Death and Deflation — Will We Survive?

SUMMARY: Don’t read the headlines tomorrow on the virus and unemployment. 

  • There’s been a peak in N.Y.C. cases as evidenced by several days in a row of fewer hospitalizations.
  • California, Washington, Oregon, and possibly N.Y.C. are now RETURNING ventilators, saying they have enough. 
  • Unemployment is obviously not good. But not as bad the newspapers will say tomorrow. 

Daily Growth Rate of New Cases

We are doing more testing than ever, so there should be more growth in cases, right? 

Here’s an overview of new cases growth rates over the past 10 days: 

  • March 26 – 24.9% more cases than the day before
  • March 30 – 15.4% more cases than the day before
  • April 4 – 12.4% more cases than the day before
  • April 6 – 8.7% more cases than the day before.

I haven’t checked the past few days. There’s no reason to obsessively check every piece of data all the time. 

As I’ve been writing here for the past two months, everything is on track for an April 15 peak in the U.S., and then a decline.

Now… next step: economy. 

Some Interesting Observations on the Data

New York and New Jersey represent 54% of total coronavirus deaths in the U.S. 

The top 12 states (NY, NJ, MI, LA, IL, CA, MA, WA, CT, GA, FL, PA) have just fewer than 14,000 deaths total.

These are the ONLY states with more than 300 deaths.

28 states have fewer than 85 deaths. Over a dozen states have 25 or fewer.

Obviously every death is sad, scary, etc.

But those 28 states have hundreds of millions people in them.

We don’t know the full damage or total deaths, etc. We might never know.

But factor in also what are called “collateral fatalities.”

People who had regular cancer checkups, or hospital visits for heart trouble or a stroke, etc. Those people are not currently getting treatments and there will be/have been deaths. 

And the economic chaos has caused deaths from suicide, drug addiction, domestic violence, etc. 

At some point, I hope that the partisanship goes away (unlikely) and we take a step back and really determine what the best policy should have been for the country. 

Unemployment and Inflation

Well, it sucks. Another six million-plus people filed for new unemployment claims. 

BUT… what does that mean? 

Tomorrow morning, the headlines will say: “Worst unemployment in history!!!!” and everyone will get scared and the newspapers will never explain the nuances. 

Here they are: 

A) Unemployment is not the same as “unemployment” 

The rules changed. In the just-passed stimulus package, there are two major chances: 

1) DEFINITION – The term “unemployed” was expanded. It now includes part-time workers, self-employed workers, and furloughed workers (who, in many cases, will be rehired when this is over). 

2) TERM – The number of weeks you can get unemployment insurance is now 39 (almost 10 months!) instead of 26. 

3) MONEY – In every state, you get a different amount per week and it depends on what you did for a living. In NY, the average unemployed person used to get $504/week for 26 weeks. 

NOW… the U.S. government is adding $600. So someone who is unemployed in the state of NY will now get $1,104 per week. The extra $600 might stop July 31 (or it might not) but this is for 39 weeks now. 

So someone recently unemployed (or part-time employed or self-employed) will make MORE than the average school teacher (which is sad but there it is) and still might make money from other jobs. 

In other words, don’t cry just yet for the unemployed. This is a new situation. 

B) Will there be inflation? 

When so much money is just airdropped onto the economy, the potential for inflation exists. 

For instance, if the U.S. gave everyone $1 million, then Apple would charge at least $1 million for the next iPhone. That’s called hyperinflation and has happened many times in world history. 

Will it happen in the U.S.? 

I don’t know. 

But a couple of thoughts: 

Currently (and the newspapers and the government won’t tell you this), there is DEFLATION

I’m looking at my emails now. “20% OFF!” is a common headline. Or, “Get these 50 Amazon books for $0.99!” or “One-time sale only! 30-40% off shirts!!” 

 

Those aren’t sales and they aren’t discounts. This is deflation at work. There is ZERO demand right now. Nobody is spending money. So companies are slashing prices until they “find” demand. 

That happens when there is deflation. Deflation is ugly and scary because nobody wants to buy anything because they think prices will go lower (the reverse of hyperinflation when you rush to the store to buy toilet paper). 

But this deflation is artificial. It’s caused by the government enforcing these lockdowns. It will end. 

The U.S. dollar is strong

If the world were worried about the U.S. experiencing hyperinflation, it wouldn’t lend us money. 

 

And yet, the world is buying our debt to the point that we don’t even have to pay interest on it. So, I’m not worried yet. Worry when interest rates start to tick up and nobody wants to lend us money. 

2009

We’re experiencing deflation now (despite what the government says). We’ve only experienced this twice before: 2009 and during the Great Depression. 

 

In 2009, we did exactly what we are doing now in terms of stimulus, and we experienced an 11-year boom — without inflation. 

In 1929 we did the OPPOSITE of what we are doing now and experienced WORSE deflation and the market didn’t come back until 1962 (inflation adjusted). As an example, Herbert Hoover’s government RAISED interest rates rather than lowering them. 

Now, this situation is 10 times 2009. So we’re in unknown territory. But 2021 will see a MASSIVE, MASSIVE surge in the economy (probably starting in August of this year). And I would keep an eye out for inflation in 2022 or beyond. But who knows? 

Productivity

Another force against inflation is productivity. 

 

The reason inflation happens in a “normal” economy is because we reach full employment (as we had in February 2020 coincidentally). 

At that point, the only way companies can hire new people is if they pay them more. But if you pay them more, you have to charge more for products to pay for those new employees. And so on. Inflation. 

Combine that with the Fed printing money and you get hyperinflation (VERY BAD).

But, we have MASSIVE unemployment now, so that is not an issue. Demand will be low for quite some time, so prices cannot go up no matter how much stimulus. 

And, most importantly, productivity is up. Robots are stacking shelves at Walmart. AI is reading X-ray scans of lung cancer patients. Amazon stores have no employees in them. Self-driving cars are in the near future. On and on I could talk about what will happen with automation. 

But productivity keeps employment from getting too heated, even with all this stimulus. Hence, productivity keeps a lid on inflation. 

These four things together will prevent hyperinflation. What we should be worried about is whether, one or two months after the economy reopens, there will still be deflation. My guess is no, because of the stimulus package but who knows how much societal PTSD we’ll see that forces people to stuff their mattresses with cash?

Again, my guess is that won’t happen. Americans have a tendency to not save money. But we are in a new normal. That said, I do think we will see this happen: 

  • Horrible data for Q2
  • Beginning of surge in Q3
  • BOOM for Q4 and all of 2021, with Dow going above 40,000 in 2021. 

THEN… be careful in 2022 and beyond. 

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