Thursday, July 30, 2020

Terrible Q2 GDP drops could have been worse

I am confident that the second quarter (Q2) of 2020 was the peak of the Covid hysteria and the economy is already vastly more open and prosperous (almost everywhere) in Q3 – and we will see a substantial GDP rise between Q2 and Q3. I also think that there has been some learning and nations won't return to as draconian national quarantines as those that they suffered in Q2 2020.



A financial song from a rare country that didn't lose its marbles because of a dumb coronavirus.

So the Q2 2020 figures should be showing the worst results that the human stupidity – totally unfairly blamed on a nearly harmless virus – could have caused. Many such numbers were published today. In Q2, Germany, Belgium, Austria, and the U.S. are estimated (these are first calculations based on the real data, not some guesswork!) to have dropped by 10.1%, 12.2%, 10.7%, and 9.5% quarter-on-quarter. The first three countries' GDP dropped 11.7%, 14.5%, and 12.8% year-on-year (because there has been a 2% or so drop in Q1).

Here, I need to discuss the American figure, 9.5%. The published figure was 32.9%, slightly better than estimates, but Americans publish annualized figures which means figures extrapolated to one year by an exponential function. I calculated 9.5% by the following formula:\[ 1-(1-0.329)^{1/4} \approx 0.095 \] The American annualization convention is particularly stupid now – because it basically assumes that the GDP growth rate is a continuous function of time (if it is not, then it is very unwise to extrapolate it!). Too bad, even the GDP itself is far from being a continuous function in countries where it's possible to shut down whole industries overnight.



OK, this 10-15 percent drop of the economic activity in Q2 2020 is terrible and worst on record (nothing like that happened during the world wars and other moments). On the other hand, it's a relatively modest price for the mental breakdown of the white race whose majority was collectively infected by a mad cow disease – by the coronavirus hysteria.



The stock markets are dropping as if they were surprised – the drops pretty much agreed with the median expectations. I think it's reasonable to estimate that the stock markets are already underpriced given the modest drops. Even if the 10% GDP drop were "permanent" (i.e. the rises after Q2 wouldn't be much higher than the normal rises), it would only justify a 10% drop of the stock prices from the pre-Covid levels. But we've seen a greater drop from the pre-Covid levels.

However, I find it much more likely that "approximately the whole drop observed in [Q1 and] Q2" will be undone within a year and the economies will return where they were before the coronavirus hysteria. With this assumption, the computation of the "fair impact" of the coronavirus hysteria on the stock prices is completely different: companies could have just lost 10-15% of profits from one quarter which is 2.5-3.8% of profits from one year which (assuming P/E=10) is something like 0.25-0.38% of the capitalization! That's how much the stock prices could have dropped because of the Covid policies. Of course, the profit losses were much higher than 15% in many industries but you still justify "just a drop of stock prices by one percent or so" only.

On top of that, trillions of stimulus money has been poured to the markets, businesses, and consumers. Lots of it is will be either spent, therefore lubricating the economy, or invested into stocks. When the lockdown is combined with the stimuli, it is totally possible that the overall impact on the stock prices could be positive.



Even generalized black Swedes understand that "it's their life". I surely considered this song to be one of the gems of 1992 although the competition was strong in that year. Also note that there was no multiculturalism yet; everyone could listen to Dr Alban as if he were another Swede (I surely thought he was white for quite some time) and it was common sense (requiring no discussion) to expect him to assimilate with the Nordic culture.

It's been obvious – and folks like me were emphasizing from the beginning – that the lockdowns were both futile and (even more clearly) unsustainable. A few months later, the unsustainability of these insane, indefensible policies became obvious and countries ended the lockdowns. Protests would be much more likely than 4 months ago if someone tried to restart the full-blown lockdowns. I still find it terrible that these criminals and idiots responsible for this mistake – possibly the most economically costly mistake in the history of mankind (ten trillion dollars – ten million times million) – still keep their power and influence, instead of being called out and imprisoned or executed.

In fact, it looks like people are still being threatened and/or afraid of pointing out that these lockdowns were an incredible mistake of criminal proportions, a real crime against humanity. Before the nations find it mainstream to talk about this giant blunder, we will live at risk that a similar mistake could be repeated – perhaps with much more catastrophic consequences than what we saw in Q2, and perhaps by the very same people whom we failed to imprison or execute so far. And that's just extremely dangerous according to everyone who cares about the fate of the civilization.

Sweden has wisely listened to their unpoliticized scientists and avoided lockdowns. Almost all Swedish companies reported much better Q2 2020 results than the expectations and I predict that the Swedish Q2 figure will be substantial better than the German, Belgian, Austrian, or American figure at the top; Sweden's economic conditions are praised by Newsweek and RT, too. Note that in Q1 2020, economies with lockdowns already saw a 2% or 3% drop; Sweden saw a tiny growth instead. On top of that, Sweden is really in a much better shape epidemiologically now. They simply achieved some kind of herd immunity and that's why their drop to cases and deaths to near-zero levels may be expected to be "robust", unlike in most other countries where millions will keep on living in fear.

This "Advantage Sweden" will be increasingly obvious. Yes, Sweden already had fewer new positive tests in a week than Czechia. They know that they won't get a "second wave"; Czechia can't be certain. But thankfully, all relevant Czech politicians agree that nothing like the repetition of the draconian spring restrictions (or the closure of schools in September) is on the table. We will deal with the disease according to the traffic light system (measuring the situation in districts) which is a kind of "business-as-usual" for a vast majority of the citizens.

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