.
Let’s take a look at some key economic indicators:
22 Million in unemployment claims in the last 4 weeks
U.S. GDP is expected to fall 8.2%
Consumer Confidence sinks to a 32-month low
Yet, the S&P continues to rally. We are seeing irrational movements like double digit gains in live entertainment and homebuilders sectors.
Let me be clear. The economy is at a standstill. We were experiencing a slowdown before COVID-19, and the pandemic accelerated an already pending recession. The current market is being propped up by economic stimulus. On March 23rd, the Fed announced that its stimulus would be unlimited, totaling $2.3 trillion so far. We also saw $2 trillion go into the CARES Act, which included a $500 billion bailout for large corporations, much of which was used for share buy-backs. We have already doubled the total stimulus for the 2008 Financial Crisis.
It is also becoming increasingly clear that smaller financial firms got to the front of the line for the PPP emergency loans ahead of small businesses, and are using those funds to redeploy back into the market.
As a result, there is a spike in the market that in no way reflects the actual state of the economy. For example, Uber rallied 74% in the last 30 days. When was the last time you took an Uber?
The Fed’s stimulus has given us a ‘soft landing’ into a recession, but it will be a recession nonetheless.
This Week By The Numbers
Oil continues to plummet as supply vastly exceeds demand. Public markets finished a strong week, and Bitcoin continues to remain stable, with prices expecting an increase as we get closer to ‘the halving’ on May 12th.
Top Stories of the Week
The U.S. is expected to account for 31% of this year’s decline in worldwide GDP
That’s more than twice the country’s share of global output. Overall, the IMF forecasts the global economy will contract 3%, the most in almost a century, before soaring almost 6% in 2021. Read Full Story.
Half of the world has asked the IMF for a bailout
IMF said Tuesday it expects the global economy to contract by 3% this year, adding the world could see a 1930′s style recession. Global economy could expand by 5.8% in 2021 if the virus is contained and new cases start to recede. Read Full Story.
Weekly jobless claims hit 5.245 million
That brings the crisis total to just over 22 million, nearly wiping out all the job gains since the Great Recession. Additionally, 9.2 million workers likely lost their employer-provided health insurance in the past four weeks. Read Full Story.
Democrats introduce new plan to pay Americans $2000 a month until economy recovers
Under the Emergency Money for the People Act, US citizens who are 16 or older — and make less than $130,000 a year — would receive cash payments from the federal government for at least six months and until unemployment falls to pre-pandemic levels. Read Full Story.
Bernie Sanders endorses Joe Biden for president
Bernie Sanders on Monday endorsed former Vice President Joe Biden for president, pledging to help him defeat President Donald Trump in the general election. Read Full Story.
The White House released new guidance Thursday afternoon for states to reopen amid the coronavirus pandemic
The guidance doesn’t lay out a specific timeline for relaxing social distancing restrictions. It lists a set of criteria — such as testing and hospital capacity — for local leaders to use in making decisions. Read Full Story.
Crippled Airline Industry to Get $25 Billion Bailout, Part of It as Loans
The Treasury Department said that Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines would participate. The program is supposed to help the companies pay their workers and was created as part of the economic stabilization package that Congress passed last month. Read Full Story.
Andreessen Horowitz is raising $450M for second crypto fund
The investment firm's first crypto-dedicated fund attracted $350 million in capital commitments in mid-2018. A16z is one of the industry's biggest investment backers, investing in major firms like Coinbase, Libra and Polychain, among others. Read Full Story.
Facebook Revamps Proposed Cryptocurrency Libra
The Libra Association now plans to release several stablecoins — each of them will be backed by a fiat currency, such as USD, EUR, GBP or SGD. There will be a multi-currency Libra “coin,” but it won’t be a cryptocurrency per se. Like USDC, every time the Libra Association mints a LibraUSD, they buy and store the equivalent in cash and cash equivalents in a bank account. The Libra Association is abandoning plans to turn the Libra blockchain into a permissionless ledger. Read Full Story.
NASA sets date for SpaceX’s first passenger flight on Crew Dragon
On May 27th, a newly developed vehicle will take astronauts to the International Space Station. The demonstration mission, which will carry two NASA astronauts to orbit, will mark the first manned mission launched from American soil since the end of the Space Shuttle program in 2011. Read Full Story.
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Best,
Tatiana Koffman —> tatiana@tatianakoffman.com
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