We just barely dipped into 1st order effect below. Unemployment claim filings are starting to jump up beyond the regular seasonality curve, though still relatively minor. Some policies can minimize the impact of some of these.
- 1st order effect > is the shock > layoffs
- 2nd order effect > layoff people unable to pay rent and car payment and impact on consumer spending or 70% of our GDP are consumer spending based
- 3rd order effect > bankruptcies on leveraged assets, especially commercial real estate or the largest asset class in the world (visual below). I see a real estate type that will be wiped hard soon, office, retail, sports and hospitality. Ones that will likely do well includes healthcare, industrial, self-storage and telecom towers.
- 4rd order effect > business formation restructuring (i.e. popularity of ghost kitchens)
The credit spreads are shot up drastically relative to past 10 years but if you look at the past 3-4 decade triple AAA, triple BBB and triple CCC credit spreads against US Treasuries, we are still a few weeks away before the Pandora’s Box gets popped open from 3rd week of March 2020.
Government and policy makers needs to be mindful of the series of the order of effects as they craft their financing packages together to minimize further deepening of the economic side of this equation.
Intersection notepad 