Scott Minerd, the chief investment officer of Guggenheim Investments, thinks it may take four years before the economy regains the level of activity it had before the coronavirus pandemic triggered a global crisis.
Q1 2020 hedge fund letters, conferences and more
“To think that the economy is going to reaccelerate in the third quarter in a V-shaped recovery to the level where gross domestic product (GDP) was prior to the pandemic is unrealistic,” he wrote in a note published on April 26.
Most Americans were not prepared to weather this economic storm, and the damage that is being done to household balance sheets, let alone the damage to their confidence, is going to have long-term negative repercussions on consumption. https://t.co/jcbtrJNFHk pic.twitter.com/Dnuov7XK6E
— Scott Minerd (@ScottMinerd) April 27, 2020
While governments are doing all they can to aid both businesses and individuals impacted by the virus shutdowns, Minerd said the help will likely be “insufficient, misdirected, and full of unintended consequences.” Many of the 26 million people who have applied for unemployment benefits over the past five weeks won’t be going back to work immediately even if the economy fully reopens, he added.
The unemployment rate could rise to as high as 30% and could still be in double digits by the end of the year, Minerd wrote. Consumer confidence, meanwhile, is set to take a massive hit as half of all Americans were unprepared to weather the storm, with less than $500 in savings.
“Few people will immediately go out and buy automobiles and return to movie theaters,” he said. “The damage to the household sector is so severe that it is going to impair living standards for most of the decade.”
Our central bank will never be able to get back to normal. The #Fed’s balance sheet has expanded from $4.5 trillion to $6.6 trillion in just about a month, and it is likely on its way to over $9 trillion soon. https://t.co/jcbtrJNFHk pic.twitter.com/sjEWiB2Xhr
— Scott Minerd (@ScottMinerd) April 27, 2020
Other Key Quotes:
“The most financially vulnerable households are experiencing the majority of layoffs.”
“The disruption in corporate cash flows will be pervasive and will rebound unevenly.”
“There will be few positive outcomes in credit as companies are encouraged to accumulate more debt in the already overleveraged corporate sector.”
Read the full article here by Nathan Crooks, Advisor Perspectives
