Discover more from Hennessy's View
Lockdown Will Be Over Before You Know It
America will reopen for business much, much faster than most people think.
This is only a possible scenario, but it’s the scenario I see as likeliest case. But I’m realistic enough to know I could be terribly wrong. Be careful about acting on anything you read here.
Some of my friends, relying on the horribly flawed data models that the CDC and many states relied on, seem to believe the economy will be locked down most of the summer.
Many businesses are planning based on a 90-day (minimum) lockdown. This is why companies are laying off 30 percent or more of their workforces.
Companies that position themselves for a 90-day lockdown will not survive the recovery. Their managers are setting up for total disaster. It’s easy to understand why.
May 1 #
President Trump has no appetite to extend the lockdown beyond April 30. Because the data models were so miserably flawed, actual numbers are calling into question the need for a lockdown at all.
The new presidential task force to get America working again has a mission to make May 1 the kickoff of the next great recovery. The first week of May will see thousands of businesses around the country re-open.
Too Many Dollars Chasing Too Few Goods #
The Federal economic stimulus packages are still weeks away from hitting the market. Most of that money will arrive about the same time the country begins coming out of lockdown.
This means millions of furloughed workers will begin earning paychecks, millions of food service workers will be collecting tips, the weather will be turning nice, and people will be fed up with being locked inside their own homes.
With hope in the future and federal dollars in their pockets, May could trounce the Christmas buying season.
Likewise, businesses that held off purchases and hiring will rush to take advantage of all that spending.
This pent-up demand on the parts of both consumers and business (demand side and supply side) will create a “winner take all” scenario for many industries and sectors. Cash will go fast to those companies that were ready to serve or delivery on Day One.
Expect to see a concerning rise in inflation during the summer, perhaps as much as 10 percent on an annual basis.
Laggards Will Be Eaten #
Meanwhile, the companies that went into a hard lockdown, throwing off employees, cancelling purchase (and in some cases sale) contracts will miss one of the greatest spending frenzies in US history.
Companies with names you’d recognize will try to convince customers to wait until they get back to full speed. But buyers will not wait. That’s the psychological effect of enforced idleness: people grow terribly impatient.
By June or July, most of the stimulus dollars will have changed hands at least once. For businesses, this means new contracts, new orders, and new purchases that will take buyers out of the market for a year a more, at least in regards to those products and services purchased in the frenzy.
With markets satisfied, when the laggards are finally ready to say in August or September, there will be few buyers available.
This stopped-out situation, though, will help tame the inflation seen during the summer. The laggards will cut prices in order to drum up business. The discounts probably won’t help these companies, but they will tamp down prices throughout the market.
The Fall #
By late in the year, the companies that cut too deeply in March and early April, then ramped up too late, will be in deep trouble.
Having missed the frenzy, they will now have too many employees and too much capacity. New rounds of layoffs will be announced, despite the general economy remaining strong. Orders will be canceled. Managers will be replaced.
Or Maybe Not #
As I said at the top, I could be wrong. Other scenarios, like a lockdown through the end of the year, create extremely different outcomes—different winners and different losers.
We are not blind to which of several scenarios is most likely to come about. We know that President Trump is aggressive. The economy is the greatest accomplishment of his life, and he wants it back. And, if you’ve studied his business career at all, the great comeback is one of Trump’s sharpest skills.
If you’ve been laid off, don’t ride out your severance. If you’re unhappy with your employer, get your resume ready. If this scenario plays out, the best job of your life could be right around the corner.
I’m going to hope I’m right.