Suntell CEO Corner
In early April when I penned my last article, my head was still spinning from the rapid changes occurring from the Covid-19 pandemic economic shutdown. In my 59 years on this earth, I have never witnessed such an event occur. I am quite certain most of you would agree. The impact on the economy from the artificially induced coma on businesses will likely be long lasting for years to come. Now after almost 3 months of this pandemic, mixed in with social unrest and protests and an election year, etc., we suddenly have a real life social and economic experiment unfolding before our very eyes. I am not sure how all of this ends and when the virus will go away or what type of shape of recovery that will take but I remain an optimist that the American spirit will prevail and we will emerge out of this pandemic at some point to begin a new recovery. At the same time, because of my bank and consulting training, I am a realist and I have to look at the data and my surrounding to see what it is telling me about the coming year or two. So here comes my does of reality, like it or not, agree or disagree.
At a Macro level, my economic sources tell me that that a severe global recession is unfolding and will likely be worse than the Great Recession. Unlike the last recession, all major developed countries will have trouble with falling GDP. Global GDP is projected to contract 3% vs. 0.1% during the Great Recession of 2008-09 crisis.
In the US, we have experienced weekly unemployment filings that total over 40 million in the last 11 weeks combined with a current total of 20 million unemployed. As I write this in mid-June, last week we had 1.5 million additional people filing for unemployment. I need to remind everyone this is still double the rate of the all-time highest record experienced in one week during 2008-09.
In my local economy in Kansas City, businesses are trying to re-open, but struggling in my opinion. My observation as I get out and about is that traffic and occupancy are nowhere near where a business needs to survive. Some employees have returned but I fear not for long if a business is unable to make a profit before PPP money is exhausted.
Covid 19 deaths are well over 110,000 at this point. As of this week, over 22 states are reporting higher daily new cases, some at all time high daily records. The virus is on its own timetable and a vaccine is not likely until at the earliest 2021. What this means is that the economic recovery will be slow and uneven as this virus ebbs and surges from region to region. People will be fearful to return to normal activities muting the pace of the economic recovery in certain sectors.
There is both good news and bad news out of all of this. The good news is that we had a quick government response with over $2 Trillion in government spending support which included the incredibly successful PPP program that the community banks and CU MBL’s handled successfully. I want to give a standing ovation and applaud everyone for this response! The CARES relief program, combined with the Federal Reserve, have added a multi-trillion infusion of money into the economy that has likely prevented what could have been the next great depression. The bad news is the government deficit this year will balloon another projected $3.75 Trillion this year. This debt will likely impact higher tax rates in future years to pay for this spending. In addition, someday, the Fed will unwind its balance sheet and that will impact economic growth.
Common sense combined with my gut instincts is that we will not have a V shaped recovery. To think that will is wishful thinking. We will recover eventually, but we have many hurdles to jump first. First of all, we are not done with Covid 19 and it done with us. It’s still surging in some regions as I mentioned earlier. While I don’t think we will shut down entire economies again if there is a 2nd surge, the continuation of this virus without a vaccine will continue to weigh on the economy. I remember all too well the 2008-09 crisis and if this is worse, then we have a lot of pain ahead of us to deal with in our economy and commercial loan portfolios.
I also remember 1998 and 1999 during the Dot Com era. Everyone was day trading and making money hand over fist. Some called Warren Buffet washed up because he would not invest in Dot Com or technology stocks. Today, we have huge a resurgence of day traders or retail investors on Robinhood and other free trading platforms and self-proclaimed trading experts again calling Warren Buffett washed up for missing this quick market recovery, the fastest recovery in a 50-day period in 9 decades. The stock market indexes are nearly back to where we were before this pandemic. I am sorry, but I have seen this picture before and I know how it ends. It’s a Fed fueled, day trader, and FOMO all mixed in together to create this bubble that will eventually pop causing another disruption to the economy.
Where does all of this leave us? Fighting the fight as we always do. It’s just going to take some time for all of us to get through these challenging times.
Suntell and Square 1 Credit Suite was conceived and originated out of troubling times from past economic downturns in order to manage and reduce commercial credit risk and losses. We were made for times like this!
Be safe out there!
Suntell CEO and Founder
Makers of the Square 1 Credit Suite