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What to expect for second-quarter earnings season; H2 2020 outlook
Betty Liu, Executive Vice Chairman for NYSE Group, provides her perspective:
What are analysts expecting, going to the second quarter earnings season?
So, this earnings season has just started this past week, you saw banks kick off their reports. And as you can well imagine, analyst estimates are pretty much all over the place. And part of that is because a good number of companies did not provide guidance. Now, according to some estimates, some analysts estimates, we could see an earnings season decline or earnings decline as much as 44% this time around. That would be one of the biggest declines since 2008, the prior crisis.
What is the outlook for the second half of 2020?
Well, that's the million-dollar question. What is going to happen the rest of the year? So, nobody knows, right? But there's a few factors that we're going to be watching to see how companies perform. One is going to be watching the number of coronavirus cases across the country. And the second, of course, is watching the results of the November presidential elections.
Why Stocks Climb During Bad Economy News
In this pandemic environment, why are stocks climbing when news about the economy isn't good?
I've actually been getting that question a lot. And look, nobody really knows why stock markets move the way they do in real time. But there's a variety of factors why we've seen stock market rallies these days. So, one is improving investor sentiment that some of the government measures to stabilize the economy are working. And the other one is something you saw on Monday, when the Dow rose more than 900 points, there was some news out about a potential coronavirus vaccine. Some positive preliminary results on that experimental trial. So, that helped also improve investor sentiment.
Is there any major economic data coming out this week?
So, we've been carefully watching economic data to see the shape of the economy. Every week we've taken a look at the initial jobless claims that are filed on Thursday. That gives a great sense of how the jobs market is shaping up. The other piece of economic data to watch out for is retail sales. That indicates consumer spending in the first quarter. And of course, consumer spending is a big driver of the economy.
What is going on between the WHO, the US and China?
What is going on between the WHO, the US and China?
We need someone to blame for this virus crisis, right? Trump will be elected or not in November on the back of well over 100,000 deaths, horrible economic performance and unemployment. No real bounce seen before November. Probably a second wave just before elections, given the seasonality of the virus. Which means you've got to blame China, the World Health Organization. And that means the Americans threatening to pull out of the organization as a whole, saying that they're doing lifting for China and also demanding investigation, as are other countries, of China for how they handled the initial outbreak of the disease. I am much more sympathetic to calls about Chinese responsibility because it's clear they did mishandle and did cover up the early days of this virus. The Chinese are saying they're only prepared to accept an investigation after the crisis is over. The WHO is saying that's three to five years from now. I agree on the time frame. Don't agree that that would be an appropriate way to handling it. A lot of countries around the world, particularly allies of the United States, are increasingly putting pressure on China. Big trade dust-up between the Chinese and the Australians as a consequence. Not directed by the United States, which is interesting. Australia did that all by themselves.
Secondly, how are lockdown measures affecting Turkey during Ramadan?
Erdogan, the president who was trying to reopen the economy understands if they allow fully people to come to mass prayers and the rest during Ramadan, would lead to much more significant outbreaks. They have gotten their testing regime up significantly. Their economy is in real trouble. They're keeping it locked down while Ramadan is going on. That is a smart move. Certainly, one of the economies out there that I am most concerned about. They're going to need to go someplace for international aid, most likely that the IMF and Erdogan wants no part of it. He said publicly, absolutely not, a horrible organization, they force all sorts of unacceptable reforms, put you under their thumb. But if it's not them, I don't see money for them. The potential for a really messy exit, capital controls, default, seems reasonably high in the coming year in Turkey.
How is Vladimir Putin and Russia handling the pandemic?
Pretty badly. Doctors keep getting thrown out of windows in Russia. We don't like to see that. Doctors that are dealing with the coronavirus, they've been not upfront around how many people were getting this disease in the early days, as well as how many people have been dying from it. Russia now has the second highest number of cases in the world that they're reporting. Though the death toll is still pretty low, quite low, because if people die from other illnesses, even if they have coronavirus, they usually will put the other illness. A lot of doctors are saying this is being mishandled. Putin presently at 59% approval ratings. That's the worst approval rating of his entire presidency. Keep in mind that also, that's on the back of $30 oil. A big fight that was mistimed with the Saudis on that front. And, of course, economic contraction. Putin has no opposition to speak of in the country. He's not under any pressure to leave. It's not under any pressure to go anywhere, even after this term is over. He's changing the constitution, over time. He's going to be president for life. But he's not governing well, and his economy and his country is in severe decline. And that's obvious in the what they can and can't do in other parts of the world.
Finally, another health minister gone. Where is Brazil and its coronavirus response?
Pretty much the worst of any major democracy around the world. Two health ministers, both capable, fired within four weeks. Not something you normally want, but really not during a pandemic. In Brazil, they're saying that everyone should be taking the miracle drug, chloroquine. We now have President Trump saying he's taking hydroxychloroquine himself, even with the FDA saying you shouldn't. But he hasn't gotten rid of Fauci or a second head of the infectious disease response. Bolsonaro, by a strong head and shoulders, deserves the accolade for most incompetent response of a democracy to coronavirus.
Technological Revolution & Surveillance in the COVID-19 Era
Are we in the middle of a technological revolution?
Yes? I feel like a technological revolution should feel more empowering and exciting. It should feel like something good as opposed to something catastrophic. But if you define it as a moment when there's a lot of technological change that will last for years or decades, yes. Think about the way that health, education, working from home are going to change. There are lots of inventions right now because of coronavirus that will stick with us.
With the need for increased surveillance, will microchipping become a thing?
Microchipping is where you put a little microchip inside your body and you can use it to scan yourself in, you can embed data in it, you can use near-field identification. But no, it's not going to become a thing because you can do all that in your phone. Put the microchip in your phone. Carry the phone in your pocket or put it in your watch. Putting it in your skin is unnecessary and kind of gross.
Ian Bremmer: US response to COVID-19 is mediocre
I continue to see incredible polarization: the United States is a hot mess, a disaster, vs no, best response ever, depending on what side of the political agenda you're on. I think that the US response so far, continues to be mediocre.
The big story: people dying. Trump should not have been a cheerleader. He said less than 100,000 would be great. Now, even the most conservative model the US government is using is now expecting 147,000 deaths by August. Well over 150,000 by election day. Trump will say, if I had done nothing, we would have 2.2 million deaths, framing for advertising. But it's hard to sell that.
On the messaging front, the US is a hot mess. On Twitter, the American president is more divisive than anyone in developed world, though less so than Bolsonaro in Brazil. But actual per capita deaths in the United States compared to all of Europe - slightly better than average. Worse than Germany, which is best of the large economies. But considerably better than Spain, Italy and France. We should be looking at per capita death, not overall. Given the size of your population, how many people are suffering? Especially as you're thinking about opening the economy and how quickly. Spain opening earlier, their numbers are going up. That shows what we can expect in parts of the US with similar caseload. If you look just at New York, we look a lot worse. If you look only at cities that are the worst hit, they look a lot worse than the United States.
I wish we could have Merkel type response; I'm glad we don't have Macron or Boris Johnson response. What's in between? On the economic front, the United States so far has been strong. Why? We have a federal government that functions. The Europeans don't. As a consequence, you've got talk about lawsuits between the German High Court and Europeans. Von der Leyen from the European Union saying this won't stand. The fiscal environment is incredibly contentious in Europe. So far early days, US bipartisan support for the economy has been strong. Same from the Fed. That's one of the reasons the American markets are performing well, right now.
Concern that I have with an election coming up in November is that we're not going to be able to sustain that. Most Senators that I talk to are worried about that, even though the Senate is pretty moderate and there's good connections between Republicans and Democrats. Not everyone is like Rand Paul, disruptive, irresponsible. But they're worried that we're not going to be able to get the trillions necessary to keep the unemployed and underemployed afloat. To keep businesses from going bankrupt. And to keep large companies that don't have a profitability model, like in hospitality, entertainment, airlines, other companies that get hit the worst on the back of this crisis. This is going to get a lot more problematic and the US economic response, which earns an A-minus so far, probably looking like a B, a C or even a D, as we get closer. Bill Gates famously gave Trump a D-minus for his response. I think Bill is focusing mostly on the lack of health care coordination side early, plus the communications.
Short of a vaccine, almost everything on treatments so far doesn't look like it changes how quickly we can reopen economies. It's more about how comfortable you feel about caseload and tracing. And contact tracing, even though we do have apps that are coming online - wonderful to see Google and Apple working together, but if you're going to need 60-70% minimum compliance for populations for that to work effectively - Facebook has 70% penetration. There is no way you get that voluntarily from Americans, major European populations. Even in Singapore, which is a tiny population, very wealthy, and doesn't care as much about democracy, only had 15-20% compliance with their contact tracing app.
Contact tracing works, but you need to have data in one place and share it. People doing the work, making phone calls, contact tracers, millions of people across the developed world. We are nowhere close.
A vaccine needs to not only be developed but proven and manufactured at scale, distributed with education. That process, start to finish, is three years. That's why I continue to think that the economic implications of this are going to be much worse than we've seen.
Watch: This ain’t your grandparents’ Depression
What an exciting time to be alive, the middle of a pandemic, the beginning of a depression, the first in a century.
Yes, I said a depression, not a recession. That is indeed what we're looking at. But people don't yet want to call it that. We know what recessions are. A technical recession, two consecutive quarters of contraction. We say the world is in a recession and if global growth is under 2%. We don't have a formal definition of depression. But what we know is that it is materially greater in both depth and duration than a recession. And it's also truly global.
We're checking all the boxes. It's obviously global. Every country in the world is getting hit by this pandemic. And every country in the world is having its economy, both supply and demand side, severely disrupted as a consequence of not having a vaccine for this new disease. We can say the governments say we're going to reopen, but until we can make people immune from coronavirus, they are not going back to work the way they used to. Their desires to consume will not be what they were. The desires for what is and is not essential - entertainment and travel, tourism, you name it - not going to be what it was. We're talking not about six months, three months in, three months out, a nice V-shaped curve, rather three months in and then until we have a vaccine which has been created and which is manufactured at scale, distributed with education around it, we're not back.
I'm optimistic from all of the epidemiologists and scientists and doctors I've talked to that we are going to get a vaccine. But still talking about two to three years and massive impact on the global economy. And then we look at the scale. We have headline numbers of what unemployment looks like in the United States, as of Friday, 14.7%. There were 7 million additional people filing for unemployment after the close of that date. Plus, an additional 5 million plus not characterized as unemployed because they're temporarily furloughed, even though they don't have jobs to go to, and they may not have jobs to come back to. So, the reality in the United States is we're closer to 25%, well over 20%. And the peak of unemployment during the Great Depression was 24.9%.
For all three of these boxes, we are entering depression territory. And no, Trump running for reelection is not going to want to say that. And no, a lot of CEOs and others trying to keep people unpanicked and, share prices high, just keep things going. They're not going to say that, but the reality is that we've entered a depression.
I think it's also important to understand that just because we don't have any experience with depression in our lifetimes does not mean this is the same depression that our great-great-grandfathers and grandmothers lived through. This is going to be much less disruptive. The reason is there's so much more wealth. A global depression today that affects a world that has so much more resource and capital and resilience, its political institutions, its society, its economic institutions, its health care, it's very different than what we experienced during the Great Crash.
Middle income developing countries today are wealthier than the middle class in the United States and Europe was during the Great Depression. You can take a 10% contraction to these major economies, worse in some of the developing world, and it won't have the same level of human deprivation, the same level of of death and destruction economically that we had before. Does that mean we shouldn't care as much about it? No, it matters. The present day is what we pay most attention to. We've got big discount variables for the for the past. And on the basis of how we act, we obviously had big discount variables for the future or else we'd be treating the world very differently. We'd deal with climate change, we'd have resilience for pandemics. But it is important to understand what it is that we're entering. And we characterize it as a big recession. We're going to put it in our minds in terms of 2008-2009. It is very different from that. By 2009, we were well on track for rebound. 2020 life is still very, very different for all of us experiencing this coronavirus depression.
One reason why we've responded to it badly is because the last major pandemic we had, African swine flu, H1N1 back in 2009, many in public health thought that we overreacted. Too much money, too much political scare mongering going on that ended up costing an awful lot. That was inefficient. As a consequence, there wasn't as much focus that the next pandemic could be worse. That's one of the things that allowed the United States to not efficiently stockpile ventilators, and key PPE, and allow some that we had to not be serviced and not be adequate. It's what's allowed the World Health Organization to be more skittish about declaring a pandemic. They didn't have a protocol for it, instead simply characterizing it later on, a few weeks after it was pretty clear that's where we were, as having pandemic characteristics. Not leading to the same kind of urgency of the CDC in the United States that you would have hoped after watching the movie Contagion.
I wish people would stop beating up on the World Health Organization. I don't do that. I just this morning, I was being asked on FOX, about the World Health Organization coordinating with Xi Jinping to not talk about human to human transmission. That that phone call happened on the 21st of January. This was reported by a major German newspaper with German intelligence anonymous quotes. Actually, there was no such phone call between the director general of the W.H.O. and Xi Jinping. And not only that, but the day before that call was supposed to have happened, the W.H.O. finally had come out and said there was human to human transmission, that was January 20th. And the week before, the 14th, when they basically passed on information from the Chinese that said, there wasn't any, that's not on the W.H.O., that's on China. For covering up. For lying about it.
Now, finally, the Chinese director of their health institute is out publicly saying we made big mistakes. They're not saying that mistake was covering up for their own people and the rest of the world, for a month. But at least they're moving in that direction. Clearly, China is at fault here. The World Health Organization, if you want to blame for carrying water for China, recognize that the reason they do that is because they are not allowed to criticize donor states. Donor states won't allow it. It's not just China. The United States is the largest donor to the W.H.O. and the W.H.O. is not allowed to criticize the US, even though our test kits don't work because we refused to use the W.H.O. test kits. When we knew they didn't work, we didn't go and find some that would work, like from Germany. Now, a strong World Health Organization would have and should have criticized the Trump administration strongly for not taking care early, to get testing up to snuff. But they couldn't do it. You know why? Because they're not allowed to. Because, if they start criticizing the United States, we'll take away their money. In fact, we might take away their money, anyway.
So, the problem is that governments refuse to allow the international organizations to be strong. To be the kind of organizations that we actually need. Absent that, you don't want to get rid of them. You'd rather have a weak World Health Organization than none at all. But we do need to understand where the blame is. And the blame is where the power is. That's on the governments.
Financial Historian: COVID-19 Economic Depression
While some European economies have experienced depression in modern times, the US hasn't seen one since the 1930s. In a conversation with Ian Bremmer for GZERO World, Economic Historian Adam Tooze points to a dangerous mix of rising unemployment, skittish investors, and a lack of a social safety net as signs that it's time to discuss the possibility of prolonged economic depression.
Podcast: Is a second Great Depression coming?
Listen: Most of us are familiar with recession, and experienced the major economic impact of one from 2008-2010. It turns out, the definition of a "depression" is harder to articulate, even for economists, because the US hasn't had one since the 1930s. But as unemployment rises and lockdowns threaten the existence of businesses here and around the world, it's time to ask the question: Is another depression a possibility, and what would that look like today? On the latest episode of GZERO World, Ian Bremmer poses this question to leading economic historian and author Adam Tooze. The two discuss the strength of the US and global economies before and during the COVID-19 pandemic, and realistic timeframes for when the financial outlook will improve.