I didn’t expect to write an update to the AB (America is Back) economic model so soon since June 6th. However, due to the increases in new cases, I felt obligated to take a look at where we are today.
First, two things we should try to avoid.
1. Don’t focus on the shape of the recovery right now, this kind of talk draws too much energy away from tracking early-stage recovery data.
2. Don’t focus on the fact that we are nowhere close to having the same type of solid economic data lines that we enjoyed in January and February of 2020. The BC (Before Coronavirus) economic data was expansionary, as I showed here.
The AB economic model was introduced on April 7th, 2020, on Housing Wire. I believe that due to the deep contraction that the virus did to our economy, it was crucial to separate 2020 into 3 different segments.
BC (Before Coronavirus)
AD ( After the Disease)
AB (America is Back)
5 things I needed to see to get back to the full AB stage, and we have made progress for sure.
1. Flattened Curve
“It is from this data that I have based my virus turnaround thesis, which is that by May 18 or sooner, we will see a flattening of the new infection curve, and by September 1, we will be at a much higher capacity to fight this virus.”
On the positive side, we did flatten the curve in early June.
Today we are back to flatline. Exante Data for June 24th.
A good follow on twitter for COVID charts
24-June #COVID19 Case Progress chart for key US states. Subtracting the effect of NY, the US daily cases (7-day average) is at an all-time high. 12 states (AR, FL, GA, MS, NC, OK, SC, TN, TX, AZ, CA, and UT) are reporting new all-time daily high counts.
Even back on June 3rd, I was mindful that some people were taking it easy on the virus.
“I was mindful of the virus with the Choas Theory and the Butterfly Effect statement back on February 3rd, 2020. Now again, I stress that Chaos is still here, and we have so much work to do as a country to get us back to the BC ( Before Coronavirus).”
We all want the same thing, get the American economy back on track. Since factor number 1 is flattening the curve, let’s all work together on this. I am so bullish on the fact that we can defeat this virus. However, this means all of us working as a team. Think of Team America as a badass car that can’t be beaten. Well, if one or two of the tires don’t work, it doesn’t matter what the model or the make of the car is.
June 6th risk concern
Risk: A significant increase in the new cases and the 2nd wave is a lot worse than anyone imagined forcing the government to make hard choices on what to do.
As we are re-opening the economy, just be mindful that we still have a virus that is killing Americans every day.
Risk: Texas, California, Arizona, and Florida get out of control, forcing the government to make hard decisions like the governor of Texas, Florida and Nevada did today. More states that reopen see a rise in cases. The 2nd wave in the winter is much worse than anyone imagined.
Come on, people work as a team!
Team America! One Nation, One Flag, One America! Together we can crush this virus, and I still believe what I wrote on April 7th, 2020.
“I believe the months of April and May are going to tell an epic story of America’s start in defeating this virus. If we do this right and document the cause and effect of our efforts, future generations will be able to look to this period in time for how to handle a global pandemic. My faith in America winning has never let me down because I always believe in my people and country. I can tell you now, this virus isn’t changing my view on that.”
2. End Stay At Home Orders
We are in the early stages of this happening, and this very event will draw in more demand for labor as more and more Americans will be needed to work. However, new cases can prevent the need for labor to come back quickly. We have a massive savings glut in America; once we reopen the economy safely, this savings glut can be worked off.
3. 10-year yield goes above 1%
Nowhere close to breaking above 1% and getting to my target area. Before the 10-year yield broke under 1%, I talked about this on BankRate.com that I believe recessionary yields would be between -0.21% and 0.62%. The fact that we were above 0.62% a lot during this recent downturn told me that the bond market in its own odd way was telling us things were going to be better in Q3 and Q4. Everyone has their own take on the bond market, and that was mine. Our real goal is to get into a new range between 1.33% -1.60%. We still have a way to go, but better news did drive yields higher for now.
As we can see below, the 10-year yield still not into us just yet!
Risk: Bad vaccine headlines, bad virus data, any stock market pullback will draw money into bonds. Also, be mindful of tariff headlines. I know the tap dance still continues, but it’s getting closer to the election, so the bark will be louder than the actual bite.
4. Decline In Credit Stress And Jobless Claims
1 out 2 here. However, the recovery in St. Louis Financial Stress Index is showing some signs of stress recently as today it’s currently at 0.2131%. We have had 2 straight weeks of increases. You really don’t want to see this index above 1.21%. Jobless claims in time should fall, and like I said early on with these data lines when they get better to go with it. Please don’t fall back to the crazy conspiracy theories that rotten the minds of Twitter and Facebook users during the longest economic expansion ever recorded in history. Continuing claims look like they have an area that they can move down on to.
From Fred: https://fred.stlouisfed.org/series/STLFSI2
5. Data from the hardest-hit sectors start to trend upward.
This ship has already sailed off, and we are only in the early stages of re-opening the economy. Bar patronage, driving, and retail have shown growth recently month to month. However, we can see that in places like Houston, the increase in specific sectors like open table dining has slowed down due to new cases rising. I just want to stress that the virus doesn’t care about your freedom, it facilitates death and destruction. A lot of economic charts have bounced hard higher from their recent lows. Just remember to keep the moves in context working from a shutdown economy.
Purchase Application Data in America has had a full V Shape Recovery. It’s the best 4-week rate of growth on a year over year basis for 2020.
The last 4 weeks of growth on a year over year basis from the MBA https://www.mba.org/
More on that with my podcast interview with HousingWire
Now, this type of year over year growth is hotter than what we saw before Covid19. So, don’t look for these types of numbers to continue. However, all we need is to have any kind of positive year over year data for the rest of the year, and housing should be ok. Total volumes typically fall after May all the way to January on the purchase application data.
From Calculated Risk:
Notice nothing about the stock market here, even though we have made a robust comeback with the stock market. This is a separate beast all to itself. I say this still not trying to hate on the stock market as I have had a great year trading stock. I retired this past month due to the stock market.
However, the velocity of this economic downturn due to the virus is creating some of the worst economic data lines we have seen in recent modern-day history. We have to look at the economy much different than previous cycles. The U.S. went into recession in days while still having robust economic data in January and February 2020.
So I am pleading with you all, don’t take this virus lightly. Most of you know me as U.S.A. flag loving American economic bull that will spend the rest of his life destroying as many economic bears as I can with every breath I take. However, this is a health crisis, and math, facts, data, and science matter as much as economic models matter. This virus’s impact on those economic models is significant. This virus has killed over 120,000 Americans, and with growth in new cases than means further deaths will show up with those new cases 24-27 days later. Show some respect and love for your fellow Americans when you’re outside your home in a crowded inside area. I promise you in time we will crush this virus, but we need to work as a team on this.
Logan Mohtashami is a housing data analyst, financial writer, and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his Facebook page https://www.facebook.com/Logan.Mohtashami and is a contributor for HousingWire.