Monday Moneybeat – Wall Street bounces back


MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: A little bit of good news on the economy to mix in with the terrible unemployment numbers: Wall Street had its best week since 1974. All the major stock indexes enjoyed double-digit percentage-point rises in value, between 10-1/2 percent and nearly 13 percent. And that’s just four days’ time, with the markets closed for Good Friday. 

Claims for unemployment insurance, again, staggeringly high. Let’s jump right in now with David Bahnsen, financial analyst and adviser, and let’s spend some time getting an understanding of those overall numbers, as well as how the government stimulus is going so far. 

David, good morning.

DAVID BAHNSEN, GUEST: Good morning.

EICHER: So, each week, we’re looking at government reports on unemployment claims, and I know they’re complicated and they represent heartbreaking economic pain. The Labor Department reports are estimates, and they’re subject to revision along the way. Thursday morning came another release on seasonally adjusted initial claims for unemployment insurance, and the headline number is a little over 6-1/2 million. That number may stick in the memory, because that was virtually the same number a week ago—6.6 million—until the government revised the number up to 6-point-almost-9 million. 

Now, I didn’t give you time to explain last week, and maybe pushed for a too-simple explanation. So let’s take a moment and walk through this, to help us understand how to interpret these unemployment numbers.

BAHNSEN: Well, I appreciate it, Nick, and I think that there is a sense in which the initial jobless claim number, which is what’s coming out each Wednesday, it’s the new number for that week on unemployment claims. And I think last week I started answering a couple different questions at once all in my mind—and I don’t think it’s a good excuse, but I’m doing something in the range of 20 hours a day right now of processing data.

And you can very easily confuse a couple different things at once, and what—the initial jobless claims number, it’s really interesting. 

By definition the initial number is new initial claims for that week. What is cumulative is the unemployment number. 

OK, so those are two different things. 

We will get a jobs number for whatever the total unemployment rate is. And then that represents some revision from let’s call it 3.5 percent where the unemployment number was before. And people are debating if that unemployment number is going to be 10 or 15 or something.

The weekly initial jobless claims number is brutal. But, by the way, let me make one anecdotal point, Nick, because you asked me about this before. There’s been three weeks now of the numbers coming in. It was something like 3.5 million and something like 6.5 million. Then something like 6.5 million again and then the middle number got revised upward. The first number had been revised downward a little. Either way, you’re something in the range of all those numbers put together about 16-17 million.

All three weeks, the stock market the day the report came out in the morning was up huge. And so, so many questions have centered around why would the market be responding favorably to such bad news. 

This is the point that needs to be reiterated again. There is no mystery to the fact that the economy being shut down has taken away all these jobs. 

There is, however, uncertainty around that point I brought up before which is what jobs are coming back and when. And so the question is which ones won’t and what kind of structural unemployment are we going to leave ourselves with out of this coronavirus policy response?

EICHER: And, again, it’s going to take time actually to know, because workers are going to go different places and people who had businesses shut down, presumably, will find other ways to earn a living, and it’s impossible to predict that future.

BAHNSEN: Well, so there is that argument of sort of reinvention. There is the question of what businesses are going to get back up and running again and when and how. 

But there’s also another variable that we don’t really know and that is what the impact of the stimulus will be. How, as these checks begin arriving to small businesses, what will the impact be there? There’s plenty of people that could debate about the merits of the policies’ pros and cons. That’s fine. But that doesn’t necessarily address the question of what its impact will be even if there’s other demerits to the policies. 

Most would not deny that spending hundreds of billions of dollars is going to have some impact in the economic measurement. And so we don’t have a precedent for this kind of thing. There’s no point, whether you’re talking about the Great Depression, whether you’re talking about the great financial crisis, there’s no point at which we’ve ever had this type of governmental response. And for right or for wrong, that has to be played into the economic calculus as well.

EICHER: Let’s talk about the recovery plan implementation. I’m curious about that because what we’re talking about is recovering a $20 trillion massive economy, the biggest in the world, it doesn’t exactly handle like a sports car. But how do you think that CARES Act implementation is going, getting that money into the economy and helping get through this patch?

BAHNSEN: It is still early to speak with too much confidence. I am trying my best to really ignore a lot of media reporting on it and talk to business owners, talk to banks, and look at the data. And I can see inside the market here: 480,000 loans processed in five business days, totaling $124 billion.

EICHER: Put that in context. Ah, what’s normal?

BAHNSEN: Oh, ah, how many loans are processed in a week? I’m saying 480,000 SBA7a loans, I doubt there’s 1,000 a week that are normally processed. But because this is a special program that’s very ad hoc. But the volume—and, by the way, you know, the volume you would expect to be higher because demand is through the roof and there’s no real underwriting they have to do. Most loan processing takes time because they’re actually underwriting the loan.

EICHER: Where the government’s underwriting the whole thing.

BAHNSEN: Yeah. In this case, the government’s instruction to the banks is you don’t need to underwrite. Basically there’s a few basic questions. A few pages. They have to attest that they’re going to keep their payroll going. Things of that nature. But more or less the complexity of banks making sure it’s a credit-worthy borrower is not at play here. 

This is backed by the SBA and then the intent for most borrowers is that they won’t have to pay the money back because if they keep their payrolls going and meet the criteria of the paycheck protection program, the loans will be forgiven. 

So, the question of how it’s going is obviously a bit mixed because on the one hand I think that sheer volume of loans and dollars extended is massive and impressive. 

But you do hear stories of some banks weren’t up and running and so, there was some red tape getting out the door, but no more than anyone would have expected. So, I think it’s been a big program and then they’re already asking for another $250 billion.

EICHER: Let’s hit the direct-aid-to-taxpayers before we go.

BAHNSEN: [Yeah,] that money was supposed to begin going out on Thursday. Friday being Good Friday, I’m not sure if that kind of held some things up. So, by the time we talk next week, we’ll now have a week of seeing if that money is getting in people’s pockets. 

And I think I told you before that I’m not as bullish on this aspect of the CARES Act being particularly stimulative. I’m positive there’s families out there that have run out of money in their checking account that are going to benefit from getting a few thousand bucks from the bank. But as far as— you can’t—how does an economy get stimulated? It gets stimulated from goods and services. And if the economy is shut down and there’s no goods and services, having a couple extra bucks in the bank is not necessarily stimulative on a macro level, even if it might provide some humanitarian aid to certain folks who need it. 

But I do think it’ll give us a gauge in another week just to see if some of that money is starting to trickle its way into main street America.

EICHER: David Bahnsen, financial analyst and adviser. David, thank you.

BAHNSEN: Thank you, Nick.


(AP Photo/Mark Lennihan, File) In this March 18, 2020, file photo a few people walk on Wall Street in front of the New York Stock Exchange in New York.

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