• The Economy Went Full Randy Quaid Last Quarter
• A Death Knell for Movie Theatres
• Samsung Warns of Double–Digit Drop
• A Tale of Two Viruses

 ECONOMY 

The Economy Went Full Randy Quaid Last Quarter

The economy shrank last quarter at a rate of 4.8%, the steepest decline I’ve seen since Randy Quaid started a video blog.

This is the U.S. economy May 2020.

Adjusted for seasonality and inflation, this is the sharpest drop in GDP since the fourth quarter of 2008. And Q2 ain’t shaping up to be a peach neither.

The shutdowns and layoffs hamstringing the U.S. economy only kicked into gear in the final three weeks of the first quarter.

And even though some states are already reopening businesses, they will be unable to operate at full capacity due to restrictions put in place to limit the spread of the Virus. (No kissing parties, no licking doorknobs, and no dipping under the sneeze guard for “free smells.”)

Economists, surveyed by the Wall Street Journal (and through a pair of binoculars from the back seat of a Nissan Stanza by me), expect a drastic drop–off in economic activity in the second quarter of this hellish year.

According to the WSJ’s legion of nerds, the GDP will contract at an annual rate of 25% in the second quarter.

“This is unprecedented in terms of what we typically see in a recession,” Robert Murphy, an economist at Boston College, told the WSJ. “When you go into a recession, it’s usually a gradual process, it doesn’t happen all at once.”

“This is the worst external shock in anyone’s living memory; it is as if a meteor hit the Earth and now we have to put it back on its axis,” Grant Thornton Chief Economist Diane Swonk told the WSJ.

Spending on durable goods like new cars and appliances decreased at a rate of 16.1%. While spending on nondurables like food and paper towels rose 6.9%, because life is just an endless loop of eating Doritos and pooping right now.

On a more optimistic note, nearly 85% of economists surveyed by the WSJ expect the economic recovery will start as soon as the second half of the 2020.

(Unless we get hit by a meteor that wipes out all life on earth. Historically, meteors have been bad for GDP.)

Just ask this guy.

 ENTERTAINMENT 

A Death Knell for Movie Theatres

With the nation’s theatres/popcorn extortion rackets on lockdown, studios are faced with a dilemma:

• Leave their films to gather dust on the shelves and release them next year.
• Or push their floating turds to digital, such as Premium Video on Demand, and try to recoup their losses at the home box office.

Studios are desperate to keep the money coming in. But if this digital release strategy proves unprofitable, they’ll forfeit millions of dollars in potential profits, at a time when every company on the planet is desperate for some cash on–hand.

Even if the exact same amount of people watched the movie at home as would have gone to the theatre, the math gets a little… squiffy?

Let’s say you charge $20 for one of these “premium” rentals.

• Are folks, who are used to paying $7.99 a month for Netflix, going to fork over 20 bucks for one movie?
• Bu–u–u–u–ut the theaters aren’t taking their 50% cut, so you’ll be banking a larger share of the profits.
• Bu–u–u–u–ut what if one person rents the movie and invites all their friends over to watch? You could be pulling in just $20 in sales for a group of 10 people.
• Bu–u–u–u–ut… and so on.

There are enough variables to give your accountant’s ulcer an ulcer.

After toying with the idea, four of the Big 5 movie studios opted for delaying release. But Universal went rogue and decided to take a chance on the home audience with its candy–colored headache machine The Trolls World Tour.

Trolls World Tour, a follow–up to hit migraine Trolls, released this neon pile of vomit as a $19.99 digital rental to streaming platforms like YouTube, Vudu, Apple TV, Google Play, and Amazon Prime.

In just three weeks, Trolls World Brain Hemorrhage has racked up nearly $100 million in rentals, generating more revenue for Universal than the original made during its five–month theatrical run.

The performance of Trolls Brain Cocaine for Babies has proved the viability of the home release strategy and convinced Universal Execs that this might be the way forward, even after the end of the world is over.

“The results for Trolls World Tour have exceeded our expectations and demonstrated the viability of PVOD,” Jeff Shell, head of NBCUniversal, told The Wall Street Journal. “As soon as theaters reopen, we expect to release movies on both formats.”

As you can imagine, movie theatres (who have a picture of Netflix stapled to a dartboard in their basement) weren’t super chill about Jeff’s comments.

In a strongly worded letter to Shell, AMC Theatres CEO Adam Aron said this malarkey was unacceptable. (As strongly worded letters go, I’d rate it just below the Unabomber manifesto.)

“It is disappointing to us, but Jeff’s comments as to Universal’s unilateral actions and intentions have left us with no choice. Therefore, effectively immediately AMC will no longer play any Universal movies in any of our theaters in the United States, Europe or the Middle East,” Aron wrote.

“Incidentally, this policy is not aimed solely at Universal out of pique or to be punitive in any way, it also extends to any movie maker who unilaterally abandons current windowing practices absent good faith negotiations between us, so that they as distributor and we as exhibitor both benefit and neither are hurt from such changes.”

Meanwhile, AMC Entertainment’s stock (AMC) has been exploding, as the prospect of theatres reopening rears its ugly head. Yesterday, AMC closed out with a gain of 23.21% and continued to rise a further 21% when the markets open this morning.

 TECH 

Samsung Warns of Double-Digit Drop

Samsung warned earnings may decline this year because what’s the point in buying a brand–new smart phone if my boss doesn’t see it and go “Hey bro. Cool smartphone. I bet you can send some mean tweets with that thing.”

The South Korean electronics company reported a 4% slide in net income in the three months ending March (or as historians in the future will refer to them, the no–no times).

Samsung reported better–than–expected operating profits earlier this month, as everyone has nothing better to do than be on the internet 24 hours a day and I JUST WANT TO SLEEP BUT PEOPLE KEEPING TWEETING THE STUPIDEST THINGS.

(My quarantine is going fine, thanks for asking. How’s yours? Send me an email and we’ll publish the best stories from you later this week.)

At the same time, the economic volatility caused by the virus–that–shall–not–be–named has folks feeling more financially vulnerable than they have since the 80s. And when people feel financially insecure, they don’t drop $1,000 on phones that go beep boop.

“Covid–19 has created unprecedented challenges for the global community. At this point, it is impossible to determine how big of an impact it will have or how long it will affect our society and economy, leading to a period of extremely heightened uncertainty,” said Executive Vice President Ben Suh on the earnings call.

“Considering heightened Covid–19 related uncertainties especially in the second half, we will not be providing any annual guidance at this time.”

Should the thing that’s happening to us all right now that I really don’t want to talk about today persist into the second half of 2020, Samsung predicts it will miss revenue forecasts by double–digit figures.

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In Other News

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ONE LAST THING

A Tale of Two Viruses

We’re getting a whole bunch of new information about this stupid virus every day.

A society has never been as primed to receive information (and dumb tweets) as ours has. But a lot of the information that’s coming out can be confusing or contradictory to information you’ve already heard.

Sometimes it may feel like you’re hearing about two completely different viruses. And if you feel that way, you’re not alone. Even experts who have worked in the field of infectious diseases their entire lives are not sure what we’re dealing with here (encouraging stuff, eh?).

As F. Perry Wilson MD MSCE, associate professor of medicine at the Yale University School of Medicine, writes on his website, the current data we have, for now, is consistent with two completely different types of virus.

“The data we have available now are consistent with two different potential realities. Sometimes it feels like there are two coronaviruses out there — metaphorically — I’m not talking about genetic strains or anything,” says Wilson, in a post title A Tale of Two Viruses.

“One, virus with a disturbingly high death rate — on the order of one to three percent — slowly marching its way through the population — a steamroller. 

“The other, a virus with incredibly rapid community spread but with minimal impact on most people — save the unlucky few who have particularly bad outcomes — a windstorm. “

If we’re looking at what Perry calls Windstorm COVID19, the virus is spreading through the country at a rapid pace. There will be destruction and death. But after it passes though the country, and the majority of us have developed immunity, we should be able to reopen states without much risk.

However, if we’re dealing with the less fun, less sexy Steamroller COVID, it will trundle slowly through the country killing an extraordinarily high amount of people, far too many to develop herd immunity. The only way to combat this will be to stay inside and work on a vaccine or forfeit tens of millions of lives, including so–called healthy folks.

How do we determine if we’re dealing with a steamroller or a windstorm?

Well, the reason that we can’t tell if it’s one or the other is a missing piece of data. And that’s the number of total people who have contracted the virus, including those who showed no sign of illness or didn’t even know they had the virus.

It may seem pointless to test folks who aren’t getting sick. But until we know the total number of people who have had the virus and no complications, the models are incomplete.

“We know that the documented, PCR–positive COVID–19 cases are just the tip of the iceberg,” says Perry.

“The question is how much iceberg is under the water. We’re JUST starting to learn that.”

MARKET MOVEMENTS

Closing Data for Today

DJIA	$24,633.86	↑ 2.21%
S&P Index 500	$2,938.59	↑ 3.06%
NASDAQ	$8,995.12	↑ 3.04%
Gold	$1,730.70	↑ 0.49%
Silver	$15.402	↑ 1.52%
Bitcoin	$8,732.00	↑ 13.30%

• Cannabis sales were up 159% annually by mid–March, per Headset.
• The federal government will audit companies taking out more than $2 million from the small business loan program.
• Lyft is laying off 17% of its workforce, Uber is discussing plans to lay off 20%.

Cheers,

Shane Ormond
Editor, One Last Thing

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