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Don't believe anyone who tries to tell you that "demand destruction" resulting from the impact of the novel coronavirus across U.S. and world economies isn't going to result in a global recession. They don't know the facts.
By way of just one example, China, the first country hit and hit hard by COVID-19, which originated in Wuhan, Hubei province, announced its February manufacturing PMI (purchasing managers index) dropped to 35.7 from January's 50 level.
Fifty is the index's dividing line – above 50 implies expansion, and below 50 spells contraction.
That drop is both a record drop for one month and a record low for China.
Worse, China's non-manufacturing PMI (think services) fell from 54.1 in January to 28.9 in February.
At the height of the financial crisis, China's manufacturing PMI only fell to 38.7. Its non-manufacturing PMI never even broke 50.
With 11 million people locked down in Wuhan and at least 46 million people across China quarantined, of course demand declined, and so did production.
Now, all of Italy's locked down.
And President Trump declared a state of emergency in the U.S.
As the virus spreads to all 50 states in America and infection rates around the world increase, demand in the U.S. and globally isn't just going to decline; it's going to be destroyed.
Recessions happen when consumer spending weakens, leaving companies with lower revenue and kicking off a dangerous cycle of job cuts, slowed purchase activity, and economic contraction.
If the negative feedback loop that fosters recession gains momentum, the result is a depression.
If the coronavirus isn't corralled and eradicated in the next three months, the U.S. and world economies are headed for recession, according to economists.
If the virus isn't contained and killed off and infection rates haven't leveled off in six months, depression becomes a possibility.
About the Author
Shah Gilani is Chief Financial Strategist for Money Map Press and boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker. He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk and established that company's "listed" and OTC trading desks. Shah founded a second hedge fund in 1999, which he ran until 2003. Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see. On top of the free newsletter, as editor of The 10X Trader, Money Map Report and Straight Line Profits, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade using a little-known strategy. Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on FOX Business' "Varney & Co."