The US government just gave away more than enough money for every unemployed American to be hired. Unemployment fell from 36 million to 33 million.


Print that headline instead of "Unexpected Drop in Unemployment" and see how that effects understanding. Every media outlet says the drop is unexpected despite your belief that everyone knows the numbers are juked.

I don't know why this is relevant here. We're not discussing the political implications of the report or anything like that.

I don't think that was river's question. And if it was, my response that this type of hiring is indistinguishable does answer that question in the affirmative - if it's not distinguishable, then the report includes it as no one would be able to separate that out.

The question I was addressing was - "is that corrrect that the hiring was largely technical?" - this is a question of magnitude, not of existence. Also, you responded to me saying "that PPP is paying for someone doesn't mean you wouldn't have that person on the payroll without PPP" and said "That is exactly what it means in most circumstances." But we know PPP loan proceeds went to lots of businesses that weren't shut down. And I wrote that this is hard to quantify. Then you went on about how temporary vs permanent unemployment makes the math unnecessary. Which is a non-sequitur.

I'm not sure your unhappiness with how the media outlets are covering this is relevant here. The drop was unexpected in the sense that the consensus expectations for the unemployment rate were much higher. The economists are all aware that PPP is a thing. Did you make a bundle on this report? If you knew that the job report would look like this, given the consensus expectations, you should've been long going into this report.

Btw now that I think about this more, the main reason that the economists were off by a lot isn't that they didn't understand the impact of PPP or the economy opening up, but more that this job report appears to contradict the weekly unemployment claims series. So I wonder if there's a lot of fraud (intentional and unintentional) going on where people are continuing to receive unemployment benefits, while employers technically hired them back on the payroll for loan forgiveness. Or maybe business owners are just adding random family members or friends to the payroll and having them kick back money. This would also explain a larger than expected increase in April personal income.

That's fine (and a pretty sweet goal post shift) that you chose to address a different question than was posed. That doesn't change the fact that the question was one of existence.

In most American's minds, and the medias portrayal, the question is one of existence. Once you tell them of it's existence they're smart enough to draw their own conclusion as to whether or not that unemployment report was anywhere close to as positive as it's been portrayed.

The question I quoted was an actual question river asked:

He's already seen some talk, so I assumed he knew it was a thing that existed. The existence, however, does not demonstrate one way or another whether the hiring we saw in the report was "largely technical."

thanks for the feedback everyone

my initial inclination, probably shared by anyone reasonable, is that the employment report can't be off that much by misjudging the economy itself? can it?...... and of course, few places were reporting any reasons as to why the report was so far off the mark (no doubt hearing DJT's relentless and, as usual misleading, cheerleading)

and it turns out that the strong employment report was a result of confusion (classification and timing issues) and the economy coming back quite quickly. much more the latter than the former. but impressive on the latter for sure.

anyway, all of this is new to everyone....... and the economists didn't seem to know how the numbers would flow and be classified as opposed to be completely wrong on the numbers themselves.

It looks like they weren't wrong because they didn't know how the numbers would flow, but because they were anchored on earlier reports and this one didn't match either the unemployment claims data or the ADP report. And we don't fully understand why there's such a large discrepancy between these independent readings. One possibility that the economy is recovering more quickly than expected but there's a lot of uncertainty here and there are good reasons to be cautious. But given how bad and uncertain things are, anything that provides some clarity is positive, as long as we avoid a big surprise to the downside.

The OECD came out with some figures:
candybar says that the world only lost $100 billion/week during 8 weeks of lockdown, OECD says we lost $4.8 trillion in the 8 weeks of lockdown, or $600 billion/week. This is GDP, not real economic activity; real economic activity is even worse comparatively when governments splurge. So he's off by an order of magnitude and the OECD agrees with my take (which he heaped scorn on). Similar and worse figures have come out of individual economies like Germany as well.

This is a "best case" scenario with no more lockdowns.

Also, the logic for why we'll go down again as the reality of the economic destruction comes home is really simple:

1. There's real economic damage of a substantial extent, most of which hasn't played out yet because everything has been on lockdown and stimulus has kept things alive/not defaulting
2. It's far worse than most previous crises
3. The last two recessions and shocks went -50% on the S&P 500, during which all of candy's current special pleading (moats! weighting!) applied as well, but didn't save the market from -50%
4. Previous sudden shocks have frequently seen an enormous bear market rally like we're having now (2008: +25% back to highs, 1929: +50%), so this is nothing unusual and in fact quite standard and not indicative of the long term. Here's 2008 for example:



Basically I think candy is rationalizing a bear market rally and missing the big picture. Most professionals agree with me that this is a bear market rally boosted by massive retail pile in from lockdown.

This is the kind of situation where basic math is really helpful. This is the actual projection from OECD:

http://www.oecd.org/economic-outlook/june-2020/

Their projections for OECD growth rates are:

Q1: -7.1%
Q2: -43.1%
Q3: 29.4%
Q4: 13.7%

Rounding up the prior year GDP to 63T and ignoring seasonal adjustments and all that, this is their projection

Q4 19: 15.75T

Q1: 15.46T - shortfall: -0.29T
Q2: 13.43T - shortfall: -2.32T
Q3: 14.32T - shortfall: -1.43T
Q4: 14.79T - shortfall: -0.96T

So during the worst quarter - Q2, the weekly shortfall is about 178B. Keep in mind I never said the damage was around 100B, but that you're off by an order of magnitude. Since you you appear to be saying 100B vs 600B is "off by an order of magnitude" we agree on the usage of the word and your estimate of 1T a week appears to be off by an order of magnitude.

And GDP shortfall is not damage and not even real change in output - only part of it is. So if you consider that the change in GDP is driven much more strongly by reduction in frivolous consumption, as opposed to essential goods and services or capital investments, your statements about we're losing 1T in wealth every week look worse and worse.

Btw, it's also hilarious that you think your incorrect estimate of 600B is even a win, given that it's roughly half way between your estimate and the strawman you were attributing to me.

There's a lot wrong with your post (nominal GDP which is what matters for the stock market is $87 trillion in '19 for example, not $63 trillion), but the funniest thing is this:
An order of magnitude is 10x. If I'm guessing a trillion and you're saying I'm off by an order of magnitude, you're saying the real number is around $100 billion. The end. It's hilarious that you're even arguing this point.

And I argued that we were losing $1 trillion in lost global wealth/economic output each week of lockdown. Which matters because it flows through to corporate profits (all the "discretionary spending' you like to rubbish - where do you think that goes, sir? To corporations, ultimately, which is why they tanked 50+% in the last two recessions despite all the special pleading of moats and weightings.
This is where a math degree (me) megatrumps a finance degree (you).

You claimed I was off by an order of magnitude (10x = 1000% too high) saying the world was losing $1 trillion a week in wealth/economic outputs

If $600 billion is correct, I'm actually only off by 40% in my estimate, and you're off by 600% in yours. The geometric mean is what matters here. If the real number is $600 billion, and I guess a trillion and you guess $100 billion, I'm in a reasonable ballpark for all intents and purposes and you're comically wrong.

Market is showing indicators of panic selling.

The market as a whole or recently pumped stocks like HTZ?

You missed that this was OECD - OECD GDP in 2019 was roughly $63T and the growth rate projections were OECD. Pretty sure non-OECD contribution to output drop in Q2 is negligible.

And you were wrong, as the numbers clearly demonstrate. And you were going on about how this is a permanent loss of wealth, which is even more wrong. The world doesn't lose anything permanently if I don't get a haircut for a month.

Please share your S&P 500 Q2 earnings growth estimates if this is your take.

No the geometric mean is not what matters here. And even if we're going by the geometric mean, keep in mind the actual number being projected is the output. So using $1.5T / week output as a baseline, your guess was 0.5T, my guess was 1.4T, the actual even in your hypothetical is 0.9T. So you're off by even more if you go by geometric means.

What if no one get a haircut for a year?

If i get a regular haircut once a month and the take a break from getting haircuts because of a lice outbreak for 3 months, that's 3 fewer haircuts I get in my lifetime=overall loss in haircuts.

In the grand scheme of things it probably doesn't matter much, but to claim it's not a loss is pure idiocy.

And in terms of how this affects corporate earnings - obviously it's going to affect them bigly - but the damage was concentrated in certain sectors and these sectors responded immediately by furloughing workers. Or having the government pretty much pay for workers. So, again, it still hurts, but it hurts a lot less than if the output drop was widespread and long-lasting such that cost cuts were slowly phased in company by company over time - because the drop in demand was predictable, a lot of companies were able to cut costs drastically at the exact same time, as opposed to a lot of them being in denial for a long time and only acting as the economic data trickles in. Of course, this large increase in unemployment would have still hurt a lot if we didn't make up for it with stimulus. But we did.

And we already know from past recessions that it's not the long-term expected drop in earnings that leads to large crashes, but a bubble in cash due to the shortage of cash and lots of asset classes increasing in risk premium at the same time. Unless distressed assets worth trillions of dollars hit the market at the same time and there isn't enough liquidity to fairly price these, we're not going to get here.

Currently, Q2 earnings are expected to decline by 43.3% and 2020 CY earnings by 21.3%.

https://www.factset.com/hubfs/Resour...ght_060520.pdf

How off do you think these numbers are?

https://www.theatlantic.com/magazine...llapse/612247/

The point is that the loss goes away. This being a permanent loss of wealth implies that the world has less of something as a result. But consumption of this kind is almost entirely about the subjective well-being at a point in time and once that point in time passes, it ceases to matter. In fact, some permanent wealth is spent on these types of consumption, so cutting these types of consumption can even be a good thing in the long run.

Also, a lot of consumption is about vying for social status and adds negligible net value even at the time of consumption.

Wait what? You think this is confined to OECD countries? Of course we should use the global GDP of $87 trillion and assume it's as bad or worse in non OECD (the projections themselves say this).

I don't think you really understand how economies work. Doesn't this take apply to all wants, though? If you don't take a trip to the Bahamas this year, what wealth does the world lose? Nothing permanent, right? What about if you don't buy that Microsoft Office subscription? Who loses? If you keep your iPhone 8 for longer and don't buy an iPhone 11, does the world lose wealth?

The reality is that your haircut flows into further business activity from the revenue - ad buys on Facebook and Google, shampoo and spray production, which flows into materials, technology spending, in a long chain. Shocks to that chain destroy efficiency and further production spending, and it's ultimately the lack of efficiency that harms economic output (from the 30K foot view).

For example, here's digital ad spend in the US by industry:



This directly flows into Google and Facebook, two of the large caps you think will keep this market up at very high P/Es. You think ad spending will go up or down? These large caps are above all time highs by the way.

This is just terrible analysis. To quote one of your slurs, if someone saw this in a professional setting they would laugh you out of the room.

The question is the magnitude of the loss, because the loss is what flows into corporate profits. And the loss comes hugely disproportionately off the bottom line. If a company with a fixed cost of $100 million and a normal profit of $1/unit creates capacity for 110 million units in sales (P/E of 20), and they sell <90% of their normal units because of corona, all their profit disappears and they go red. Your lack of a haircut directly hurt the corporate profits of a this shampoo maker. Similarly, your lack of a haircut costs Google and Facebook some cents each in ad revenue, a startup hairdresser CRM (who downstream buys software services from MSFT) $100/month in sales, and so on.

The ripple effects go on and on, and friction and inefficiency develop and take a long time to resolve and heal, during which the free energy of the system is greatly reduced.

I actually can't believe you're arguing that $100 billion loss is a better estimate than $1 trillion if the real loss is $600 billion. That's just not something a serious person familiar with numbers would ever say.

Let's continue on this line of reasoning. All Facebook and Google ad buys add zero net value (they're vying for status among businesses, that consumers could easily find anyway and did for centuries before digital spending). Ergo, if people no longer buy Google ads, if could even be a good thing in the long run since it's wasteful consumption.

Travel, a $3 trillion yearly industry with trillions more in indirect flow-ons, which is purely about subjective well being and temporary enjoyment, has a lot of permanent wealth spent on it, especially by retirees. It people stopped traveling, because it's mostly wasteful subjective temporary enjoyment, cutting this kind of consumption can even be good in the long run?

I'm seeing a lot of economic illiteracy here.

This is at least the right area to focus - a 50+% stock market drop likely involves a financial crisis.

With that said, I think he's basing this on his generally non-financial experience working with similar products in the 90's and I don't think he has a very strong grasp. His argument is that this area is bigger than what caused the global financial crisis:

But this isn't an apples to apples comparison - CDO was a pretty small part of what went wrong in 2008 - there was something like 14T in mortgage debt outstanding, most it securitized. 750B in CLO is pretty small all things considered. Business loans have always been considered riskier than mortgage loans so I suspect these aren't that aggressively structured either.

I agree that this is the type of risk we should pay attention to, but this article is hard to read because he doesn't know what's a scary large number and what's not.

In Q2? Yeah mostly. OECD is most of the world's economy anyhow. And I don't see their report on world GDP quarter by quarter, but the numbers for OECD quarter by quarter add up to their estimate for the global GDP decline.

Again, the world doesn't lose wealth. Some companies may make less money. This is why it's important to consider the latter. You were trying to imply that temporary output drops may have some permanent implications. The point is that they are temporary. And these corporations are valued on how the next decade and more play out. And temporary output gaps don't matter that much - temporary lack of consumption doesn't destroy productive capacity in ways that hamper future production.

I didn't say it's better - it's off by $100B more. The point is that this isn't a geometric thing - if we expect the percentage drop to compound over time, it matters, but it's a point in time estimate. If you're trying to figure out the overall impact of the drop in GDP, the difference between 600B and 1T is 400B, it's not 1.67X. Likewise, the difference between 100B and 600B is 500B, it's not 6X.

If I get 12 haircuts a year and live for roughly 75 years, and miss out on 3 of those haircuts because of coronavirus, that is a permanent loss of lifetime haircuts. You're suggesting somewhere along the line that I will get 3 extra haircuts to make up for it, without giving any reasons why that is the case.

Similarly, if the economy is growing at x% per year, and a quarter of one year is a net reduction (shrinkage), that means you lower the average growth of all years combined--also a permanent loss. It takes time for economies to become efficient; the periods where they are inefficient is a loss of potential growth that does not come back.

If you still don't get it, ask yourself if the long term economy, all things equal, would be better or worse long term had there been no coronavirus and that should do it for you.

The overall impact might be small. The haircut example, by comparison, is only a 0.33% loss. But it's still a loss.

Major shocks to the system always have long term implications in any complex ecology. And nearly always have a period of "walking dead" normal functioning and even high optimism and belief in return to normal before the damage propagates. See: 1929, 2001, 2008 as headliners.
Where do you get this from? The history of valuations just doesn't support that. Neither the tech bubble's crazy highs nor its post bubble crazy lows - Amazon fluctuated 14x in value! - were "valuing for the next decade and beyond". They were giant speculation bubbles based on short term sentiments and hopes and corporate profit flows.

It shocks the system and destroys supply chains, destroys future confidence, harms counterparty confidence once the bankruptcies start, destroys targeted capital investment and risk taking, etc. Forward spending across industries is being aggressively slashed, and much of that spending goes to S&P 500 companies. You really should talk to some actual business people about how their businesses are going, what they think of the future, what's they're willing to risk and spend on, and so on.

I personally know business people in the US that are still open and continuing, from retail to venture backed software, but if things don't improve massively and get back to normal in the US in 2-3 months (many of their clients are running at 40% of usual billings across a range of industries), they'll simply shut down rather than take more risks with their capital. Then all their spending disappears - Azure (Microsoft), hardware, software subscriptions, online marketing (Google and FB), CRM subscriptions, etc. That's small to smallish businesses.

And it doesn't stop there. Many medium sized US business are switching to a depression footing, drastically cutting spending and risk taking, planning for much lower revenues for the next few years, putting off hardware and software upgrades and making do with old stuff, etc. The entire trillion dollar business travel industry (conferences, meetings, trade fares) is shut down for year given the giant lead time, with all the flow ons from that as well. You're not really grasping the scale of the carnage here because I think you don't have your finger anywhere near the pulse of real business people.

All this is lost money which would otherwise into the S&P 500 companies, which as you correctly state doesn't have as much consumer discretionary. It's big tech, B2B type spending that's being slashed - Microsoft, AWS, Google, FB, the very same large caps you think are immune. They've had a big temporary boost with lockdowns and working from home, but that will end.