Not Like Any Other Recession | Before & After | Refinitiv
This is Before and After from Refinitiv. I'm your host, Johanna Botta. Due to the Coronavirus pandemic, we're filming this episode in unique circumstances. So the look and feel will be slightly different, but the content itself will remain of the highest quality using the very latest Refinitiv data. We know that this information is more important than ever, so please bear with us during this difficult time while we continue to bring you the show twice a week. For many that have been in the markets for years, the inclination is always to compare current market economics to events that they've been through. You'll hear from many that this is 'just like after 9/11' or 'this isn't as scary as 2008 when the banks were collapsing'. And by doing that, we're attempting to normalize what is most certainly an abnormal event in recent world history. What separates the current market from all of the previous market crises, is how widespread the real economic impact of COVID-19 is. We saw in '97 the Asia crisis did little to slow down the ascent of the Nasdaq. And post dot com and 9/11, the growth seen in emerging markets and China was still spectacular. But here in 2020, the largest economies of the world; the US, Europe and China are effectively halted at exactly the same time. That's what makes this case so unique and difficult to forecast. In the past, a weakness in one geographic area paved the way for strength somewhere else. First, let's look at what the COVID-19 recession has in common with other previous eras. We came into the pandemic with all-time highs in equities, and we've descended into bear market territory in a record short period of time - only 16 days. One tell-tale fact is that the previous shortest period was in 1929, when the market crashed ushering in the Great Depression, which also came off a market that came from all-time highs and a decade of excess known as the 'Roaring 20s'. By 1932, the US was in full blown depression with 23.6% unemployment. And what followed, of course, was FDR's New Deal. Now, we're not saying we've got the next Great Depression on our hands, but this is just one striking similarity. The bottom line is that right now the situation is too fluid and there are too many unknown events and developments that will dictate whether this is just another recession we quickly bounce back from, or something far more sinister. One American chip company has been in the midst of the news bomb whirlwinds going back to the China tariffs. In fact, it seems like a lifetime ago we were forecasting the effects of the trade wars. That company, Micron, is set to report earnings after the close on March 25th. Now, before Coronavirus gripped the world, we expected a sharp recovery for Micron Technologies 2020 sales and EPS hinges on stronger DRAM and NAND demand in the second half of the year, powered by growth in cloud and handsets. We had foreseen memory supply demand balance this year, helping Micron's sales and EPS, but the effects of the Coronavirus certainly muddle the scenario. And it's not straightforward that our new reality will be entirely bad for Micron. The first positive comes from the memory environment and the continued moves higher in the spot and contract markets. There's also the demand for server DRAM and NAND as the world loads up the cloud - either temporarily or more long-term - to continue productivity from the comfort of the home office or living room. And yet the stock has been beaten down 39% since late February highs. At these levels Micron is already pricing in a down cycle, but is it possible the market is wrong in this crashing stock's environment? The Republican backed Senate bill for Coronavirus relief was circulated late last week. The bill still needs to be negotiated with Democrats in both the Senate and the House. The proposal provides over $200 billion in special assistance to specific industries, and of course, one of those industries is airlines. Overnight the bill would make the U.S. Treasury Department one of the largest investment banks in the country, authorized to make loans, guarantee loans to and take equity positions in businesses of all types. Section 3102 authorizes $208 billion in loans and loan guarantees for three groups. Fifty billion is provided for passenger air carriers. Eight billion for cargo air carriers, and one hundred and fifty billion for other businesses. Some provisions state that executives at the industries receiving cash can not make more than $425,000 a year for two years. The Democrats are also pushing to stop any buybacks in the airline industry. Also on the table is diluting shareholders. Whatever is decided here will affect the broader market, and set precedent to future bailouts. A momentous decision awaits. So there it is. Recessions, depressions and Μicron in the Before. Airlines in the After. Refinitiv data throughout. This has been the Tuesday episode of Before and After. Please subscribe and hit the notification bell to ensure you're alerted to all of Refinitiv's future market updates. We look forward to seeing you again on Friday.