We Continue To Be Headed Towards Great Depression Unemployment Numbers

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To investors,

The United States economy has been shut down due to the coronavirus quarantine. As I wrote a few weeks ago, there is a high likelihood that we could reach levels of unemployment not seen since the Great Depression. The write-up included the year-by-year unemployment numbers:

“There was a relatively slow ramp up in unemployment in the beginning of the Depression. Here are the year by year unemployment statistics in the US:

  • 1929 — 3.1%

  • 1930 — 8.7%

  • 1931 — 15.9%

  • 1932 — 23.6%

  • 1933 — 24.9%

  • 1934 — 21.7%

  • 1935 — 20.1%

So as you can see from the data, it took until the third year of the Depression before we hit double-digit unemployment numbers. People always focus on the peak number of 24.9%, but they forget that 3 of the 5 years of the Depression (1929-1933) had unemployment levels under 20%. This doesn’t mean that 8 – 20% unemployment levels are good. It just means that the peak number isn’t a great representation of the entire period.”

This morning we got the first data point on how bad the unemployment situation is looking already. The US Department of Labor reported that 3.28 million Americans filed for unemployment claims in the week ending March 21. That is more than 4x the worst previous week of unemployment claims ever (695,000 in October 1982).

Image result for american flag wall street

(Photo by Alex Proimos)

This record number of unemployment claims is not a surprise to most people given the fact that the economy has been shut down. People were told to go home and businesses were ordered to shut down. When you go from a thriving business to $0 in revenue, people are going to lose their jobs. In fact, A LOT of people are going to lose their jobs very quickly.

The national numbers are obviously concerning, but the state numbers are even crazier. According to CNBC, “Pennsylvania increased 20-fold, from 15,439 to 378,908. New York saw its number more than quintuple, rising from 14,272 from the previous week to 80,334, while California tripled to 186,809. Louisiana, where coronavirus infections have risen at a dangerous pace, went from 2,255 a week ago to 72,620.

Maybe the numbers sound big, but the graph will tell a different picture? Nope. The graphical representation of this jump in unemployment claims actually makes it look even worse.

It goes without saying that these millions of Americans need help immediately. The stimulus package that was approved this morning will provide some help, but it leaves a lot to be desired. The package will see a one-time payment of $1,200 to adults under a certain income threshold and $500 to every child. It includes a few hundred billion dollars for small business loans that the government will forgive if the business retains their employees. And there is an added $600 a week for those filing for unemployment benefits. These items can dull some of the pain, but it won’t solve the problem that 3.28 million Americans just filed for unemployment.

So where does this leave the United States?

Unfortunately, this puts us on the path to numbers that will be higher than the Great Depression as I predicted. We ended February with 3.5% unemployment (5.8M Americans), which is similar to the 3.1% unemployment at the start of the Great Depression in 1929. As I wrote recently, “the second year of the Great Depression saw 8.7% unemployment, which would 2.4x increase from our February unemployment numbers. It makes me incredibly sad to say this, but I think we could see those types of numbers by the end of Q3 2020.

After today’s unemployment claims report, we are sitting around 5% unemployment and have more than 9 million Americans in the workforce but without jobs. If we see a return to net new “normal” levels of unemployment, that could include an estimated 1 million Americans filing new unemployment claims each month. We would reach 9%+ unemployment by the end of August if this was to happen, which would be more than the first full year of the Great Depression (1930). Unfortunately, I think 1 million new unemployment claims a month is going to be overly conservative.

We just had 3.28 million claims filed in the last week. Most small businesses have between 15 and 30 days of cash on hand to run operations without revenue. My guess is that a lot of them let staff go last week, but there will be more layoffs in the coming weeks. This also is not just a food service industry problem. We are seeing layoffs happen everywhere — from travel to hospitality to startups to manufacturing.

The number of unemployment claims that was just reported is higher than I expected, so now I am starting to think we could see 10% unemployment by the end of Q3. That would be 25% higher than what I was thinking just 10 days ago. Time will tell what happens, but investors need to be prepared for the worst here.

The United States has one of the strongest economies in the world. It only works when American businesses are operating and American workers are at work. The challenge is that the health crisis is real, so we must take the necessary steps to ensure the slowdown of COVID-19 infections. At the same time, the health crisis is causing an economic crisis. The world is not black and white, so the solutions here won’t be black and white either.

We just saw 3 million people file for unemployment in a single week. There will be millions more of the coming weeks and months. The faster we can address the virus, the faster we can get the economy operational again. There won’t be economic relief until that flywheel starts again. It doesn’t matter how much money the Federal Reserve prints, nor how many loans they give to people — the cure is going to be getting people back to work in a safe manner.

As I have been saying for awhile now, please be kind to those around you during these hard times. You never know what someone is going through. Millions are losing their jobs. Tens of millions are stressed out. Many folks are worried financially. Even more are dealing with health and/or family issues. It costs nothing to be kind and it could go a long way for a random person these days.

Stay safe out there. Stay alert. And remember, no one is going to look out for you, so make sure you are looking out for yourself.


This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

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Mark Yusko is the Founder and CIO of Morgan Creek Capital Management and co-founder and Partner at Morgan Creek Digital. He previously ran the UNC Endowment, where he became known for his investments in alternative assets. We spend a lot of time together on a daily basis, so it was fun having Mark record this episode to explain a lot of what is happening in the world. If you are interested in the macro economy, this episode will be a must listen!

In this conversation, Mark and I discuss:

  • What is driving the current market chaos

  • How we got to QE infinity from the Fed

  • Where we are in the economic cycle

  • Who the winners and losers are right now

  • How institutions are currently thinking about their portfolio

  • What certain assets should do over the next 5-10 years

I really enjoyed this conversation with Mark. Hopefully you enjoy it too.


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Nothing in this email is intended to serve as financial advice. Do your own research.

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