Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC economist Avery Shenfeld made the optimists case for the virus-affected economy,
“Let’s set aside the worst case scenarios, which we admit are still in play, to consider ways that this could have an earlier, and somewhat happier ending … The first … would be good news on a treatment … There are dozens that … could interfere with the modus operandi of the virus we’re battling, and which are going be put to the test somewhere in the world in the coming weeks … [epidemiologists have hinted] that we may have understated the number infected in each country by several orders of magnitude. That would imply that the share of those infected that end up in hospital wards or as fatalities is also orders of magnitude lower.”
“@SBarlow_ROB CM: Looking at the optimistic case” – (research excerpt) Twitter
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Morgan Stanley, possibly because the epidemic is spreading more rapidly in the U.S., leans more pessimistic,
Biotech analyst Matthew Harrison, “continues to see risk that his base case US forecast is not achievable given the rapid rise in cases on the East Coast and lack of strict lockdown measures … US Base Case Scenario: The US escalates the nationwide containment to a level similar to that of China, South Korea, Italy, France and Spain by 3/22. In this scenario, the US would more closely resemble the dynamics in Italy where strict measures lagged the exponential growth of new cases. This scenario results in ~200,000 cumulative cases with a peak in ~20-30 days. US Bear Case Scenario: While some social distancing is implemented, the measures are relatively modest compared to other countries. As a result … ~20-40% of the US population could contract the disease this season until mass vaccination becomes available.”
“@SBarlow_ROB "Harrison continues to see risk that his base case US forecast is not achievable given the rapid rise in cases on the East Coast and lack of strict lockdown measures” (MS)” – (research excerpt) Twitter
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Citi U.S. equity strategist Tobias Levkovich is still waiting for Wall Street analysts to drop their profit forecasts to realistic levels,
“Earnings are forecast to fall near 10% by the buy side (shown in Figure 14), roughly in line with top-down consensus numbers, though we are well below at a 24% projected plunge. Strangely, sell-side bottom-up consensus of around 4%-5% growth seems way out of touch with the ongoing reality. Certain sectors like Industrials get hammered when factories shut and capacity utilization drops materially. In addition, the service businesses, like airlines and hotels, for example, are generating no revenues or only 10%-20% of that seen in the past.’
“@SBarlow_ROB Levkovich: U.S. Sell side profit forecasts still delusional’ – (research excerpt) Twitter
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There is finally a useable term for one of my biggest concerns as March ends and thousands of Canadians figure out whether they can pay rent or the mortgage bill – the Last Mile Problem.
Bank of International Settlements general manager Agustín Carstens described the issue with a global perspective in a column for the Financial Times,
“Central bank interventions to quell the crisis need to reach the individuals and businesses who are ultimately affected. The last mile of this channel is not yet in place and needs to be bridged urgently … Businesses large and small need working capital, especially when they are part of a supply chain. A company’s short-term assets, such as receivables — the money owed by other businesses in the production chain — constitute a substantial part of total assets. These receivables are matched by accounts payable on the liabilities side of the balance sheet. The interlocking chain of receivables and payables is the glue that holds businesses together in an economy, not to mention global supply chains… One way to do it would be to provide each small and midsized company with a government-guaranteed loan equal to the amount of taxes it paid last year…”
“Bold steps to pump coronavirus rescue funds down the last mile’ – Financial Times (paywall)
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Diversion: “Space Photos of the Week: Rovers Taking Selfies” – Wired
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Scott Barlow