There a reason why Dr. Anthony Fauci has been sidelined as a spokesman for the U.S.’s pandemic response.
Dr. Fauci continues to offer sobering news that’s contrary to the notion of a rapidly rebounding post-pandemic economy. He believes that a new normal could be as far away as two years.
But, to him, 2020 is total toast.
He’s been the director of the National Institute of Allergy and Infectious Diseases for more than a third of a century – 36 years. To put that into perspective, President Trump was still married to his first wife… and the girl who would become his third wife was just 14 years old when Fauci took the helm at NIAID.
So, investors don’t need to take his word to heart, but they should keep an eye out for what he says.
Because, when asked about when baseball stadiums will be filled again Fauci said, “I cannot see a return this year to what we consider normal.”
Again, investors who sense Fauci may be right should dig in for the long haul. Winners will likely be hard to find.
That’s because hopes of a quick bounce-back economy – dubbed a V-shaped recovery – are beginning to fade.
What’s starting to be a more favored economic forecast is the one that offers the potential for what’s known as a W-shaped recovery.
In that frightening case, after celebrating an improved economy, the country would be blindsided by another big downturn later this year.
The “W” economy could be triggered by reopening the economy too quickly and seeing a second spike in deaths from covid-19, the disease caused by the coronavirus.
Businesses would have to shutter again, and people would be even more afraid to venture out until a vaccine is found.
But, Heather Long, economics correspond for The Washington Post, found an even blacker cloud in that forecast – a dire reason for a W. She knows what she’s talking about because she was an economics Rhodes Scholar at Oxford. And, The Post’s business desk is not political.
Longs posited that a big W could be the results of a wave of bankruptcies and defaults later this year. That would lead to a domino effect as “workers aren’t rehired, suppliers aren’t paid, and fear rises about which companies will be the next to fall.”
The question then would be, in that scenario could companies such as Hertz and Avis survive a second major downturn.
That’s because COVID-19 has hit no public companies harder than the rental-car giants.
Travel demand has been hammered – travelers going through TSA checkpoints or down 890% year over year – and that caused Hertz Global (HTZ) and Avis Budget (AVIS) to tumble 74% and 60% year to date, respectively.
Long reported other early warning signs are becoming apparent, as well.
She reported that, “major retailers like Macy’s and Neiman Marcus face significant financial duress, and analysts anticipate bankruptcies ahead in the retail sector. Oil prices plunging below $20 a barrel is another blow to America’s fragile energy sector that will reverberate for months.”
Other canaries in the coal mine are big law firms like Hogan Lovells.
They are urging their lawyers to bone up on bankruptcy law, and restructuring law “in anticipation of a wave of bankruptcy filings in the coming months,” wrote Long.
On top of that, major banks spent a lot of time on their earnings calls last week predicting a surge in credit card, auto loan and business loan defaults.
“Pretending the world will return to normal in three months or six months is just wrong,” said Diane Swonk, chief economist at Grant Thornton. “The economy went into an ice age overnight. We’re in a deep freeze. As the economy thaws, we’ll see the damage done as well. Flooding will occur.”