The Black Swans of mid-March are rolling into one giant economic battle – the US government versus the virus. While healthcare workers implore us to flatten the curve, the time series economists care about is covid deaths per day, and where that peaks. One thing is certain – the USA is now the country hardest hit by coronavirus infections. – How bad will the US outbreak be? – Will the market rebound hold? – How long will this recession last? Take a look at our replay as we update outcomes for Coronavirus + Global Recession, and assess the Fed’s unprecedented moves in the next HiddenLevers War Room.

1. CORONAMERICA
31 March 2020

2. War Room
Idea Generation
Macro Coaching
Scenario Updates
HiddenLevers runs on SCENARIOS like Instagram runs on PHOTOS

3. SCENARIO PROGRESS
Coronavirus
Recession
Negative Rates
Oil Prices
BASELINEGOOD UGLY
Saudi – Russia Truce Price War No Truce + No Demand
Return of QE ZIRP For Life Driven By Market Fear
Corona-shock + Recovery Short US Recession Corporate Debt Bubble Pops
Infections Decelerate Spanish Flu ReduxGlobal Pandemic
mostly
priced in
all three
happened
shape of
recovery
USA now
epicenter

4. CORONAMERICA: Bending the Covid Curve
sources: HiddenLevers, World Meters, NYTimes
Mitigating Factors
Bend the Curve
toward Certainty,
means rebound holds
Unfettered rising infections means
market double bottoms or worse

5. CORONAMERICA: Lockdown to Peak Virus Benchmarks
sources: HiddenLevers, Washington State Dept of Health, Worldometer 1, Worldometer 2
Lockdown
Lockdown
Lockdown2 weeks to see effect of
lockdown on daily cases Covid Infections + Deaths
Plateau = good news
Decrease = great news
14 days
14 days
WA cases flattening due to
social distancing pre-lockdown
New Daily Infections Daily Deaths: Italy
Lockdown
14 days
Daily Deaths: Lagging Indicator
Wash.
State

6. CORONAMERICA: USA Lockdown Effectiveness Challenges
sources: HiddenLevers, Florida Politics, CNN, Forbes
No on/off switch for US Constitution
Nationwide lockdown NOT possible
Mandatory quarantines + travel
restrictions up to states
State + Local = fragmented response
ex Many churches continuing services
ex Adjacent beaches with opposite rules

7. CORONAMERICA: Mitigating Factors
sources: HiddenLevers, Lancet, SSRN, Kinsa HealthWeather, Population Pyramid
Expected
Observed
% Feverish
Hold the Panic
Population Density
 Italy 5X USA
Spring Season
 warmer = maybe less impact
Fatality Rate
 Likely 0.6%, 50% of prior
estimates
Vaccine
 50+ treatments being studied –
only need 1 success
Mitigating factors together may reduce impact on USA by 50% compared to Italy
Smart thermometer
data show lockdowns
work – fevers below
trendline
ItalyUSA
60+ population
Italy - 30%
USA - 22%
Age reduces US risk by 25%

8. CORONAMERICA: Market Bottoms before Peak Bad News
sources: HiddenLevers, Marketwatch, Goldman Sachs
Bad news plateaus = Selling fatigue = Market Bottom
Spanish Flu
Peak Deaths
MDD -40%
10
months
1918
2020

9. Mitigating Factors
GOOD
S+P 500
2200
-17%
S+P 500
3150
+20%
S+P 500
2875
+10%
US Lockdowns Work
UGLY
Dysfunctional Lockdown
LACK OF STATE + COUNTY
CONVERGENCE AGGRAVATES
HEALTH CRISIS, AND SENDS
S+P BACK TO LOWS
LOWER DENSITY +
YOUNGER DEMOGRAPHICS
LIMIT USA DEATH TOLL
POST LOCKDOWN ARC OF USA
MIRRORS ITALY + CHINA,
6-8 WEEKS UNTIL PEAK VIRUS
CORONAVIRUS: Updated Scenario Outcomes
DEATHS
2.2M
DEATHS
90K
DEATHS
150k
PEAK VIRUS
3
WEEKS
PEAK VIRUS
6
WEEKS
PEAK VIRUS
12
WEEKS
BASELINE

10. CORONAMERICA: Anti-Recession Policy for USA
sources: HiddenLevers, Vox, Investopedia
Fiscal – CARES Act Monetary – Fed Goes Nuclear
Unemployment on Steroids
- $600 USD/week extra for four months, most
generous benefit in US history
- $600-1,200 per adult, $500 per child
Money for Small + Big Business
- 8 weeks of payroll for any small biz
- $500B in industry specific bailouts
Infrastructure Package (ON DECK)
Cut Interest Rates – now 0%
Unlimited Buying
- Treasuries (QE5)
- Corporate bonds (first time)
- Equities (ON DECK)
Backstopping securities that were problematic in 2008
- Money Market
- Term Asset-Backed Securities
- Commercial Paper

11. CORONAMERICA: Bear Market Rally or Real Recovery?
sources: HiddenLevers
Recession Shapes:
• V-shape – defined MDD,
quick switch back to hiring
• U-shape – failed attempts,
sawtooth MDD
• L-shape – years of suffering
before recovery (2000-2003)
Non-farm payrolls confirms
economy is healthy and that
the upside momentum is real
Non-Farm Payrolls
S+P 500
New Bull
Market
Payrolls above 0 = sustainable rally
Bearish Rally
+18%
Bearish Rally
+16%
2000-04

12. V-shape
GOOD
S+P 500
1760
-33%
S+P 500
3040
+16%
S+P 500
2300
-13%U-shape
UGLY
L-shape
FULL BUSINESS CYCLE RESET,
WITH MDD AKIN TO 2000-03
SHARP + BRIEF ECONOMIC
DECLINE, ALREADY
REBOUNDING FROM
DEFINED MDD
RECESSION WAS WAITING
IN THE WINGS, VIRUS
WAS MERELY A TRIGGER
GLOBAL RECESSION: Scenario Outcomes (Post-Bailout)
US GDP
-4.0%
(-6.0)
US GDP
-1.5%
(-3.5)
US GDP
-2.5%
(-4.5)
10Y
1.50
+81 bps
10Y
0.35
-34 bps
10Y
0.00
-69 bps
BAD

13. CORONAMERICA: What to Say
Short Recession priced in – now more about shape
of recovery, unless US lockdown is a joke
Markets bottom long before bad news peaks
Be prepared for thousands of deaths per day,
human toll immense but market will ignore if not
accelerating
Italy + China + Washington state infection arcs
establish a benchmark for post-lockdown success

14. April War Room: FAT FINGER FED