What's weird about this current situation is that we need massive fiscal help from Washington, but we don't exactly need stimulus, per se. Stimulus typically implies an attempt to get the economy moving again. But that's not exactly what we want right now, because in the ideal scenario everyone could just wait this thing out by spending a month or two in their homes eating canned goods, watching Netflix and FaceTiming. Then when the virus is mostly gone, we all go out and have a bacchanal for the ages in the warmer weather.
The problem, as economist Larry Summers eloquently put it, is that "economic time has been stopped, but financial time has not been stopped." In other words, if we all cocoon for two months, we might physically survive, and the infrastructure of the modern world would be waiting for us upon our re-emergence, but in the meantime the bills pile up. The rent's due. The mortgage is due. Or the landlord's mortgage is due. The credit card bill is due. Taxes are due. For a business, paychecks must go out. Suppliers must be paid.
So we don't need economic stimulus right now. We don't need people out shopping or building new infrastructure or building new homes. Every one of those things involves people congregating and risks spreading the virus.
What we need is cash to keep people from going bankrupt or evicted. Cash to keep the lights on. Cash to keep people employed; to keep their health care. Cash to buy basic necessities, like food and medicine. So let's not think in terms of reviving growth for now. Let's think in terms of cash, so that for as long as we're in deep freeze, people can stay alive and continue to meet their financial obligations.
The economy has suffered a sudden shock, and recovery will take some time. Wall Street analysts have not fully modeled or even had the time to estimate the full impact of the COVID-19 pandemic. It will therefore take time for the market to adjust to new expectations. This leads to the following market scenario:
- The market will bounce as fear fades (but don't ask me when the bounce occurs).
- Watch for a rally and a test of the old lows several months in the future as the realization that the global economy is slowing, and the magnitude of the slowdown.