I know everyone is looking for an answer. So am I. However there are no answers right now. Various analysts are trying to compare this to other market crashes and recoveries. Past times are irrelevant in my view. This is the one time I say -this time is different.

There have been various financial crashes, excessive euphoria in dot com, oil shortages, high interest rates, or whatever. There has never been anything like this. WWII affected the world, but here at home nobody was getting killed. Life went on. There has never been zero interest rates and government stimulus so fast, so widespread, and so large as now. There has never been anything that impacted 150 countries all at once at a time of such globalization. So trying to claim we know for sure what is going to happen is not realistic. All we can do is try to understand what is sure, what is likely, and what we have no idea about.

The shift to April 30 has blown some of my optimism. I had believed things would at least begin the process of return to normal by April 15, at the latest. If that happened with the stimulus and unemployment bills, we could have had a real V recovery. Now it is unclear. There are parts of the economy that are being obliterated. Not damaged-obliterated. Hotels and restaurants, barber shops, gyms, sports venues, concert venues, uber drivers, PT therapists, and on and on. No dentists are working for another month. They all have well paid staff and rent.

Hotels and restaurants cannot go on like this. 25%, or so, of hotels are already closed, and the rest are averaging under 10% occupancy, and now they have another 30 days to go. Most hotels are owned by small owners who may own one or two, or maybe 5, but even with the stimulus money to pay wages and stay open, and using capex reserves, it will be hard to survive for many at nil occupancy. The owners will be faced with a choice, stay barely open to get stimulus dollars, and pay no room taxes or any other taxes, use up cap ex reserves, which is not a lot, and then tap owner equity.

When things restart they need to convince consumers their hotel is clean and safe, and they have to hope a lot of people will travel quickly to catch up on business or relatives. Maybe that will happen. I think it is likely. Hard to know how much of trained staff comes back. Most hotels need 55%-60% occupancy to just cover costs. Restaurants need to hire back and then find cash to restock food from scratch.

Meantime their CMBS servicers will be pressing for some sort of payments, and owner equity infusion in exchange for modifications. . Owners are not going to find servicers just willing to do a cram down. That is not going to happen. They may do as in 2010- extend payment terms with a big balloon payment, or hope certificate, split the note into A and B pieces, lower the rate, and allow use of reserves, but loss of principal is not something they are going to do easily as they represent bondholders who have a first lien. Special servicers also are on the hook for making payments to the bondholders. They can only forbear for so long, and then they will commence foreclosure. Part of the stimulus money is supposed to go to debt service, but I know many hotel owners will choose to fight with their servicer instead of paying, hoping for a cram down.. The courts will be clogged, and already have a huge backlog from the shut down, so time and legal fees will mount. A losing proposition for owners. I was an expert witness in several cases in 2009-12 and saw these cases unfold. The judges will be slow, but debtor friendly, so the servicers will have real fights, but the cost to the owners will be not worth it in many cases. This time is different- last time the hotels at least had some decent occupancy. The decline in value then was around 40% at the worst. This time is much worse potentially since hotels are closed. This time they have no occupancy. Renovation will be delayed for many years as it was in 2012. It is hard to know now with the April 30 date what will happen.

Nothing like this has ever happened before. Even 9-11 was of short duration, and not comparable. Owning CMBS paper, or a fund with a slug of that paper, is likely to be very costly. The loss of principal is going to be potentially huge. It is so far unclear what role the Fed will play in buying CMBS notes as opposed to RMBS of agency backed CMBS. Some vultures are going to make a killing buying up closed hotels, and notes, and then foreclosing.

The REITs area mixed story. Hotel and retail REITS will get hurt, retail less because they have higher quality properties. Office we will see what happens, Apartment REITs generally own higher end properties where tenants are much more likely to pay rent. Cell towers are good. Most REITs had good balance sheets and lines of credit, but many lines have been pulled. The place of risk other than hotels is mortgage REITs. They have seen huge cash outs and also lines pulled, big margin calls, and repo security liquidated, so they are at risk despite being solid investments up to now. The Fed is moving aggressively to buy paper so these mortgage REITs may be able to sell paper to the Fed and stay alive. That seems to be what is happening. We just need to see where all of this plays out over the next 60 days. Mortgage REITs may not be where you want to be, but it may be too late to get out. REITs were a good place to be for yield for 10 years, but the sudden crash has left some in bad shape.

It is possible that the combination of the small business loans, enhanced unemployment, loans to large companies, and many companies keeping staff on payroll, will help to keep many businesses and consumers near whole, but lodging and other travel and entertainment employ huge numbers of staff, they buy a lot of consumables, pay for lots of outside services, and pay a lot of room tax and sales tax that cities need to cover their budgets.

It is not possible yet to see how the losses of income, taxes etc is really going to play out over the next year. Cities and states are going to be badly hurt with the loss of all that room tax and sales tax, and eventually quarterly income taxes which can never be recouped. Landlords for barbers, restaurants, and gyms, etc are going to be hit with a substantial number of defaults as small businesses go out of business. Will these small businesses restart immediately? Probably, but hard to know. There are a lot of go fund me efforts happening for restaurants where the locals want to help. Maybe that, combined with the small business forgivable loans will help some reopen with the original staff.

The problem now is nobody really knows how this plays out. It seems clear the $2 trillion plus the added $4 trillion of Fed loans is not going to be enough. If the infection curve really flattens in two weeks, as it seems possible, and if they can reopen some hotels, and restaurants in four weeks, and if all the government money is enough to keep everyone going, then there is a chance for a real V, but the longer this goes the more V becomes U. Hard to predict right now. The market seems to believe the scenario that there will be a sharp recovery by Q4.

We are creating a very serious problem at the local and state levels when they come to budget time. There will have to be major service cutbacks due to the huge loss of tax revenue. It will look like 2009 all over again, but much worse. Listen to Cuomo to get the picture on this. There will be huge fights now on teacher pensions and other pensions, and union required healthcare payments that jurisdictions could not afford before this.

Now there is no way to pay for these giant union give away contracts which were made by politicians essentially bribed with campaign contributions.. There is a huge pension crisis about to hit in the next year or two as returns are very low due to low interest rates, and due to market losses, and the inability of governments to fund the obligations. It was coming, but now it is here.

The Fed is doing a great job of keeping the capital markets functioning. On Monday there was a flood of high investment grade bonds issued to individual investors and mutual funds. That part of the market seems OK now. The Fed is buying GSE paper-Fannie Freddie and keeping that market functioning. The problem for institutional buyers right now is nobody can predict the prepayment situation going forward, so pricing is a problem.

The Fed has been buying at a slightly higher price than the market, but the market is functioning now. The Fed nearly created a problem for dealers and originators a few days ago because the dealers and originators were hedged for the downside, and then the Fed stepped in a bought which pushed up prices and blew up the hedges. That created margin calls. That has been rectified now.

There is still a market jam on single family home paper. The Fed will have to step in and clear that, and get that market liquified. CMBS is still shut and subject to possible huge losses. When the big box tenants announce they do not intend to pay rent, the mall owners are in for a major problem, which means CMBS is in for a major problem on top of all the hotel defaults of which there will be thousands.

Thanks to the Dems refusing to fund the oil reserve purchases, the oil patch is going to get crushed. At $20, oil is not worth pumping. A lot of small producers cannot survive. A lot of well paid workers will be out of work thanks to the Dem stupidity. There will be a lot of consolidation, but the industry will go on. Putin will not win, nor will the Saudis.

They depend totally on oil revenue, and so their economies will be very badly hurt, far worse than ours. Life in Russia is about to get much worse for the average person. Putin’s popularity will take a real hit. When I was in Russia I had extensive discussions with Russians about how their lives had improved under Putin. Now they will be going back to scarcities, and a much lower standard of living.

Putin will have a lot less cash for weapons and for Syria, and to help Iran. There will be as yet unknown geopolitical consequences from this. There will be growing pressure to replace the Prince, but that will not be soon.

In November the oil patch will remember how Pelosi played stupid politics and killed them. Texas will be solid Republican except maybe Austin. The left needs to wake up to reality that oil is here to stay, and this is a major national security issue, not some silly climate issue. Killing a bunch of small frackers is not going to do anything other than make a lot of workers unemployed and very angry at Dems. Meantime the ultra- low gas prices will help low income workers get by- a big help to the economy.

Many are not paying attention to the real cost of having the economy shut down. There are a lot of people who depend on getting a paycheck every week, and when they do not, they get very stressed and struggle with rent, food, and other necessities. Uncertainty is the big problem.

When I was a naval officer it became very clear that most people need structure and certainty in their lives. They need to be told what to do. When there is uncertainty things go badly. This creates huge stress, and in some cases leads to child or wife abuse, opioids, or suicide. This has already become a huge problem, and Cuomo has created a group of therapists, several thousand, to try to help for free. That is just in NY. A lot more people are going to die of these other things if the economy does not get reopened quickly.

The commentators like Chris Wallace clearly ignore the huge collateral damage being done, and only focus on the spread of the virus. They are just not paying attention, or they are just dumb. If you take all the deaths from the virus vs the total population of the US, all of whom are being heavily impacted by the economic dislocation, the deaths are not even a blip.

Reality is, nobody has said let people die, but the mortality rate is only around 1% in the US of people who get the virus, but the economic damage is to probably 98% of the population. The docs can still save people, especially with some of the drugs now in trial, but a complete shut down of the economy has dire consequences that will be with us far past the virus being here unless they start to reopen areas where the experts say it is safe to do so by April 30.

Hopefully the enhanced unemployment, and the small business loans will help get small companies through this and cover enough payroll to make the real difference, but the stress will be there regardless. It is the total unknown combined with being locked up for weeks, that is going to be too much for many people.

Some medical experts will say you must first get rid of the virus which crosses state lines, or they say, you need to defeat the virus first, or you will prolong the virus.

China is now almost fully reopened, as is S Korea, Singapore, Hong Kong and Taiwan. Sweden never closed down. They simply told old people they must stay indoors and others with conditions, the same. Everyone else in Sweden is going about life as normal.

So far it is working well. Dr Brix has said they are getting county by county data which may let them open some counties, and not others by the end of April. I will take her opinion when it comes. This is a giant country, so it seems reasonable that Brix is correct that you can do things in one area, but not others, with reasonable safety.

Some docs want the whole country just shut down, but they are not looking at the real cost of that, but just the perfect medical solution. Nothing in life is perfect, and everything is a trade-off. Might some people get a little sick if some places are reopened, yes, but maybe a lot more lives will be saved from opioids or battering, or suicide.

Meantime the sick can be treated and maybe the malaria drug will prove out in the next two weeks and solve some of the problem.

The classic 60-40 portfolio has not proven to be a safe place. On average it is down 20%. Normally as stocks drop, rates drop, and bond prices rise. With rates at near zero, there is no place for rate drops. Bond prices are going to drop as stock prices increase. There are many places for defaults and principal losses to come.

In the end stocks will rise a lot before bond prices rise again. In fact bond prices may decline as rates rise again when things reopen, and the giant fiscal stimulus becomes a drag on Treasuries. They have to sell a lot of new bonds to cover all of this. It is possible, though unlikely, that the Fed might buy equities. Powell has said nothing is off the table. I am sticking to my 100% equity strategy and only large, strong companies.

Some good news. The spread between the ten year and investment grade corporates is only around 300 BP this time vs 650 in 2008. That suggests the market is not expecting many defaults on corporate high quality bonds. If the spread shrinks, as is likely, the bonds will rise in price.

Another bit of good news is Iran is getting hammered by Covid. They are on lockdown, many sick and getting worse, prison riots, and no money coming in. Their people are likely getting even angrier. Their ability to fund their proxies and Syria declines rapidly by the day now. Their ability to recoup from this will be slow and long while oil prices remain at a loss position.

The squeeze on the regime has to be very high now and getting worse. They are in no position to start any sort of action. While the regime is not going to collapse in the near term, they will remain weak and subject to riots, protests, and a real shortage of cash.

They are likely counting on Biden getting elected so they can get their coffer refilled just as Obama did. If Trump wins the Iran regime may not last more than another couple of years at most. Their economy is already collapsed and their proxies are not getting paid. No pay no fight. The entire mid- East geopolitics is going to radically change over the next two years.

There is simply no way to know when nor what comes next. Russia is in no position to bail out Iran and Syria and others so long as oil prices remain below $54 on Brent. Putin is in a deteriorating position if oil prices remain low. When this is over it is likely Israel will be the one left standing.

The Arabs will be much poorer due to low oil prices. Iran will be weak and maybe the mullahs will be gone one day. The Iran proxies will be weak because they will have gotten no money from Iran or Russia. That leaves the Palestinians with no real benefactors and in need of being nice to Israel as their only hope to survive. Maybe then in 2021 they will be more amenable to talking about the Trump peace plan.

The Saudis, and other donors to the Palestinians may feel they need a way out of that morass due to low oil prices and may push the Palestinians to a deal. This is all a lot of speculation, and in a part of the world where reason and thought never prevails, so there is no way to know

. It could be that out of desperation Iran starts a war, or goes for a nuke. Lots of possibilities now, but very likely there will be major changes in that part of the world, especially if oil prices remain very low for much longer.

Sometimes I find this whole thing to be like a dream. It is hard to wrap your brain around the prolonged shut down of everything.

After 9-11 it was a shock, but then the country moved on quickly, Nobody was isolated. In fact crowds rallied. In 2008 we all felt poorer and the economy nearly crashed, but that was a purely banking and liquidity problem. It could be solved mechanically and was.

Now nobody can be near anyone. I have never experienced anything remotely like this, making it hard to know what happens May 1. Likely it will be like the first spring day in NY when everyone suddenly comes out of hibernation and is in the park or on the street. Were it not for the internet, and being able to work remotely, and to Facetime, and otherwise connect, this would be a giant mental health disaster..

My neighbor here in FL who is in his seventies had a party last night with three couples. I knew he was not smart but, I did not know he was a total idiot. And they wonder why the virus spreads. Luckily there is distance between the houses and lots of heavy landscaping

I am not sure what is the motivation, maybe trying to look non-partisan in a crisis, but rump actually said nice things about DeBozo and Newsome. He could have blasted Pelosi for what she did on the stimulus bill, but he didn’t.

Rumor has it that now that they can do drive by virus testing they are working on drive by prostate tests.

kommonsentsjane