It’s a process

RYAN   By Guest Blogger Ryan Lewenza

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I’m a big baseball fan having played it for years when I was a young punk. As an extension of this, I love watching baseball movies like Bull Durham, The Natural, Major League, and my all-time favourite, Moneyball. I think that one’s my favourite since it combines two of my passions – baseball and statistics.

One particular scene from that movie that resonates with me right now and that is germane to the pandemic and recession, is the scene when Billy Beane, the coach of the Oakland A’s, and played by my doppelganger Brad Pitt, repeated over and over to his ballplayers that “it’s a process, it’s a process”. He was trying to get his team to buy into his new strategy and kept hitting home that “it’s a process”, and that his players need to be patient and wait for their pitch or opportunities to come to them.

Well, this pandemic and global recession is going to be a process too, and just like every other recession before, this one too shall pass. The only question is when and how meaningful the recovery be.

Today I review this process of how economies move from recession back to recovery, and outline my expectations of this process over the next 12-18 months.

To understand why recoveries are a process we need to start with a review of the business or economic cycle.

The business cycle tracks the changes in economic growth or activity over time. Specifically, it tracks fluctuations in things like production, trade and economic activity and essentially captures the evolution of an economy from boom to bust. In my opinion, it is one of the most important things to track as it has huge implications for economic growth and the financial markets over time.

There are four basic phases of the business cycle. First, is the expansion phase and is characterized by rising employment and GDP growth, and generally, rising prices. Second, is the peak, which is the highest point of the cycle and where the economy is operating at full capacity. Third, is the contraction phase (where we’re currently in), which is where the economy contracts, job losses mount, and deflationary pressures come out. Finally, the last phase is the recovery phase, where the economy has bottomed and is beginning its next upswing. Then rinse and repeat over time.

The Business Cycle

Source: Model Investing

While every recession/contraction is different, the three main causes of economic recessions are rising interest rates, the end of credit/asset bubbles, and exogenous shocks such as wars and oil spikes. The current recession was brought on by a historic global pandemic, which would fall into the category of exogenous shocks.

Our focus, however, is now on the recovery and how economies transition from contraction to recovery. The key factors that help lead to a recovery are lower interest rates/stimulus from central banks and rebounding confidence among consumers, investors and the business sector.

I can’t stress enough how important improving confidence is to a recovery. Take right now for example. In March we were all scared senseless, focusing on TV and media headlines regarding COVID and the steep declines in the stock market. But now people are starting to feel a bit more at ease. As the economy begins to be re-opened, and infection rates peak, confidence will slowly start to recover, leading to ‘animal spirits’ coming out and a recovery.

Now it’s not a straight line and there are going to be setbacks along the way as it takes time for confidence to be repaired.

Below are some interesting charts to help hit home my point. The keys to every recovery are new jobs being consistently added and improving consumer confidence. If people are more confident and they have a job they spend more. If on the aggregate, consumer confidence is low then they save more. That’s exactly what’s happening right now.

So in the charts below I chart those two indicators in the US (total people employed and consumer confidence) for the last four recessions. The time period for each recession measures from six months before the start of the recession, and the subsequent two years after each recession.

While every recovery is different, the charts clearly show that over time you start to see rebounds in employment and consumer confidence. In 1981 for example, the recovery in both were fairly quick following the recession. And in 2001 the recovery took a bit longer, but the outcome is always the same.

As I said before, the question is not if the US/global economy will recover from this global pandemic and recession, but rather when, and by how much.

I believe the second quarter will be an absolute disaster for economic growth, but that this could represent the low in this contraction phase. Then as the economy begins to be re-opened, we should see a bounce back of activity in the second half of this year.

I’m not sure if it’s going to be a V, U or W-shaped recovery, but I believe strongly there will be a recovery and that by 2021 the US/global economy could be well went into its next expansion phase. Why? Well, this is how recoveries work. It takes time to rebuild confidence and see a rebound in the labour markets. Second, the central banks around the world are injecting unprecedented stimulus (in the trillions!) into their economies, which I believe could help lead to a stronger recovery then many people are currently anticipating.

Yes it’s going to be a bumpy ride, and were not through this contraction/recession yet, but try not to lose the forests for the tress and recognize that we’ll get through this tough time as history has clearly showed us time and time again that we do recover from these downturns and that its just “part of the process.”

US Economic Recoveries Following Recessions

Source: Bloomberg, Turner Investments (Click to enlarge)
Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

 

104 comments ↓

#1 Flop... on 05.23.20 at 11:53 am

There’s no crying in blogging…

M45BC

#2 TurnerNation on 05.23.20 at 11:56 am

Take a good look around you. A new virtual Berlin Wall went up in March.  Whatever you have now is all there will be. Punitive taxation across all asset classes and income will make new growth impossible. 
Travel will be severely limited. This is the UN plan. Trapped in Smart Cities under lockdown and the AI tracking all. Big box stores only
For years on here I’d poster their plan is turning all counties into 2nd world ones.

3rd world city services and 1st world taxation levels. We see in this article that “distancing” is a planned permanent state. I’ve been saying this for weeks. It’s the perfect social and economic tool to remake society.

All this has been planned and modelled out, for decades now. Data is collected real time and quantum computing handles it all. Scenarios and how to counter resistance. The numbers on your TV screen will be cranked up when greater compliance is required.
Did you think this technology was here to help us? ??

Rations and rickshaws :

https://www.thestar.com/news/city_hall/2020/05/22/mayor-john-tory-outlines-devastating-cuts-required-if-other-governments-dont-bail-toronto-out.html
———

How also will this be playing out?
I can tell you. Also check the history books.

— Many years ago if someone became sick they’d suspect their neighbor as being a witch.
Authorities would be called and swift punishment would follow.
Guilty until proven innocent.

— Today: if you are healthy and witness your healthy neighbors hanging with friends,  authorities will be called.  Ticketing will be swift and expensive.
With our courts closed they will be deemed guilty until proven innocent

If or when the courts are reopened I expect a modified form. The USA has in some areas moved to the ‘global’ model: decriminalization of smaller crimes and property crimes under say $1000.
As our streets become flooded with aimless and drugged out unemployed with nothing to lose guess how this will play out.

#3 Bob on 05.23.20 at 12:03 pm

Agree with your post, but Garth has highlighted in previous posts:

What about STRUCTURAL changes?

Stores and companies going bankrupt in the next few months are not likely to recover by 2021. Cities and funding shortcuts, without government $$$ are going to lay people off.

Garth already talked about real-estate.

Does other benefactors (e.g. medical research, online IT Jobs, etc) are not likely going to make up the difference.

Indeed, how long and how much of a recovery is a good question. I suspect we are already at the stock market peak, and after US elections (if not before), I can only see it going down until at least 2022

#4 Jimers on 05.23.20 at 12:05 pm

CAN CORONAVIRUS SPREAD THROUGH DEFECTIVE BATHROOM SEWAGE PIPES?

https://cph.temple.edu/about/news-events/news/can-coronavirus-spread-through-defective-bathroom-sewage-pipes

#5 Flop... on 05.23.20 at 12:12 pm

Hey Rhino,

If we use sports as a proxy for the recovery, we are only in the early innings.

Bundesliga is back.

I watched a game last week, without the fans it looks like a pre-season warm-up game.

One guy celebrated by doing the encouraged elbow bump.

Soccer is one thing ,but Aussie Rules starts up in a couple of weeks.

TSN will probably show more as its starving for content.

Full contact, sweating all over each other, fighting profusely for a piece of leather, as if their lives depended on it.

Only the strongest will survive.

Luckily if someone get injured the hospitals are empty…

M45BC

#6 theoryAndPractice on 05.23.20 at 12:21 pm

Dedicated to the ones, not with us anymore (today)

https://www.youtube.com/watch?v=Wl2OyaZVU3U

#7 mark on 05.23.20 at 12:22 pm

Thanks Ryan,

Always enjoy your articles, your the polar opposite of Larry Berman lol, I enjoy his stuff too.
Do you think the “bumpy” ride will test the recent lows, its hard to imagine that another big correction is not in the cards with poor earnings for the next year, record unemployment, massive debt, and another (second wave) of corona virus lurking, seems a lot of risk on the table?
Another issue and maybe you can comment, there is a real chance trump is gone next election, what’s the ramifications of a change in the USA government for investors??

M.

#8 Jimmy Zhao on 05.23.20 at 12:24 pm

31 minute video on how the economy works.

https://www.youtube.com/watch?v=PHe0bXAIuk0

#9 Leftover on 05.23.20 at 12:33 pm

Been through all of them, the worst was ’82. Took at least 2 years as charts indicate though in western Canada maybe longer.

The others were all cyclical/financial. This is “different” in as much as the cycle won’t necessarily work the same way because biology is different than economics. We are also at the mercy of private debt saturation which is far greater than previous recessions.

I think we’re all in for quite a haircut.

#10 earthboundmisfit on 05.23.20 at 12:37 pm

You suggest that people are feeling “more at ease”. I think a more appropriate term would be “complacent”, and that’s the problem. We are nowhere the end of this effing thing. Ontario’s count is not lowering significantly and we still have no idea where it’s coming from or how it’s spreading. Ever so happy not to be in Toronto.

#11 27 going on 50 on 05.23.20 at 12:46 pm

Everything is so up in the air right now, its very difficult to create a map of short term certainty.

-Economies on hold
-Economies receiving massive stimulus
-Poorly understood virus being poorly projected, and over reported and generally misconstrued
-Employment numbers up in the are – in the short term

On top of all that- Polarized USA election

If you are look at a long term horizon, sit back and watch
If you are on a short term horizon, sit back and watch

The next 2 years are anyone’s guess

#12 27 going on 50 on 05.23.20 at 12:47 pm

up in the air*

#13 VicPaul on 05.23.20 at 12:47 pm

#7 mark on 05.23.20 at 12:22 pm

Another issue and maybe you can comment, there is a real chance trump is gone next election, what’s the ramifications of a change in the USA government for investors??

M.
*********

…..what chance? Old Joe is the only contender….and the Tribal Lefties are just ramping up the “hate white patriarchy” machine that seems to please so many (especially third-wave fems – notwithstanding the overt racism/sexism – but hey, it’s against white men, so it’s ok).
If he lives to see November, Trump will win, virtually by default – the left has done nothing for four years except mud-sling – and that ain’t leadership.

M56BC

#14 BillyBob on 05.23.20 at 12:49 pm

Equating and extrapolating recent past financial crises due to macroeconomic factors, for which we have some understanding and can put solutions to, to one caused by an infectious virus for which we have very little understanding, and no effective treatment or cure – is not logical.

The thesis is that consumer/investor confidence drives economic growth, but is a bit light on explaining what this new-found confidence will be based on. Hope is wonderful thing, but not really a plan.

People seem to be confusing the slowing of infection rates with the demise of the virus.

As the economy begins to be re-opened there will also be a corresponding increase in infections/deaths, which will hardly be confidence-building. Plexiglass bandaids and marks on the sidewalk and so on and so forth are like airport security: mostly theatre.

Forget 2nd wave or whatever, the 1st wave doesn’t really end until herd immunity or mass vaccination.

The confidence doesn’t return fully until the virus is “solved”, either by effective treatment a la HIV, or vaccine. Until then expect a very slow recovery indeed. And to give up a whole lot of freedoms and privacy in the name of tracking and testing.

#15 MF on 05.23.20 at 12:49 pm

Major league is the ultimate baseball movie that all are compared to.

What about The Sandlot?

Also a great baseball movie that accurately portrays growing up while being obsessed with baseball. Even though the movie takes place in the 60’s, it’s similar to the late 80’s to early 90’s when I was a kid. There’s a lot of nostalgia there, and I’m sure anyone who grew up in the pre-computers and internet age will probably agree.

I have to ask,

Do kids still have the obsession with baseball we had in the late 80’s-early 90’s? Do they even play outside at all? My street used to be absolutely buzzing with kids, now it’s quiet. Maybe they are all at home on computers being exposed to who knows what.

MF

#16 Do we have all the facts on 05.23.20 at 1:01 pm

I am a big fan of looking into the past for possible solutions to problems in the present. I watched a number of governments around the world twiddle with monetary policy in the belief lower interest rates and an increased money supply would stimulate employment, economic growth and consumer confidence.

Over time interest rates around the world fell to historically low levels and the only tool left in the stimulation toolbox was to increase money supply by assuming massive amounts of government debt.

What seems different in 2020 is that everywhere you look find debt and even more debt. Government are tapped out, consumers are tapped out and a majority of Canadian companies are looking for financial help. The traditional path to economic recovery in a Canada might need more than a restoration of consumer confidence this time.

An examination of the metrics related to Canadian GDP reveal a concerning consequence if the USA was to shift to a more protectionist stance. The USA tariffs imposed on steel and aluminum in the past might be a harbinger of things to come during their recovery plans.

In 2019 Canadian exports to the USA were $320 billion and our trade surplus with the USA was over $27 billion.
I am pretty sure this will not escape Donald’s attention.

Canada should be developing plans for a wide range of scenarios that could occur post Covid 19. The belief that the recovery cycle will always restore our economy to pre-crisis conditions may prove to be more Pollyanna than Adam Smith.

#17 Ponzius Pilatus on 05.23.20 at 1:19 pm

#224 Sue on 05.22.20 at 9:55 pm
I went to winners yesterday. Not too busy. I do find it surprising that the malls are open and minimum wage service workers can glove/ mask up but shocker the peoplekind who run the country are still in isolation?
So embarrassed for our leaders they look like a bunch of sissy’s
——————
Doing the air raids, Churchill drank single malt scotch in his comfy bunker.

#18 Captain Oblivous on 05.23.20 at 1:22 pm

Ryan, “try not to lose the forests for the tress?” I know we haven’t had a haircut in awhile but your hair must grow a helluva lot faster than mine!

#19 Yuus bin Haad on 05.23.20 at 1:27 pm

I was floored when Theresa let it slip that she uses the alias “Jager” from time-to-time. I promised her I wouldn’t tell anyone.

#20 Blueb on 05.23.20 at 1:38 pm

Ryan,
“…Second, the central banks around the world are injecting unprecedented stimulus (in the trillions!) into their economies, which I believe could help lead to a stronger recovery then many people are currently anticipating.”
———————————–
This has been done before, but not on such a large scale… but injecting to ‘stimulate things’, that is, adding trillions to the global economy only results in ice cream cones costing $2000.00

#21 Axehead on 05.23.20 at 1:40 pm

Ryan, just a guess, another favorite is “The Accountant “.

#22 BrianT on 05.23.20 at 1:40 pm

The sheep are scared of everything except this new type of experimental vaccine being developed-no vaccine like this has ever been used on humans-supposedly it actually changes your DNA-this is radically different from any other vaccine ever used-obviously there cannot be long term safety studies-hurry up and be the first to get your injection-it will protect you.

#23 crowdedelevatorfartz on 05.23.20 at 1:42 pm

@#9 Leftover
“Been through all of them, the worst was ’82. Took at least 2 years as charts indicate though in western Canada maybe longer…..

……I think we’re all in for quite a haircut.”
++++
Yep. I remember the early 80’s recession. Not pretty. Took 3 years to see daylight.
The up side?
I learned to live frugally and save money….which helped immensely as the economy (and my wages) picked up steam.

#24 Camille on 05.23.20 at 1:56 pm

Thank you Ryan. I like your description of the cycles and charts. For me shows we’re not likely to jump ahead, because it is a cycle and each phase takes it’s time, in accordance with behavior.

#25 dmno on 05.23.20 at 2:08 pm

Ryan, maybe you or one of your fancy pants suspender snapping comrades could explain what negative interest rates are and what Canada’s bank bail in really means. Thanks.

#26 Stone on 05.23.20 at 2:09 pm

https://www.thestar.com/news/city_hall/2020/05/22/mayor-john-tory-outlines-devastating-cuts-required-if-other-governments-dont-bail-toronto-out.html

Simple solution: Raise municipal taxes until the budget balances. John Tory (and the other mayors) should quit their whining.

They’re not special.

#27 Ryan Lewenza on 05.23.20 at 2:12 pm

mark “Always enjoy your articles, your the polar opposite of Larry Berman lol, I enjoy his stuff too.
Do you think the “bumpy” ride will test the recent lows, its hard to imagine that another big correction is not in the cards with poor earnings for the next year, record unemployment, massive debt, and another (second wave) of corona virus lurking, seems a lot of risk on the table?

Another issue and maybe you can comment, there is a real chance trump is gone next election, what’s the ramifications of a change in the USA government for investors??”

It’s possible we could see a retest of the lows, which often happens in bear markets. However, this bear market is very different from the others so anything could happen. And there is so much stimulus being injected into the economy, while interest rates are at record lows, so this could help drive more money into stocks. I do see the potential for more volatility through the quarter and we would look to buy on the weakness given our constructive longer term view. With respect to the upcoming election I don’t believe a Biden win would be terrible for the markets. First, historically the stock market has done better under Democrats. Second, Trump’s actions can and have added to market volatility. Biden would be viewed more as a steady and calming force in my view. So I doubt our outlook would change much if a Biden win were to occur. – Ryan L

#28 Ace Goodheart on 05.23.20 at 2:13 pm

I would have to strongly disagree with this blog entry.

I do not see us being in recovery by 2021. Or 2022. Perhaps 2025?

We have not really recovered from 2008. Canada just ran on steam while the rest of the world (particularly the USA) went through a painful 12 years following 2008. We were able to do that in Canada, by pursuing our public service, and by adhering to liberal socialist ideas (and by borrowing a lot of money).

Low interest rates are not a sign of a healthy economy. Neither are populist, dogmatic leaders. We have had both for a while now (Donald Trump, Boris Johnson, Xie Jin Ping?).

When the USA entered a prolonged period of economic contraction, starting in 2008 and continuing today, Canada entered into a period of government borrowing, socialism and left wing liberal thought. We therefore had what amounted to a “fake” boom period, financed by government debt. We are now at the tail end of that, with a number of our Provinces being technically bankrupt, our Federal debt ballooning towards the trillion dollar mark, and our captain in chief, former drama teacher T2, believing that he can print money and give it away, and everything will be fine.

In Canada, we have attacked all of our industries. They are not environmentally friendly. We have to shut them down, to save the world.

Our main industry for years now has been selling each other over priced houses. When houses are expensive, interest rates are low and there is a lot of government borrowing, and a bloated, inefficient bureaucracy that is massively expensive to prop up, you know your country is in trouble.

We have now shut down what remained of our private enterprise tax base, with taxpayers who continue to be able to pay income, sales, and property taxes, being mostly civil servants who have not lost their jobs to the great COVID-19 business shut down.

Everyone else is paying using freshly printed government cash.

So you have an economy that was already on life support, with low interest rates, tons of borrowed government cash and pointless liberal socialist programs aimed at shutting down what remained of our industrial heartlands.

That economy has been decimated by a forced closure, to prevent the spread of a virus that kills old people.

The idea is, the government just allows businesses to re-open, everything just starts back up again, we have to raise taxes a huge amount on income, business and property, and with that massive increase in taxation, combined with the additional debt that has built up during the shut down period, everything will just bounce back, governments will pay back the billions (trillions?) that they borrowed, and we will start off on another economic expansion.

And populism will just go away itself.

And people will trust the government to vaccinate them, and will all go and get vaccinated.

And until there is a vaccine (maybe years, maybe never) everyone will just all wear face masks, we just won’t have restaurants, or schools, or stores without huge line ups in front of them, or indoor shopping malls, and it will all be fine.

And young folks will just have to wait to date each other, because it’s not safe right now.

Yeah, I can see this all working out just fine.

Be prepared for a long, painful economic contraction, filled with social unrest and upheaval and crazy populist leaders.

#29 Brian Ripley on 05.23.20 at 2:16 pm

My Housing Starts Charts are up with latest data:
http://www.chpc.biz/housing-starts.html

Projected Year End 2020 Totals​
Canada = 194,994 (-11% Y/Y)
ON = 70,722 (-12% Y/Y)
QC = 40,763 (-18% Y/Y)
​BC = 41,200 (-20% Y/Y)​
​AB = 26,449 (+7% Y/Y)​

Commercial, residential construction is approximately 1/10 the size of the service sector that contributes to Canada’s GDP (Trading Economics https://tradingeconomics.com/canada/gdp )

And a lot of services depend on the construction industry.

We are still at the early stages of this GLOBAL pandemic and in some jurisdictions the data is being hidden or misrepresented (Trump’s America, Bolsonaro’s Brazil and Putin’s Russia come to mind). Autocrats obfuscate. And there is still insufficient data (low test and track metrics) to even project what the death toll will be from Covid 19.

A return to normal business as usual in 2021 seems like an investment in hope-ium to me.

What I see in my little corner of the world is that service providers (Canada’s main employment sector) are closing branches ie: reducing employee levels.

A family that loses an income earner from death or unemployment in my opinion does not bounce back into investing in the casinos of the stock market and real estate flipping. Plus we have the demographics of change as the boomers (my cohort) die off. That transfer of wealth will end up in the hands of Gen X and Millennials who have problems of their own (March 2020 – 47% of millennials were scaling back their spending in light of the pandemic https://www.firstinsight.com/white-papers-posts/the-impact-of-coronavirus-on-purchase-decisions-and-behavior ).

From my post “MAXED OUT” April 2019 http://www.chpc.biz/history-readings/maxed-out
​‘Maxed out’: 48% of Canadians on brink of insolvency.

That’s what the survey via BNNbloomberg.ca conducted by Ipsos for insolvency firm MNP Ltd. says.

> 48% – of Canadians are $200 or less away from financial insolvency every month.
> 35% – say an interest rate increase would move them towards bankruptcy.
> 54% – worry about their ability to repay debts.
> 40% – said they won’t be able to cover all living and family expenses in the next 12 months without taking on more debt.
> ​55% – say they are $200 or less away from the financial brink in Atlantic Canada.
> 51% – say the same thing in Quebec.​
> 48% – say the same thing in Ontario.

That survey was just last year (April 2019). Has much changed for the better? Not much for that cohort.

On my April 2019 post I included a chart of Canada’s private consumption as a percent of GDP and that chart showed us a decline as well as a series of lower highs and lows. The current chart with data to Dec 2019 is still stair stepping down: https://www.ceicdata.com/en/indicator/canada/private-consumption–of-nominal-gdp

What do the unemployed, semi employed and people in unproductive jobs do in a credit bust? They don’t invest, they save… ie: balance sheet repair.

I think that in 2021 we will see a continuation of the trend that started back in 2016-2017 when the housing bubble popped and the over leveraged had to face the fact that there are only 2 ways to turn debt into equity… 1) quick sale liquidation or 2) long term debt repayment. In either case I don’t expect consumption levels to increase anytime soon.

#30 MF on 05.23.20 at 2:26 pm

308 BrianT on 05.23.20 at 12:43

I’ll be more blunt this time: the word “sheep” is tiresome and old, and does nothing but hurt your arguments.

MF

#31 SOMETHINGS UP!! on 05.23.20 at 2:29 pm

We often here the term “THIS TIME IT’S DIFFERENT”. Usually when we here this it’s true but it’s not different enough to matter.

This time IT’S DIFFERENT ENOUGH TO MATTER!!

#32 Joe on 05.23.20 at 2:36 pm

Vaccine – then the process will happen…

#33 Stone on 05.23.20 at 2:41 pm

#26 Stone on 05.23.20 at 2:09 pm
https://www.thestar.com/news/city_hall/2020/05/22/mayor-john-tory-outlines-devastating-cuts-required-if-other-governments-dont-bail-toronto-out.html

Simple solution: Raise municipal taxes until the budget balances. John Tory (and the other mayors) should quit their whining.

They’re not special.

———

I’ll add one more piece to this.

Politicians should stop constantly just focussing on getting reelected and instead focus on good gouvernance. Gouvern well and you will get reelected.

As I mentioned before, raise the municipal taxes to cover the services the city and its citizens deem necessary. Per the article, if that means a 47% increase to the tax bill, then do it.

Lastly, add an extra 15%-20% on top of that to the tax bill and divert that portion to a recession fund. The funds can only be used if certain criteria are met (recession occurs, certain unemployment level, pandemic lasting more than a certain time period) and need to be managed in the same way as a pension or sovereign fund. This way, if some event occurs that qualifies which may be every 5-10 years, funds are available and it’s not an exaggerated strain on the population.

Foresight apparently appears to be lacking within political circles and bureaucrats. This is not difficult to figure out. It’s the same for anyone where a portion of their income goes to needs, another portion to wants with the last portion going to savings/investments.

#34 Quintilian on 05.23.20 at 2:43 pm

Huge differences between previous recessions and this one:

Housing Bubble in major Canadian cities (titanic grade in Vancouver and Toronto).

Over 2 trillion in consumer debt. (consumer 70% of the economy tapped out)

Entered this recession with negative real interest rates (not much fire power left in monetary policy)

Exports on the ropes

#35 Flop... on 05.23.20 at 2:49 pm

Caution: Another sports themed post.

It’s how I roll.

I hear on the grapevine that New Zealand is kicking around the idea of a four day workweek.

Some semblance of normality, I suppose, with a bit more time off to distance, and any spare money to be dumped into the economy.

Try it.

Why not?

It’s got to be a better strategy than giving everyone handouts.

The balance sheet will not be All Blacks…

M45BC

#36 Bguy1 on 05.23.20 at 2:55 pm

Hi Ryan,

Thanks for the post. What kind of drag on growth would you expect from higher tax rates in the future? Any thoughts on how higher sales taxes vs income might effect growth?

#37 John on 05.23.20 at 2:55 pm

Hopefully a hypothetical scenario but what would you expect the markets to do if the Corona Virus was to reappear and reverse the curve.

Would you anticipate more money from heaven or is there a point where there’s no more Corona cash and free market principles take over.
Or is too late for that?

#38 Dolce Vita on 05.23.20 at 3:00 pm

Useful charts for US based investing, employment vs. confidence.

Not what happened in Canada in 1981 Recession.

Take note of lingering unemployment > 10% CONTINUING for 5 quarters after the recession was “officially” over, GDP growth positive again:

https://i.imgur.com/zXnovqj.png

My point is that for Canada it will be a much rougher ride than in the US this 2020. I suspect Cdn GDP will recover in 2020Q4 but unemployment, not so much. If history a guide, it will linger for quite some time and with that, confidence.

#39 kommykim on 05.23.20 at 3:12 pm

Ah the myth of infinite growth. At some point we will come to the end of this, because global resources are limited. Who knows when this will be, but to imply that it can continue indefinitely is just wrong.

#40 MPAC on 05.23.20 at 3:20 pm

Excellent thoughtful analysis Ryan. Well done!

Thank you

#41 Bk on 05.23.20 at 3:33 pm

Your charts are telling me we are in this mess for longer than you think. 5 years min to get back to Feb 2020 levels. At least in Canada. Us will be shorter.

#42 baloney Sandwitch on 05.23.20 at 3:33 pm

Great article. Virus will likely come back but I think the surprise factor is gone. We are learning to live with it.

#43 LP on 05.23.20 at 3:37 pm

#35 Flop… on 05.23.20 at 2:49 pm

I hear on the grapevine that New Zealand is kicking around the idea of a four day workweek.
*****************************

I wonder, might they take everyone back to work, alternating 3-day and 4-day work weeks? Yes, wages would be less but distancing would be easier. Having 3- or 4-day weekends would enable people to take part in the gig economy (I know, not on the upside). But businesses could take advantage of 7-day operation.

However, I see a problem funding company pensions for those who have them and maybe other benefit programs like health insurance.

#44 Tony on 05.23.20 at 3:45 pm

Re: #9 Leftover on 05.23.20 at 12:33 pm

The 1982 recession was a self-induced recession thus the weakest or mildest recession of them all.

#45 crowdedelevatorfartz on 05.23.20 at 3:51 pm

@#35 Flop
” I hear on the grapevine that New Zealand is kicking around the idea of a four day workweek.’
+++++

we implemented that a few years back.
Some people take Fridays off or some take Mondays.
10 hour days for the 40 hour week.
The guys seem to like it.

#46 crowdedelevatorfartz on 05.23.20 at 3:54 pm

@#43 Tony
“The 1982 recession was a self-induced recession thus the weakest or mildest recession of them all.

+++++

As compared to what?
Nothing since the early 80’s has come even close to the unemployment rates we saw then until today.
If this drags one for several years, then it will make the 80’s look like a cake walk and the Mills can truly have bragging rights over their Boomer masters.

#47 Grunt on 05.23.20 at 4:03 pm

I still whiff additional levies on non renewables/carbon emitters. New road tolls. Private ICE will become more taxed. To discourage unnecessary use and help the environment. That will be the angle of attack.

#48 Flop... on 05.23.20 at 4:06 pm

LP37 pm
#35 Flop… on 05.23.20 at 2:49 pm

I hear on the grapevine that New Zealand is kicking around the idea of a four day workweek.
*****************************

I wonder, might they take everyone back to work, alternating 3-day and 4-day work weeks? Yes, wages would be less but distancing would be easier. Having 3- or 4-day weekends would enable people to take part in the gig economy (I know, not on the upside). But businesses could take advantage of 7-day operation.

However, I see a problem funding company pensions for those who have them and maybe other benefit programs like health insurance.

///////////////////

Who knows Linda, but you go down a road I touched on last night with my school update.

Over 75% of kids are coming back to Mrs Flops school in a week or so.

Only 50% capacity allowed.

The latest I heard was essential workers kids could do the full five to keep them available for work, and everyone else has to split the time to make the math work.

Some kids will only get two or three days a week.

Some kids possibly will only do 8 days of disrupted schooling before summer.

People have said they are only doing this for optics.

To a degree this is an experiment, that will hopefully better prepare them for later in the year.

My wife wants to go back, her work day is currently extended by having to document and report everything to 3 different teachers and a principal.

During normal schooling, she can walk out the gate at 3:30 and everything is taken care of.

Now the day is not as physical, but lots of online sessions with parents, kids and colleagues.

Sometimes still going for it after 8 at night.

Some teachers making the best of it some milking the system by doing as little as possible.

Anyway nice chat, Aunty LP, gotta go for my much anticipated mop chop…

M45BC

#49 Out Of Work CEO, Will Travel on 05.23.20 at 4:06 pm

Aware of the special class of readers peopling this blog knowing they are serious fans of President Trump who stated: “You don’t want the cure to be worse than the disease”. The phase we are in is usually termed a “depression” but now the financial markets have put the economy on a serious sedative heavy on the opioids. Unfortunately, our American head of that great democracy is aware of the sinister horrors blanketing our monetary based club. Sort of a like a thorough cleanse only the millineals could identify with joy.

#50 FreeBird on 05.23.20 at 4:22 pm

#42 LP on 05.23.20 at 3:37 pm
I wonder, might they take everyone back to work, alternating 3-day and 4-day work weeks? Yes, wages would be less but distancing would be easier. Having 3- or 4-day weekends would enable people to take part in the gig economy (I know, not on the upside). But businesses could take advantage of 7-day operation.

However, I see a problem funding company pensions for those who have them and maybe other benefit programs like health insurance.

——————
A client is already doing this w/staff not able to work remotely. Similar to work sharing. Seems to be working (since early Apr.) Another one looking at it. Good point about benefits etc.

#51 Great Gatsby on 05.23.20 at 4:29 pm

Too bad previous governments didn’t realize they could end a recession by printing trillions and giving everyone all the money they want. Then we would never have them. What a joke.

#52 JUST LQQKING on 05.23.20 at 4:36 pm

in the words of a forgettable senator during a vice presidential debate…against a guy who couldn’t spell tomato…”I served with Brad Pitt. I knew Brad Pitt. Brad Pitt was a friend of mine. Ryan Lewenza…you’re no Brad Pitt.
As for stats…another memorable quote…”There are three kinds of lies: lies, damned lies, and statistics.” Just messin with you Ryan :)

#53 Billy Boy on 05.23.20 at 5:01 pm

Ryan:

Can you respectfully comment on the fact world central banks are pumping even more support into these markets thus making them rise?

The world debt levels are unpayable. Any “process recovery will be an illusion til the final top. This charade of financial manipulation is in the 9th inning. If you can please convince me otherwise.

Thank you.

#54 Retro Marxist on 05.23.20 at 5:32 pm

The schools are closed, but the prisons are open.
{This quote is from Kanye West. Copyrights are to GOOD LIFE Music and the record labels}

#55 Jerome The Printing Press Powell on 05.23.20 at 5:37 pm

Have no fear blog dogs. Jerome The Printing Press Powell will lower rates into the negative gutter from laughable zero and print trillions to create history’s very 1st three week bear market. Sorry you missed it while logically waiting for actual earnings, unemployment and other critical dats to be become available in order to make an educated decision on how to deploy your money.

50 million out of work, record bankruptcies, record economic contraction, nightmare fundamentals, atrocious earnings, potentially a 2nd wave virus and shutdown? Pffft…worrying about real data, that’s soooooo 2019.

Forward stimulus errr I mean “thinking” is the new mantra.

#56 Cow Man on 05.23.20 at 5:49 pm

It is wonderful to live in a happy place. Unfortunately reality gets in the way. Globe & Mail article today:

https://www.theglobeandmail.com/canada/article-the-leeway-factor-as-coronavirus-lockdowns-lift-how-far-can-we/

shows California which had nearly 0 new Covid 19 cases mid March is now climbing. California’s economy is larger than all of Canada’s. California thought they had Covid 19 beaten and started to open up. Limited mass transit and warmer climate, unlike Canada. To no avail.

#57 Ryan Lewenza on 05.23.20 at 5:49 pm

Bguy1 “Thanks for the post. What kind of drag on growth would you expect from higher tax rates in the future? Any thoughts on how higher sales taxes vs income might effect growth?”

It depends on the tax. If we’re talking higher income taxes then this would be a drag on consumption and in turn overall growth. If on investments (ie higher capital gains taxes) this would be a big drag on investments, which would be negative for stock market returns and portfolios. On the issue of higher sales taxes or higher income taxes, personally, I would prefer higher sales taxes, which taxes consumption but this a more regressive tax and there is no way the current Liberals would go this route. So expect a mix of higher income taxes and on investments given this current Federal government’s policies and agenda. – Ryan L

#58 The World's Smallest Horse on 05.23.20 at 5:59 pm

I think the recovery, when it happens, will be extremely aggressive. The simple reason for this is the niches opened up by weak business going under … generally doesn’t go away. Someone will move in and replace them, and that new business will be more robust than the often already marginal ones it replaces. Some of the changes we may see as a result of COVID also open up tremendous opportunities for those that see them.

The other side of that is … that it’s too early to call bottom. The virus is in decline in much of the developed world, but not gone. It comes back so easily. Ontario may already be seeing a second wave bubbling up. The US is a disaster, and they simply don’t have it under control. That threat is not gone. Government may be reluctant to “close” again, but another NYC level event- which is not only still possible, but likely – is itself hardly inspiring of consumer confidence. A second wave outbreak might scare people even more than the first, as it’s a clear signal that this isn’t a temporary thing.

The other major problem here is that we haven’t hit bottom economically. The “zombie businesses”, the ones that are dead but don’t realize it yet, are still out there. They hung on through the closure in hopes of resuming. They might stumble on another three months. They’re already dead. US unemployment claims remain stubbornly high even as the country “reopens”, for this reason. A lot of people are hoping for a “V” recovery but that confidence might wane as the real damage emerges, the companies that hung on til now eventually give up,, possibly alongside new viral outbreaks.

Again, I think there will be a spectacular recovery…. just … not yet.

#59 Cow Man on 05.23.20 at 5:59 pm

#33 Stone

Toronto residential properties are significantly under assessed. Compare Toronto residential mill rate to other Ontario Cities and find that taxes per dollar of assessment are basically half of areas outside of the GTA.

A 47% increase in mill rate would still leave Toronto residential property taxes below other Ontario Municipalities outside of the GTA.

#60 cuke and tomato picker on 05.23.20 at 6:18 pm

I am thankful that I live in Canada and hockey is our game.Working hard and being thrifty pays off. Live life
simply and make it fun. If the goal is clear the price is cheap.A responsible life with conserative investments is the route to go. In November 2019 when we were planing
our tax free investments for the first banking of 2020 our wonderful financial planner called us the turtles .We are living the charmed life in Victoria BC.

#61 willworkforpickles on 05.23.20 at 6:23 pm

Economic uptick will be minimalistic at best through to 2023 to 2024. By then wars around the globe great and small may drive technological advance to a new economic renaissance.

#62 Damifino on 05.23.20 at 6:43 pm

#28 Ace Goodheart

In Canada, we have attacked all of our industries.
——————————–

On that, I completely agree. However, the following is utter nonsense….

They are not environmentally friendly. We have to shut them down, to save the world.

#63 statsfreak on 05.23.20 at 6:47 pm

Quite simply a superb post Mr. Lewenza!!!

#64 Nonplused on 05.23.20 at 7:00 pm

Ryan, good article and much truth. However it is historical truth. Future truth isn’t a thing as it hasn’t been written yet.

I believe you will be proven correct and there will be some recovery, but I also believe this time really is different. The unemployment is unprecedented and those jobs are not coming back all at once, so that is going to be a long term drag on economic growth. Free money from the government won’t help because somebody has to pay for that somehow so net-net there are no more cookies in the jar, we are only changing who gets to eat them. Other factors that have been building for years like working from home over the internets, AI, automation, Netflix, Zoom, and free porn are going to change the way things are done dramatically. These changes were already in the pipe but now they are upon us. There will be winners, but also losers. And it is going to take a long time to sort it all out.

100’s of thousands of sqft of office space are going to have to be repurposed, to what I don’t know. City tax revenues are going to plummet as landlords with vacant properties stop paying. The bank is going to end up owning a lot of real estate, commercial and residential alike, that they will want to sell to a bunch of people that no longer can get financing. Thousands of small businesses are going to shutter for good because they can’t get the financing to reopen.

Of course certainly we will get through this. People who have money may get the investing opportunity of a lifetime, picking up properties on the cheap. But I think what we all need to do here is take the long view. We aren’t going to be able to just wind up the clock and set it back to 2019.

I do generally agree though that a balanced portfolio and continuing to invest if you have the money to do so is the right course of action. But I don’t expect the 40% or whatever number you may chose reduction in GDP will be followed by a 40% rebound. Instead we will start growing at 4%/year from here and it may well be 10 years before the economy has fully “recovered”. Maybe it’ll go faster than that but it won’t be 40%/year back up.

And I haven’t even got on all the social changes this could bring about. CERB may well become nearly impossible to get rid of. That is going to change how people view work and money. Even immigration is at stake if there is a long term CERB. We can’t really afford to grow the population if everyone gets $2000 a month from the government and free health care in a covid environment where there are so many unemployed.

#65 Stone on 05.23.20 at 7:00 pm

#58 Cow Man on 05.23.20 at 5:59 pm
#33 Stone

Toronto residential properties are significantly under assessed. Compare Toronto residential mill rate to other Ontario Cities and find that taxes per dollar of assessment are basically half of areas outside of the GTA.

A 47% increase in mill rate would still leave Toronto residential property taxes below other Ontario Municipalities outside of the GTA.

———

That doesn’t really matter. Toronto has a larger population base so they can spread their the costs easier than smaller municipalities. So long as they cover their costs and set aside an emergency fund, that’s all that actually matters.

The mayors have nothing to whine about. They know what they need to do to fix the problem they’re moaning about. They should get on with their job and raise the municipal taxes and move on instead of being cowards.

#66 Ponzius Pilatus on 05.23.20 at 7:01 pm

#224 Sue on 05.22.20 at 9:55 pm
I went to winners yesterday. Not too busy. I do find it surprising that the malls are open and minimum wage service workers can glove/ mask up but shocker the peoplekind who run the country are still in isolation?
So embarrassed for our leaders they look like a bunch of sissy’s
————-
would you rather have him golfing?

#67 willworkforpickles on 05.23.20 at 7:03 pm

Stimulus stimulus and more stimulus. All this excess money floating around created from nothing in an economic crash with hampered to little more economic output… And without a miracle or three is going to lead to 3 things. Hyperinflation (where you don’t want it). Deflation (where you don’t want it). Stagflation. Could use a miracle or 3 over the next 3+ years.

#68 FYI on 05.23.20 at 8:09 pm

@#15 MF on 05.23.20 at 12:49 pm
Major league is the ultimate baseball movie that all are compared to.

What about The Sandlot?

Also a great baseball movie that accurately portrays growing up while being obsessed with baseball. Even though the movie takes place in the 60’s, it’s similar to the late 80’s to early 90’s when I was a kid. There’s a lot of nostalgia there, and I’m sure anyone who grew up in the pre-computers and internet age will probably agree.

I have to ask,

Do kids still have the obsession with baseball we had in the late 80’s-early 90’s? Do they even play outside at all? My street used to be absolutely buzzing with kids, now it’s quiet. Maybe they are all at home on computers being exposed to who knows what.

MF
———————————————

basketball and soccer are the obsession sports now for kids. baseball and hockey only seem to appeal to an older white dude crowd.

#69 Dr V on 05.23.20 at 8:11 pm

35 Flop – Green Sonia (as opposed to red Sonja)is on it!

https://www.cheknews.ca/cowichan-valley-mla-floats-four-day-work-week-as-part-of-covid-19-recovery-670566/

She assumes the workers will still get paid for 5 days. Sigh. maybe she is red after all.

But increased productivity has been noted by colleagues of mine as they say things are just more
compressed and intense and you recover better with
3 day weekends.

I know how short 2 days feels to me now.

#70 squire on 05.23.20 at 8:16 pm

#66 Ponzius Pilatus on 05.23.20 at 7:01 pm
#224 Sue on 05.22.20 at 9:55 pm
I went to winners yesterday. Not too busy. I do find it surprising that the malls are open and minimum wage service workers can glove/ mask up but shocker the peoplekind who run the country are still in isolation?
So embarrassed for our leaders they look like a bunch of sissy’s
————-
would you rather have him golfing?

———
golfing ? how about he shows his face at parliament and deal with the grilling the man-child is avoiding. He’s spreading around all our tax money buying votes for future. The apple doesn’t fall far from the trudeau tree. Open zee eyes to see. He’s just setting himself up for majority gov and butts is behind the curtain pulling the puppet strings left wing nut bar style.

sheesh

#71 crowdedelevatorfartz on 05.23.20 at 8:39 pm

@#66 Ponzie Preamble
“would you rather have him golfing?”
+++
No you obtuse buffoon.
She would rather have him back in Parliament, doing his job, being questioned by the opposition …..rather than having delightful, photo op , media scrums in a tent on the lawn of a cottage while he hands out billions upon billions of taxpayers dollars he has no intention of ever repaying.

#72 crowdedelevatorfartz on 05.23.20 at 8:44 pm

@ Ponzie prattle
Apparently its not just me that is sick of Trudeau’s endless cash fandango…….

https://nationalpost.com/opinion/rex-murphy-the-opposition-asks-the-liberals-do-not-answer

https://nationalpost.com/opinion/rex-murphy-whos-on-first-in-the-covid-commons-why-its-trudeau-and-blanchet

Trudeau is spending this country into fiscal ruin and he cares not one bit how deep of a hole he digs……daddy’s trust fund will take care of him.
Punishing Taxes will take care of the rest of us…..

#73 Newcomer (orignal) on 05.23.20 at 8:56 pm

#39 kommykim on 05.23.20 at 3:12 pm
Ah the myth of infinite growth. At some point we will come to the end of this, because global resources are limited. Who knows when this will be, but to imply that it can continue indefinitely is just wrong.
———
It depends on what you mean by growth. At the moment, a lot of growth is purely virtual (digital). Economies are growing based on making and selling data. A hundred years ago, that would have been inconceivable. So growth can take different forms, including those we haven’t thought of yet. The same is true for resources.

The lamps of the whole world used to be lit my whale oil, but before we ran out, we found something else. Nobody would have imagined petroleum could be turned into fuel, and much less that there was so much of it hiding under the ground.

Eventually we should be wiped out by a supernova (or a bad cold) but until then, it’s hard to see any particular reason why some for of “growth” cannot continue.

#74 Faron on 05.23.20 at 8:58 pm

Thanks for the great post Ryan. That’s an appreciated sober and positive outlook.

I just wanna say thanks to #60 and #61 for your usernames and for posting in that sequence.

#75 MF on 05.23.20 at 9:17 pm

8 Ace Goodheart on 05.23.20 at 2:13 pm

Not entirely correct. Half correct. We didn’t go through 12 years of contraction because we never crashed in the first place.

All those listed issues can be applied to any country, really.

You are correct that housing is too big an industry. You are also correct debt levels are worrisome, and interest rates should have risen in 2014…but didn’t.

The part of Trudeau and industry is too partisan. He doesn’t control the oil price. Someone else down the line can just reverse any of his policies. The part of beaurocracy is just a scapegoat myth and should be ignored. Further, you neglected the increase in population over the period that led to continued growth, or the tech boom that has occurred in cities like Toronto recently.

Yes There will be some changes. Some positive (more wfh, downward pressure on real estate prices, return of some manufacturing) and some negative (there will be business closures). But I’m thinking a recovery is likely…just a little slower than what Ryan thinks time wise.

MF

#76 Trudeau’s Magic Money Machine on 05.23.20 at 9:35 pm

It doesn’t matter, cause…………..money is just a concept.

#77 Fused on 05.23.20 at 9:49 pm

Can someone link up the scientific literature for the 6′ safe distance that we are all suppose to maintain.
Guess this will make procreation a little more difficult now!

#78 Ace Goodheart on 05.23.20 at 10:51 pm

#62 Damifino on 05.23.20 at 6:43 pm

On that, I completely agree. However, the following is utter nonsense….

They are not environmentally friendly. We have to shut them down, to save the world.

/////////////////////////

That was said with my tongue firmly planted in my cheek.

In other words, I agree. Utter nonsense.

#79 no blog for old men on 05.23.20 at 11:00 pm

@#72 crowdedelevatorfartz on 05.23.20 at 8:44 pm
@ Ponzie prattle
Apparently its not just me that is sick of Trudeau’s endless cash fandango…….

https://nationalpost.com/opinion/rex-murphy-the-opposition-asks-the-liberals-do-not-answer

https://nationalpost.com/opinion/rex-murphy-whos-on-first-in-the-covid-commons-why-its-trudeau-and-blanchet

Trudeau is spending this country into fiscal ruin and he cares not one bit how deep of a hole he digs……daddy’s trust fund will take care of him.
Punishing Taxes will take care of the rest of us…..

_____________________________

you and ponzie are hilarious.
reminiscent of statler and waldorf from
the muppet show

#80 Ace Goodheart on 05.23.20 at 11:05 pm

#2 TurnerNation on 05.23.20 at 11:56 am

Interesting post.

I have this nagging suspicion that we are being lied to.

I read in our newspapers how the entire world is on lockdown, everything is closed, no one is going out, no restaurants, no shops, beaches, parks, everything shut down. The virus rages, and is spreading like wild fire.

But then I am still able to talk to people I know, who live in the USA and in Europe.

The virus is apparently not raging.

My cousins and aunt were at their local beach all last week in California. No “social distancing”. They went to a local restaurant afterwards. They were very shocked when I told them what is going on up here in Toronto, beaches closed, restaurants shut down, everyone out of work and going bankrupt, our favorite restaurant just announced it was closing forever.

They were like “what are you guys doing to yourselves up there? The rest of the world is sooooo over this”.

Folks in Europe expressed the same shock when I relayed to them the situation in Toronto. They were making plans to take a vacation, by airplane. Airports up and running. They had just come back from a local restaurant where they had drinks and dinner with friends. Again, no social distancing. Shops are open. Society is mostly back to normal.

It would appear that, if Canadians were allowed to leave Canada (we are not, btw, the border with the USA is closed so you cannot leave by land, and apparently you can’t leave by air either) we would quickly become aware that we are on “lockdown” here all by ourselves, being fed media stories about the rest of the world, that are simply not true.

That is what I am finding, anyway, as I investigate by simply talking to people who live in other places.

#81 Dr V on 05.23.20 at 11:35 pm

73 newcomer – it is strange how people think “more” and “bigger” define growth.

#82 Barb on 05.23.20 at 11:40 pm

It seems that Canada’s forest industry has…again…been producing lumber deemed to hurt the American industry’s products.

Countervailing duties in the future?
When Canada has won — what was it now — three times in the past thirty years?
Yogi Berra would say: Deja vu all over again.

Is it that US lawyers are better than Canadian lawyers?

#83 Benny Nevis-Jones on 05.24.20 at 12:23 am

DELETED

#84 Genesis II on 05.24.20 at 1:08 am

I think a better and more complete comparison of past recessions would’ve included the one which followed the 1929 stock market crash.
Besides, the general trend we’ve experienced with interest rates since 1981 has been from high teens towards zero.
I don’t think this recession will be over so quickly – most likely will drag on at least till 2022, given the unprecedented excesses in the system.
Hope I’m wrong though…for all our sakes!

#85 Ponzius Pilatus on 05.24.20 at 1:11 am

#70 & 71
Obviously you both did not get the reference to Trump, who’s getting lambasted for playing golf.

#86 Ponzius Pilatus on 05.24.20 at 1:17 am

Ryan,
Probably it’s just me.
But the charts for 01 & 07 don’t show much of a recovery.

#87 Emery Canway on 05.24.20 at 1:26 am

Addendum:

Here we are, what do you call deflation combined with recession ( both official stats as of today)

1) De-cession ?

2) Depression ?

3) Trudeau’s Globalist wet dream ?

https://www.bnnbloomberg.ca/inflation-falls-below-zero-in-canada-for-first-time-since-2009-1.1438680

Anecdotal stories flooding in from people saying how the ‘sales’ are huge. Prices down 90% and more, on all consumer related items. Retailers bailing?

Is this the equivalent of the ‘margin call’ for SME’s ? Because they are not ordering new stock according to management surveys, imports are cratering every month.

This is wholesale demand/price destruction happening right before your eyes. We are in a depression, no doubt.

Hundreds of thousands of SME’s are broke, deferred and now consumer confidence has collapsed and they’re raising cash, akin to the margin call on equity investors got over the past three months. It’s panic selling on the retail front.

Hundreds of thousands of small businesses never coming back, dumping millions more unemployed onto the street. Think about it. And with the deferral period and CERB coming to an end, the next quarter should be fireworks. Banks may be vulnerable.

Many stories I’ve heard are from people ‘who can’t believe their eyes’ as drive by prices fall more every day.

Ten ( or was it 15) I noted the inverse relationship a listed auction company had to recessions. That TSX listed company ( I won’t mention it because this isn’t a stock blog) . OK, I will, its likely reached historic highs in the acquisition phase anyway, most likely we move into the distribution phase over the next 24 months, but meanwhile it pays a dividend at much higher risk than 6 months ago…anyway, RBA. That companies stock price has doubled since this Trudeau-cession started.

Go figure right? The tip of the investor community spear has forecast depression as well and they expect the dumping of assets we saw in previous depressions to occur again. Everything from heavy equipment to containers of plastic spoons is going on the block.

Expect your house prices to follow. They always do during depression, as shown in Ryan’s charts. Those ten year boom bust periods look tame on paper, but living through them is something else.

#88 Faron on 05.24.20 at 1:55 am

76 Fused on 05.23.20 at 9:49 pm

Looks like WHO says 1m, research shows up to 6m is needed.

Do your own experiment.

1) go buy some cheezies or doritos
2) put a handful in a ziplock and keep with you at all times
3) if you feel a sneeze coming on quickly put cheezies in mouth and chew
4) let er rip
5) grab a tape measure and see how far the smallest chunks travelled

Procedure also works for coughing and moist talking

#89 Abolitionist on 05.24.20 at 1:56 am

DELETED

#90 David Fornier on 05.24.20 at 5:03 am

Ryan, I cant agree with any of your assumptions.nothing personal. None of these charts have any common link with what’s actually happening. This is an arbitrary and distinct government shut down and nothing to do with ‘exogenous shocks or the business cycle”.

Ergo, we can’t can’t assume anything going forward. It’s never happened before, except WW2. The business cycle describes a winnowing akin to separating wheat from chaff , a planting and harvest. We forget that business cycles resemble human culture. We have designed what resembles experience…deep shit I know.

But never since Jimmy Jones in Guyana has any one person ( in this case Trudeau) ordered a mass suicide. This isn’t a business cycle, its a psychological aberration. What we face is the pathological design of a very sick individual. Nothing in the charts you’ll glean in the future will ever again resemble a clinical norm. That I guarantee you. Hate me now but remember this lesson.

There is one damning sociological fact that’s emerged, and that is the growth of the SJW – Cancel Culture in Canada. We have more people on some kind of welfare and it impedes our growth. The worst example of this is Oil Sands and Pipelines. The Climate lobby is such that even reasonable politicians can’t subdue them.

An example of economies dying because of entitlement is when these small towns, consisting of nothing but fanatics decide to shutter the entire town and then wonder why their business is dying. It’s like we’ve given loaded weapons to children. The consequence of which has wrought wholesale disaster.

https://vancouversun.com/news/local-news/covid-19-how-rural-b-c-communities-are-coping-with-economic-fallout/wcm/034de26c-5dd4-4c43-8e38-6b30cf07ee1e/

#91 TW on 05.24.20 at 7:09 am

Interest rates are at historical lows and have been for years, they lowered them at the wrong time in 2009 …dont we also have a potential recession due to this boc debt created bubble called real estate ? Sure covid will pass but that doesn’t fix the bubble problem. How will the boc prop up housing now ?

#92 LP on 05.24.20 at 8:59 am

#48 Flop… on 05.23.20 at 4:06 pm
Now the day is not as physical, but lots of online sessions with parents, kids and colleagues.

Sometimes still going for it after 8 at night
************************************
My daughter’s experience has been similar. But it differs from most other teachers here in Ontario in that she is not using the on-line pap supplied by the provincial Ministry of Education.

Instead, she is teaching the actual curriculum and so sits in front of her computer and her students from morning to late afternoon with a 1-hour break for lunch. Her students use zoom to maintain connection with her and the other kids in the class.

The problem arises in the evening. One night last week she received a query by text from one of her students, at 9:30pm. She decided not to answer but would do so the next morning. But at 10pm (!!!) she got an angry text from that kid’s parent demanding to know why she hadn’t answered her child right away.

She asked for my help to draft an e-mail to send to all the parents of her students. Unfortunately, she couldn’t use it because I’m not ‘diplomatic’ enough.

#93 Do we have the facts on 05.24.20 at 9:02 am

An increase in money supply must be accompanied by an increase in productivity or inflation will follow. Given the rapid increase in Canadian money supply since March it seems unlikely that our GDP could ever increase at a pace to avoid inflation.

The only scenario where a substantial increase in money supply and a lack of production does not lead to inflation is when consumption collapses due to a prolonged depression (Liquidity Trap)

I am finding it difficult to understand why the Government of Canada is so hell bent on increasing our money supply without disclosing any concrete plans to expand our GDP.

While Canada is not Argentina it seems committed to many of the same policies that led to hyperinflation in Argentina in the 1980’s and in 2018. In 2008 Zimbabwe increased their money supply without economic expansion and hyperinflation quickly followed.

Canada is not immune from the serious consequences of printing money faster than economic growth. Our solid reputation of fiscal responsibility is being eroded every time another billion is printed without economic growth.

This madness must stop before it is too late.

#94 not 1st on 05.24.20 at 9:11 am

So Trump takes a day to golf and gets lambasted for it. Looks to me the guy has been working 15 hr days for the past 3 months on this. A day of leisure is deserved.

Now lets look at our glorious leader. 55 days in home hiding playing super Mario and throwing billions out the front door to his favorite voting block of the day. Bails on the online HoC meetings. Non answers to the drooling toddler media.

He might be able to squeak a majority out. The virus has shown Canadians are not very smart, but he is a modern day Nero about to rule over a burning kingdom because the engines of our economy are off line including the coveted FIRE GDP scam.

I say the CPC should let him own it. His name will be forever associated with the destruction of Canada.

#95 IHCTD9 on 05.24.20 at 9:35 am

#66 Ponzius Pilatus on 05.23.20 at 7:01 pm
would you rather have him golfing?
—-

Yes, we’d all be better off. Send him to the country club then lock him in there (please). The less this guy does, the better everything gets.

#96 Dharma Bum on 05.24.20 at 9:38 am

You need to take a big picture approach to things like this.
It’s just part of the ebb and flow of life since the beginning of time.
It’s never been a smooth ride.
This is just one more blip.
Like everything else, this too shall pass.
Everybody needs to calm down.
Suck it up.
Wu Wei.

“When we learn to work with our own Inner Nature, and with the natural laws operating around us, we reach the level of Wu Wei. Then we work with the natural order of things and operate on the principle of minimal effort. Since the natural world follows that principle, it does not make mistakes. Mistakes are made–or imagined–by man, the creature with the overloaded Brain who separates himself from the supporting network of natural laws by interfering and trying too hard.”
– Benjamin Hoff, The Tao of Pooh

#97 BrianT on 05.24.20 at 9:41 am

The latest stat is that 81% of the virus deaths in Canada are in nursing homes-mind boggling amounts of taxpayer money thrown around and if even a small percentage has been allocated to fixing the actual “problem” I missed it. You don’t have to be Tesla to see that this whole thing doesn’t add up.

#98 NoName on 05.24.20 at 9:48 am

#69 Dr V on 05.23.20 at 8:11 pm
35 Flop – Green Sonia (as opposed to red Sonja)is on it!

https://www.cheknews.ca/cowichan-valley-mla-floats-four-day-work-week-as-part-of-covid-19-recovery-670566/

She assumes the workers will still get paid for 5 days. Sigh. maybe she is red after all.

But increased productivity has been noted by colleagues of mine as they say things are just more
compressed and intense and you recover better with
3 day weekends.

I know how short 2 days feels to me now

With slowing demand 10hrs, 4 days work week makes some sense. Its done all over the place, some people i know already have 36 hrs work week…

#99 crowdedelevatorfartz on 05.24.20 at 9:50 am

@#78 no blog for old men

I feel victimized by your sexist, ageist, politically incorrect generalizations of our perceived gender.

Ponzie is actually an all knowing, all seeing, all talking…… turnip.

I on the other hand am a vaporous, shape shifting, gas bag with delusions of grandeur.

But I did appreciate the shout out to Sesame St.

#100 crowdedelevatorfartz on 05.24.20 at 9:52 am

@#84 Potential Pothead
“Obviously you both did not get the reference to Trump.”
++++

Obviously you did not get the reference to obtuse.

#101 crowdedelevatorfartz on 05.24.20 at 10:15 am

@#89 David Fournier’s Fantastical Theorems

“…..But never since Jimmy Jones in Guyana has any one person ( in this case Trudeau) ordered a mass suicide. This isn’t a business cycle, its a psychological aberration. What we face is the pathological design of a very sick individual.”
++++

Aside from the fact that you like hearing yourself prattle on.
Your Bachelor of Arts in Psychology….. is looking a tad frayed. 4 years wasted( and, no doubt, thousands $$$ in tuition fees) regurgitating a professor’s nattering plagiarisms seems a bit of a waste.

“Guyana?”
“Mass suicide?”
Trudeau as Jim Jones?
Please.
Jones was a complete nutter and Trudeau is no where near that level of “crazy”…….

He’s perfect for his role.
The Prime Minister reads whatever is placed in front of him and takes orders from his socialist leaning, basic universal wage, university pals.
Unless of course the voters in Quebec and or SNC Lavalin need a favor from the Minister of Justice.

I would see him as more of a President Ronald Reagan.
Looks good in a suit, takes orders well, vacuous, well intentioned, reads his lines, answers media questions with the usual politically correct, non offensive pablum but …not too bright.

All while sending 38 million of us into the taxation hell of his prolific spending habits.

I’m still waiting for a cash handout for the emancipation of all farm animals……..living , breathing, feeling, farm animals…….they should all have their own homes and a universal basic wage to live out their lives in comfort and freedom.

#102 Grateful in Victoria on 05.24.20 at 10:29 am

These are the best blogs.
They inform the younger investors and remind the older investors.
Exactly what we need right now!

#103 Dr V on 05.24.20 at 11:38 am

97 No name – 10 hrs for 4 days is still 40 per week so
wouldn’t reflect a decrease in overall demand. Also, some jobs (and workers) do not fit well with 10 hours
due to family commitments, darkness, weather and commute times. It’s all been geared to an 8 hour day.

10 hours works great for jobs like forestry where travel time can vary. I’ll say the 9 day shift of 10 hour days with 5 off worked great in camps that were within a few hours travel.

#104 cuke and tomato picker on 05.24.20 at 5:05 pm

I just read that Worksafe BC just lost 3 billion.If they had worked from 5am to10pm they would have some respect
for this money and not lost it in the recent stock market
down turn.Doing peaceful toil every day from early morning till late at night and investing in term deposits
year after year like a turtle you will be just fine.Living the
charmed life in Victoria BC.