(ZeroHedge) In retrospect, it was inevitable: after European growth hit a brick wall in October and early November after a second round of partial (or full) lockdowns were imposed, with even the ECB warning that Q4 GDP may turn negative after the record rebound in Q3, it was only a matter of time before the US – which is now experiencing a second round of creeping lockdowns across the coastal states – suffered the same fate.
As we showed earlier, the Citi econ surprise index has clearly pointed the way, having swung sharply lower (as one would expect after the biggest – and shortest – economic collapse since the Great Depression) in recent months, as the economy caught up to trendline on the back of trillions in fiscal stimulus.
Furthermore, with the US entering 2021 without any firm commitment for another much needed round of fiscal stimulus – which we hope everyone realizes is the only reason why the economy did not disintegrate in the summer and fall – even as the rising number of covid cases continue to dominate the economic outlook, the time for the realization that a double dip is imminent, was drawing close.
That time came this morning in a note from JPM chief economist Michael Farolil, who writes that while the economy powered through the July coronavirus wave, “at that time the reopening of the economy provided a powerful tailwind to growth. The economy no longer has that tailwind; instead it now faces the headwind of increasing restrictions on activity.”
Meanwhile, “the holiday season—from Thanksgiving through New Year’s—threatens a further increase in cases. This winter will be grim, and we believe the economy will contract again in 1Q, albeit at “only” a 1.0% annualized rate.”
In other words, the double dip is about to hit.
…The question becomes how long after the economy double dips before the Fed sparks the next crisis that will allow it to unleash the next several trillion of liquidity into the market (thus allow stocks to hit JPM’s 2021 target of 4,100 which even the bank admits will happen purely on central bank liquidity).