Given the unprecedented times we’re living in, we thought that it might be helpful to send, once a week, a summary of 3-4 articles which reflect the new realities and their potential impact on our lives and assets. Our assessment is that it may take at least 3-4 years until we return to the pre-Covid 19 normalcy. Below are summaries of three intriguing articles with some unique insights. 

Our plan is to publish our commentaries on Tuesdays, the summary of the articles on Thursdays, and the weekly summary of market developments on Saturdays. Our clients will continue receiving private emails regarding market developments from our Managing Director.

Barron’s: Friday’s Jobs Report Will Be Among the Worst Ever. These 4 Factors Show Things Will Only Get Worse.

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The devastation Covid-19 has had on unemployment in America goes beyond the commonly referenced U-3 employment rate. This official unemployment rate only measures the number of people who are jobless but are actively seeking employment. The U-3 rate to be published by the Labor Department on Friday will not tell the whole story. Lisa Beilfuss’ article published by Barron’s outlines four things to watch for in the Labor Department’s household and establishment surveys.

The first number to watch for is the U-6 unemployment rate which is a much broader unemployment category. The U-6 rate includes involuntary part-time workers, a group that has grown rapidly as employers scale back hours, as well as workers who haven’t looked for a job in the past month. The U-3 unemployment rate is expected to rise to a record 16% in April while the U-6 unemployment rate is estimated to hit 20%. Another important factor to consider is the shrinking workweek. Economists are predicting a record drop in hours worked this month. Oxford Economics economist, Lydia Boussour, says a 0.1% decline in average hours worked is equivalent to 125,000 fewer jobs, therefore the 0.6% drop in March equates to roughly 750,000 jobs lost.

The last two factors to keep an eye out for are plunging participation rates and declining average hourly earnings. The March jobs report displayed the biggest decrease in labor-force participation since 1968, a rate that is only expected to fall more in April as many laid-off workers have been unable to look for employment due to stay-at-home mandates and will therefore not be categorized as unemployed. Finally, because employers have been both scaling back pay and laying off workers, economists predict a large 1% drop in average hourly earnings from March to April. A dramatic loss in earnings leads economists to believe we should be expecting a record collapse in consumption growth.

Wall Street Journal: Coronavirus Casts Deep Chill Over U.S. – China Relations

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The Wall Street Journal reports that the coronavirus pandemic has deepened the divide between U.S. and Chinese national interests.

Since Chinese president Xi Jinping took power in late 2012, Beijing has taken a more aggressive posture in advancing Chinese interests, and leveraging its expanding military and economic power to increase its influence abroad. Recently, U.S. policy toward China has hardened, with several departments (such as the Justice, Education, and State Departments, among others) taking an adversarial stance towards China.

The coronavirus pandemic brought many of these underlying tensions to a flashpoint. U.S. intelligence officials are investigating the origins of the virus and the US is reviewing China’s liabilities related to the spread of the virus that has infected millions, killed hundreds of thousands, destroyed businesses, and wiped out trillions of dollars from the markets. China has increased its military activities in the highly contested South China Sea, continues its intimidation tactics toward the U.S. ally Taiwan, while also imposing its will and power on poor nations using its Belt & Road Initiative. Even as the coronavirus pandemic sweeps across the world, the U.S. and China continue to maneuver against one another to determine who will come out on top when the dust settles.

Bloomberg: Hundreds of Earnings Calls Show Companies More Scared Than 2008

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Data from 600 earnings calls last month reveal that the financing concerns amid the Covid-19 pandemic are more severe than they were in 2008. A study conducted by the Federal Reserve found 42% of American non-financial public companies are talking about cutting investments, 27% are discussing equity payouts, and 17% are drawing down credit lines. On the other hand, only 25% of these companies were cutting investments, 11% were conducting equity payouts, and only 7% were drawing down credit lines at the peak of the 2008-09 recession.

The results of the study demonstrate the enormous pressure businesses are feeling as demand collapses, supply chains are disrupted, and lockdown mandates prevent the re-opening of large economies. Strangely enough, the dismal reports have affected the stock markets very little. The S&P 500’s 25% rebound from the March low is purely based on hopes of an unprecedented economic recovery.