A Leap Over Normality - Our New Abnormal

Last Updated September 13, 2020 by by

Last week was a crazy week preparing for rent collections this week as well as going through in great detail the safety precautions we are taking to do our best to keep our employees and residents safe. That is why this blog is shorter than normal.

The New Abnormal

I was thinking about calling this blog “The New Abnormal” but with 2020 being a leap year I thought I would tap into that. And we have definitely leaped over normality with the death of Kobe, COVID-19, and the associated global economic meltdown. And now the Olympics won’t even take place in 2020. I think Lebron James was spot on with his tweet to cancel 2020.

If there is one chart, to sum up, COVID-19’s impact on the U.S. economy it would be this one. These are the. initial claims for unemployment benefits. From hovering around 220,000 for many years, it exploded to 3.2 million in the wake of the seizing up of economic activity to fight the spreading of the coronavirus.

And while corporate bond spreads have blown out for both investment grade and high yield, albeit still not at Great Recession levels (yet), as the two charts from Moody’s show…

…we have this.

There is clearly stress in the banking system as Libor is really elevated to risk-free rates.

Corporations are drawing down on their credit lines as their revenues are eviscerated in order to make sure they have the capital to get them through this very challenging period. According to J.P. Morgan, corporations have drawn down $208 billion during the coronavirus panic through 3/26.

And if anyone thinks we’re going to have trouble funding the stimulus, then maybe this headline and article should give you less concern. There were similar concerns in 2008 and 2009 with people convinced that hyperinflation was upon us and interest rates were going to go through the roof. I never subscribed to this and believed that rates would stay low and fiscal stimulus was just what the economy needed to make up for the lost demand. I feel the same way today.