This is Before and After from Refinitiv.
I'm your host, Johanna Botta.
Due to the Coronavirus pandemic, we're filming
this episode in unique circumstances.
So the look and feel will be slightly different,
but the content itself will remain of the
highest quality using the very latest Refinitiv
data.
We know that this information is more important
than ever, so please bear with us during this
difficult time while we continue to bring
you the show twice a week.
For many that have been in the markets for
years, the inclination is always to compare
current market economics to events that they've
been through.
You'll hear from many that this is 'just like
after 9/11' or 'this isn't as scary as 2008
when the banks were collapsing'.
And by doing that, we're attempting to normalize
what is most certainly an abnormal event in
recent world history.
What separates the current market from all
of the previous market crises, is how widespread
the real economic impact of COVID-19 is.
We saw in '97 the Asia crisis did little to
slow down the ascent of the Nasdaq.
And post dot com and 9/11, the growth seen
in emerging markets and China was still spectacular.
But here in 2020, the largest economies of
the world; the US, Europe and China are effectively
halted at exactly the same time.
That's what makes this case so unique and
difficult to forecast.
In the past, a weakness in one geographic
area paved the way for strength somewhere
else.
First, let's look at what the COVID-19 recession
has in common with other previous eras.
We came into the pandemic with all-time highs
in equities, and we've descended into bear
market territory in a record short period
of time - only 16 days.
One tell-tale fact is that the previous shortest
period was in 1929, when the market crashed
ushering in the Great Depression, which also
came off a market that came from all-time
highs and a decade of excess known as the
'Roaring 20s'.
By 1932, the US was in full blown depression
with 23.6% unemployment.
And what followed, of course, was FDR's New
Deal.
Now, we're not saying we've got the next Great
Depression on our hands, but this is just
one striking similarity.
The bottom line is that right now the situation
is too fluid and there are too many unknown
events and developments that will dictate
whether this is just another recession we
quickly bounce back from, or something far
more sinister.
One American chip company has been in the
midst of the news bomb whirlwinds going back
to the China tariffs.
In fact, it seems like a lifetime ago we were
forecasting the effects of the trade wars.
That company, Micron, is set to report earnings
after the close on March 25th.
Now, before Coronavirus gripped the world,
we expected a sharp recovery for Micron Technologies
2020 sales and EPS hinges on stronger DRAM
and NAND demand in the second half of the
year, powered by growth in cloud and handsets.
We had foreseen memory supply demand balance
this year, helping Micron's sales and EPS,
but the effects of the Coronavirus certainly
muddle the scenario.
And it's not straightforward that our new
reality will be entirely bad for Micron.
The first positive comes from the memory environment
and the continued moves higher in the spot
and contract markets.
There's also the demand for server DRAM and
NAND as the world loads up the cloud - either
temporarily or more long-term - to continue
productivity from the comfort of the home
office or living room.
And yet the stock has been beaten down 39%
since late February highs.
At these levels Micron is already pricing
in a down cycle, but is it possible the market
is wrong in this crashing stock's environment?
The Republican backed Senate bill for Coronavirus
relief was circulated late last week.
The bill still needs to be negotiated with
Democrats in both the Senate and the House.
The proposal provides over $200 billion in
special assistance to specific industries,
and of course, one of those industries is
airlines.
Overnight the bill would make the U.S. Treasury
Department one of the largest investment banks
in the country, authorized to make loans,
guarantee loans to and take equity positions
in businesses of all types.
Section 3102 authorizes $208 billion in loans
and loan guarantees for three groups.
Fifty billion is provided for passenger air
carriers.
Eight billion for cargo air carriers, and
one hundred and fifty billion for other businesses.
Some provisions state that executives at the
industries receiving cash can not make more
than $425,000 a year for two years.
The Democrats are also pushing to stop any
buybacks in the airline industry.
Also on the table is diluting shareholders.
Whatever is decided here will affect the broader
market, and set precedent to future bailouts.
A momentous decision awaits.
So there it is.
Recessions, depressions and Μicron in the
Before.
Airlines in the After.
Refinitiv data throughout.
This has been the Tuesday episode of Before
and After.
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We look forward to seeing you again on Friday.
