Earlier on CNBC’s Squawk Box IACI’s Chairman Barry Diller called the current economic landscape “cataclysmic”. He went on to talk about the speed in which our society returns to normalcy, he calmly that “EVERYONE needs to be bailed out… (not just the airlines etc) and we will worry about paying the bills later”.
He went on to talk about the impact on one of his businesses, Expedia (EXPE) that has (his words) NO revenue right now, and they spend ~$5 billion a year on advertising in a normal year, and this year they won’t spend $1 billion. For businesses that rely solely on advertising for their revenues, this is devastating, just as it for an online travel booking service that solely relies on people flying on planes and staying at a hotel. I made this point yesterday on Twitter about a fairly nascent advertising-based business model:
very meta and sad…the knock-on effects for every business cutting costs go way beyond their own employees & vendors. ie advertising is getting decimated… how many of your favorite podcasts are brought to you by @ZipRecruiter, what happens to the podcasting business model? https://t.co/iM4WmzYlwy
— Dan Nathan (@RiskReversal) April 15, 2020
Diller went on to discuss the disconnect between the stock market and the real economy. Last night on CNBC’s Fast Money we debated a call from JPM’s Marko Kalonovic, my view is far closer to Diller’s than Marko’s.
Marko’s brilliant, but to be right that U.S. economy is back @ high-water mark in 2nd half of 2021 & SPX back @ Feb highs @ 3400 in 1st half of 2021 that would mean the pandemic induced recession will not have a lasting negative impact on consumer & corporate spending. No Chance https://t.co/Cs8EwQoafu
— Dan Nathan (@RiskReversal) April 16, 2020
My view is simple, we need to prepare for the economic worst and hope for the best, but given the lack of visibility am not sure the stock market is the proper lens to view perceived near term success in mitigating the spread of the virus.
To state the obvious, the longer the lockdown continues the longer it will take us to dig out, and this does not even take into account the likelihood of further waves of the virus springing up before we have antibody tests and a beat on when a vaccine will be widely available. Future outbreaks will mean future lockdowns, and that uncertainty I suspect investors will start to price in very soon as the economic visibility remains murky.
In the meantime, especially in an election year, I suspect the cries on both sides will be to Bailout EVERYONE:
But as we think about the post-pandemic economy, it is important to consider a point I made in a post last month: