• Market Crumbs

The Economy Is Grinding To A Halt

Image via Connor Smith on Unsplash

As the coronavirus continues to spread—with more than 150,000 people contracting the virus across nearly 150 countries, the effects on the global economy are starting to show. While the selloff in the markets has been well-documented on Market Crumbs, the luxuries that most enjoyed in their local communities just a few weeks ago are rapidly beginning to seem like a distant memory.

As the coronavirus spreads in the U.S., the country finally saw events cancelled or postponed, businesses closed and schools suspended in an attempt to slow the spread of the virus.

Apple is hoping to lead by example, announcing it will close all of its stores outside of China through March 27. "One of those lessons is that the most effective way to minimize risk of the virus’s transmission is to reduce density and maximize social distance," Apple CEO Tim Cook wrote.

Companies such as Walmart and Publix have shortened their hours in an attempt to sanitize stores and restock shelves that have been cleared out by hoarders. Taco Bell is even contemplating shutting down its dining rooms and offering only drive-thru service to promote social distancing.

While these are large corporations, the effects of the push for social distancing are going to be felt the most by local businesses that can't afford to close for even a few weeks. The restaurant industry has been particularly hit, with countless articles detailing how restaurant owners throughout the country believe the slowdown could ultimately cause them to go out of business.

According to online restaurant-reservation company OpenTable, the restaurant industry is getting annihilated. The year-over-year change in diners at restaurants across developed countries such as the U.S., Canada and the United Kingdom has fallen off a cliff over the last week, falling as much as 50% in some countries.

"The COVID-19 pandemic is making many of us stay home and our community of nearly 60,000 restaurants is facing a severe reduction in diners," OpenTable chief operating office Andrea Johnston said. "Looking at comprehensive data from restaurants on our platform — across online reservations, phone reservations, and walk-ins — we note sharp declines over the last week."

The economic effects on the restaurant industry is just one example. There's countless industries that will feel the effects of society essentially shutting down. For many people who are already living paycheck to paycheck, the likelihood of job losses or lost wages is all but inevitable at this point.

While the outcome of the coronavirus is unknown, its clear that economies throughout the world are being brought to their knees by it. Policy makers across the globe have taken actions to try and limit the effects on the stock market, affected industries, local businesses and individuals.

With the bull market ending last week, it's beginning to look increasingly likely that the world will end up falling into a recession as the effects of the coronavirus will be felt well beyond its containment.

Leftover Crumbs

  • The Fed makes a big Sunday move. The U.S. Federal Reserve last night slashed the fed funds rate to a range of 0% to 0.25%, down from a range of 1% to 1.25%. The Fed also announced a $700 billion quantitative easing program to begin today that will allow them to purchase Treasurys and mortgage-backed securities. "The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States," said the Fed. "We will maintain the rate at this level until we’re confident that the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals," said Fed Chairman Jerome Powell.

  • Keep it under 50 people. The U.S. Centers for Disease Control and Prevention (CDC) recommends events with 50 or more attendees over the next eight weeks be cancelled or postponed amidst the coronavirus outbreak. "Large events and mass gatherings can contribute to the spread of COVID-19 in the United States via travelers who attend these events and introduce the virus to new communities," the CDC said. The CDC said the guidance does not apply to schools, businesses or universities.

  • End of an era. Microsoft co-founder Bill Gates announced he is stepping down from the company's board, effective immediately. Gates co-founded Microsoft in 1975 and served as CEO until 2000. "With respect to Microsoft, stepping down from the board in no way means stepping away from the company," Gates said. "Microsoft will always be an important part of my life’s work and I will continue to be engaged with Satya and the technical leadership to help shape the vision and achieve the company’s ambitious goals. I feel more optimistic than ever about the progress the company is making and how it can continue to benefit the world."

  • The DoD needs more time. The U.S. Department of Defense has requested four months to review the Joint Enterprise Defense Infrastructure (JEDI) contract that was awarded to Microsoft and subsequently challenged by Amazon. According to court filings, the Pentagon has requested 120 days to "reconsider certain aspects of the challenged agency decision." "While initially this was a single source contract, we believe the writing is on the wall that the Pentagon needs to likely break up this contract in order to move it along and start the procurement process given how critical the JEDI deal is to the overall DOD and longer term strategic global military operations/infrastructure," wrote Wedbush Securities analyst Ygal Arounian.

  • Occidental wants to fight Icahn. Occidental Petroleum is triggering a poison pill in an attempt to ward off activist investor Carl Icahn, who has a 10% stake in the company and will try to "get control of this company." Icahn has publicly shared his displeasure with Occidental's management as shares have fallen 60% this month. "It’s a study in what shouldn’t be done in corporate America," Icahn said. "It makes a travesty of corporate governance." The poison pill, which is aimed at dissuading an acquisition by diluting the shares of a potential acquirer, will be voted on at the company's annual meeting.