by Gary Alexander

December 22, 2020

When the Federal Open Market Committee (FOMC) met last week, they released the third in a quarterly series of forecasts for the full-year GDP and jobless rate, showing a massive improvement each quarter, with release dates in June, September, and December, but that isn’t the full story. Going back one more quarter to March 23 – the precise date of the stock market bottom – we see a panicked Federal Reserve president predicting unemployment over 30%, so what we have seen is a series of four rapidly improving predictions of an increasingly rapid economic recovery, while the same Federal Reserve is also predicting a worsening pandemic, requiring more stimulus money. Are they speaking with a forked tongue?

The Fed has already poured massive amounts of liquidity into this economy on the assumption that this would be the worst recession since the Great Depression, but their assumptions have been so far off the mark that you might say they were operating in the wrong solar system, not just the wrong continent.

Going back nine months to March 22 (a Sunday), we find James Bullard, President and CEO of the Federal Reserve Bank of St. Louis, telling Bloomberg in an interview that he believed unemployment could hit or exceed 30% in the second quarter. Then, on Tuesday, March 24, his Federal Reserve Bank of St. Louis backed up his prediction with the detailed data, saying the coronavirus outbreak would cost:

* 47.05 million layoffs in the second quarter of 2020, resulting in
* 52.81 million total unemployed persons in the second quarter, netting:
* A 32.1% unemployment rate in the second quarter.

Don’t you love the exactitude – not 47 million, but 47.05 million!  Not 32% unemployment, but 32.1%!

As it turns out, the peak jobless rate was 14.7% in April, after which that rate was cut in half within six months, and the greatest number of unemployed was about 20 million (in April), not 52.81 million.

Don’t you love the exactitude – not 47 million, but 47.05 million!  Not 32% unemployment, but 32.1%!

As it turns out, the peak jobless rate was 14.7% in April, after which that rate was cut in half within six months, and the greatest number of unemployed was about 20 million (in April), not 52.81 million.

Bureau of Labor Statistics Charts

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

“The Fed’s Stimulus Paradox”

Now, let’s turn to the Fed’s astonishing series of improving economic projections in their last three quarterly FOMC forecasts. In an editorial last Thursday, The Wall Street Journal called this “The Fed’s Stimulus Paradox.” While Fed Chairman Powell “continues to stump for more economic ‘stimulus’” his army of PhD economists “again revised up their predictions for the economy this year and next.”

 Date of Fed’s Projection    2020 Jobless Rate    2020 Real GDP    2021 Real GDP
 June 10, 2020 9.3% -6.5% +5.0%
 September 16, 2020 7.6% -3.7% +4.0%
 December 16, 2020 6.7% -2.4% +4.2%
 Source: Federal Reserve Board, Federal Open Market Committee (FOMC) 

Summarizing, in the last six months, the Fed has ratcheted down their predicted average unemployment rate for the year from 9.3% in June to 6.7% last week. They have also reduced their full-year GDP loss from -6.5% in June to -2.4% in December, a nearly two-thirds cut, while talking fearfully about Covid.

Congress, the Fed, and the media have joined hands to say that the solution to our “stalled” economy (which in fact is quickly recovering), is to throw more money at it. Last week, The Nation predictably said, “The Right Answer is to Throw Money at the Problem” (December 17, 2020), writing: “One of the best things to do during a time of crisis is to get money, lots of it, to people who are suffering.”

Once again, politicians and health officials are applying a “one size fits all” solution in closing businesses and schools. Instead of looking at the age group or health profile of those at greatest risk of COVID-19 hospitalization and death, politicians and the media have used scare tactics to push most of us into closing down nearly all small businesses (while inexplicably allowing large businesses to flourish). Then they promise relief to destroyed lives by creating trillions in cash out of thin air for those thrown out of work.

We have closed schools and forced children into house arrest when children are almost risk-free. Of the 312,000 deaths attributed to COVID-19 this year, fewer than 50 have come to those age 5-14, and many of those have co-morbidity causes. This is a disease with a 99.95% survival rate for those under age 70.

The Latest 9-Month Market Surge Reflects This Unexpected Recovery

Nine months ago, the market bottomed out, based on our deepest fears. Since then, two major indexes have doubled or almost doubled in value, reflecting the recovery that nobody seems to be celebrating.

 Market Index    March 23, 2020    December 18, 2020    9-Month Gain
 Russell 2000 966.42 1,999.72 +106.2%
 NASDAQ 6,631.42 12,809.6 +93.2%
 S&P 500 2,191.86 3,726.7 +70.0%
 Dow Jones Industrials 18,213.65 30,343.59 +66.6%
 Source: Yahoo Finance

The economy recovered strongly in 2020 because so many governors were given the freedom to use their judgement to keep various portions of their economy open and thriving while other leaders made mistakes on either side of the spectrum – of not closing down soon enough or causing more deaths by putting the elderly at greater risk. More than ever, our 50 states have become competitive laboratories in terms of wise leadership as well as economic performance. That shows forth in both health and wealth statistics.

When it comes to the 2021 economic recovery, the Democrats may take credit, but the track record cited above shows that the remarkable 2020 recovery from the March panic low is already in the books – a victory for specific state governors, wise business leaders, health professionals who made the right decisions, the Warp speed of vaccine researchers, and President Trump, who oversaw those decisions.

Capitalism is, in the words of Joseph Schumpeter, “creative destruction.” Nothing brings that fact home more than the destruction of certain businesses in 2020. Personally, I favor opening up small businesses smartly, since the science favors folks under 65 continuing to work or go to school, but if our leaders force us to close businesses in an excess of caution, then this is a new form of “creative destruction” we must endure. One example would be the possible death of thousands of restaurants, killing perhaps one million jobs for wait staff, cooks, dishwashers, and distributors, bankrupting bar owners and others. But we’ll learn how to cook, and those workers will find other careers in time. That’s what Americans do.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Global Mail is on Hiatus

Sector Spotlight by Jason Bodner
2020 in Review & My 2021 Preview (Part 2 of 2)

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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