The Shape of Economic Recovery
V or U or Swoosh
You hear often about a V or U-shaped recovery for the economy as the country begins to reopen. I've said for quite some time that I do not believe a V-shaped recovery is likely and instead adopted a more U-shaped perspective. There's probably an even better shape that is more representative of what economic recovery will look like.
We are all familiar with the Nike logo, the infamous SWOOSH. This recovery path essentially suggests that while the economy will improve, it will do so in a gradual way.
We believe this is a reasonable assessment and probably better than other shapes that have been suggested. My feeling about a U-shaped recovery was very simple; I simply do not believe that the economic crisis we face today will disappear in a few short months. This type of perspective I think is not consistent with current reality. It is important to be realistic.
If one looks back at the last economic challenge in 2008, one can see the path of the recovery. While the economy did consistently move forward towards health, it took time and was a gradual process. We believe this is likely what will occur in the United States.
See the chart below of the recovery from the 2008 financial crisis.
Markets, Economies, and Stimulus
Remember, the economy and the markets often move on divergent paths. We have already seen a recent rally in equity markets even as economic news became more dire. Markets and economies are connected but do not map exactly in slope or path. Market participants are investing based on the assumption that the economy will begin to heal as job loss statistics become less severe as the country slowly reopens. The market is anticipatory.
Chairman Powell of the Federal Reserve talked this week about how important it is for the Federal Government to provide additional stimulus measures to help overcome the shock of the pandemic crisis. Proposals already making their way through Washington are suggesting that $3 trillion may be the size of the next package. There will no doubt be significant conflict and negotiation to arrive at a final package, but I expect there will be one. It may not be $3 trillion, but it will be a significant amount. Continue to watch the details as they are reported from Washington.
Record Debt Levels
It is clear that US deficits are now a secondary concern and deficit spending to stimulate the economy is going to continue to occur in 2020. Expect this year's deficit to be over $4 trillion. Expect the total US debt to be over $26 trillion. This will certainly have an impact on the country's long-term growth prospects but that is not a concern at this point for policymakers. The goal is to stimulate the economy to overcome the shock from this virus pandemic.
DWM Hope Program
There has been a staggering loss of jobs in the United States. With the unemployment rate moving towards 20%, we may know someone who have been impacted by this current economic crisis. Many times, these people have nowhere to turn and suffer under the burden of uncertainty. You may know someone close to you in this exact situation.
You may have a family member or someone you are close to that may not have the resources to obtain advice and counsel in their moment of need. Perhaps they have asked you for advice or you have watched from a distance as they struggle in their current circumstances.
We are pleased to offer a helpful discussion to anybody close to you that might need some help and comfort regarding their financial circumstances. If you know of anyone who would value a discussion with DWM, we will have a general discussion with them on a pro bono basis as an additional extension of the service that we provide to you. All of your information will remain confidential and we will not discuss your financial status or any other personal details. We will simply make ourselves available to them as we provide general guidance and assistance. This discussion will be at no cost.
If you know anyone who might be in need of help, please let your DWM advisor know.
We continue to deliver food to frontline workers. They are grateful for the recognition.
Children of DWM team members continue to honor those on the front line. Here’s one more picture from their heart and young imagination.