Bennington: This is Still a Breaking Story
Your Real Vision Daily Briefing for April 7, 2020
Real Vision’s Ash Bennington and Ed Harrison unpack the seemingly widening gulf between macroeconomic events and price action in markets.
- Stock markets may have days of gains, but it doesn’t mean we’re in a new bull market that has legs and will last.
- The International Labor Organization is predicting a 6.7% reduction in global working hours, which translates to 195 million workers leaving the workforce.
- This unprecedented economic contraction – as well as the trajectory of the virus itself – is still rife with uncertainties.
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Any market rallies happening right now can be explained by the fact that markets aren’t yet discounting the news flow and that people are feeling positive about the backside response – they’re not evidence of the start of a sustainable bull market, Ash Bennington and Ed Harrison said during today’s Real Vision Daily Briefing.
Eventually the real economy effects will shine through, they said, pointing to a stunning forecast from the International Labor Organization that predicts a 6.7% reduction in global working hours, or roughly 195 million workers leaving the workforce.
Another sign of trouble is the explosion of mortgage forbearance requests, which grew by 1,270% between the week of March 2 and the week of March 16 and jumped nearly 2,000% between the week of March 16 and the week of March 30.
“This is still a breaking story,” said Bennington. “We don’t know where it is going to end.”
Harrison suggested it is time for investors to think ahead about companies that may face credit ratings downgrades, as American Airlines (AAL) and Kraft Heinz (KHC) recently did. He said we learned during the last financial crisis that downgrades come after companies have already plunged in credit worthiness and deteriorated massively.
“If you’re waiting for a rating agency to downgrade, you’ve waited too long. The market is going to express the concern about a company and the yields, spreads are going to widen out before the downgrade comes. When a company is trading like BB credit you have to think it could become a BB credit,” he said.