Stumble-Through Jobs Market

By John Mauldin

Work has always been a fact of life. Paycheck-producing jobs are actually a recent development. Until the Industrial Revolution, most people lived on subsistence agriculture, sustaining themselves with whatever they could produce or working as slaves/serfs.

The practice of producing something you wouldn’t personally use had been around but reached a new stage with the Industrial Revolution. It wasn’t without controversy, either. Karl Marx had major issues with it.

But now we are at the other extreme. Most of us work for some form of paycheck, even the self-employed. Few subsist on their own efforts. The resulting division of labor created a complex yet highly efficient economy that has delivered more prosperity to more people than Marx thought possible. But we still need jobs, and they are growing scarcer.

The same division of labor that enables so much prosperity also prevents most people from living without a job.

Even retirees, politicians, and welfare recipients live off someone’s labor, if not their own. Savings, if you have any, are the result of past labor. That makes a job shortage problematic for everyone, not just the jobless.

The June US employment report showed some welcome improvement.

Businesses brought back many workers as parts of the country reopened.

That’s great but it was only a start. We need several more months like that one and it’s not at all clear they are coming.

Today we’ll look at the data, including some non-government sources. As you will see, millions of workers will stumble through this period, and they may be the lucky ones.

Data Problems

One little-noticed effect of COVID-19 is the havoc it wrought on our employment data. Government statistics have always had their quirks, and often measure the wrong things, but the bureaucracy is at least consistent. It collects the same numbers, the same way, over and over again. Not anymore.

The core problem: When is someone unemployed? Suddenly we have several new categories. Some workers were temporarily furloughed, with the employer intending (but not promising) to bring them back. Meanwhile they might or might not be collecting unemployment benefits.

Others are effectively furloughed, because they aren’t working, but still on their employer’s payroll with help from the PPP program. Are they jobless or not?

Then you have people who are still employed, but working for fewer hours and/or lower wages. And yet others who were never formally “employees” but independent contractors, like Uber drivers.

In previous recessions they wouldn’t have received any benefits but this time, thanks to the CARES Act, they do… maybe. Some states are implementing that program slowly, if at all.

Historically, the Bureau of Labor Statistics considered someone “unemployed” if they were able to work and seeking work, but not currently working. Yet now millions can work, but aren’t looking, because they expect to be called back but may not be. How do we classify them?

There’s a vast difference between the numbers filing unemployment benefit claims vs. the surveys BLS conducts for the monthly employment report.

And those benefit claims are also questionable, since state agencies were inundated with claims they couldn’t process.

My friend Jim Bianco noted this in a tweet.

Then there is the hard-to-measure but real question of how extra benefits have affected people’s willingness to work.
If you can make more money staying home than by working, staying home is perfectly rational. But will you admit that in a government survey?

All this makes assessing the situation difficult. Clearly, many businesses are closed and many workers jobless. Some will go back but some jobs will be permanently lost.
That’s true in any recession. The difference now is that this one happened very suddenly, with a depth and severity unseen in 90 years, accompanied by a swift and generous fiscal response.
Many people (though far from all) were made comfortable. They thought their jobs were safe and expected to go back.

That means we haven’t had the kind of pain signals a situation of this magnitude would normally generate. Those signals may be coming, though.
Many sources I read assume unemployment is getting better. The data says otherwise. While initial jobless claims have had a steep drop since March, they are mostly moving sideways now.
This is from my friend Danielle DiMartino Booth of Quill Intelligence:


According to QI’s Dr. Gates, the winds shifted in June leaving many investors rudderless: “The layoff picture stopped improving as did the credit market’s view on default risk. The growing chorus of the 110 company bankruptcies, and counting, is behind this coordinated move.” (40-year-old, Miami-based COEX Coffee International, which traded 3 million bags of coffee per year, announced plans to liquidate yesterday making it 111).

This is what happens when nonfinancial business debt hits a 74% ratio to GDP during a debt-fueled recovery. As we’re reminded by today’s Financial Times, the IMF closed out 2019 with a stern warning that 40% of $19 trillion in business debt, led by the United States, could be vulnerable if there was a “material slowdown.” You’d agree what we’re contending with today is “material.”

The FT’s diplomacy stings: “The financial crisis prompted a similar discussion about excessive financial engineering, but the response in the decade since has been to increase leverage, not wind it down.” Experts’ conclusion: monkeying with balance sheets has manifested in a drag on U.S. productivity.

Into this sclerotic growth, insanely levered Corporate America swam the blackest of swans. Enter stage left (graph). Much to the sell-side’s superficial splendor, Regular State initial jobless claims (green line) continue to gradually improve. Tack on initial Pandemic Unemployment Assistance (PUA) claims (purple line) and the elation ebbs.

Permanent Losses

Historical comparisons, while sometimes useful, have limits because history never repeats itself precisely. That’s even more true now.
The world has never seen anything remotely like this. But we still look at history for clues.

Here’s a chart comparing this year’s percentage job losses with prior recessions.

That bright red waterfall is where we are right now. It appears to have hit bottom and splashed a bit, but there’s a lot of white water ahead.
You can see in the 2007 line how long it took employment to recover after the last recession. At that pace, all the jobs will be back sometime in 2026. (Not a typo.) To assume the “V” seen above will continue in the same direction means thinking there will be a quick return to normalcy.

And maybe this time is different since at least some of the layoffs were temporary. The BLS data tries to distinguish between temporary and permanent job losses.
That’s a moving target because employers don’t always know. They furlough people with the intent of bringing them back, but then find conditions don’t allow it. At some point, temporary job losses can turn into permanent ones.

This chart shows how that worked in the last two recessions, and this one so far.

This time around, we have seen the same percentage of permanent job losses in 4 months that took nine months in 2007, and over a year in the 2001 recession.
There is every reason to think it will get worse before getting better. And it will get better… but probably not soon.

The nature and mix of occupations naturally change over time. A century or two ago, it happened pretty slowly. Industries would shrink and disappear over decades, while others arose at a similar pace.

That cycle has been shrinking and this time may implode. Consumer preferences are changing before our eyes, within months. As recently as February, Americans were getting on planes and eating in restaurants without a second thought.
Now many are not, and don’t intend to anytime soon. That’s a giant problem for employment in those sectors—and for everyone else who depends on spending by those workers and their families.

Job Openings

Non-government data also suggests any jobs recovery will take time. Homebase, an online provider of employee time tracking software, has a unique and valuable real-time dataset. Aggregating its data reveals how many people are working how many hours, both by business type and geographic area.

At the companies using Homebase, only 51% of the employees who were working at the beginning of January were working four months later, at the beginning of May. That’s dismal. But it improved considerably as businesses reopened, reaching 77% by the end of June.

Source: Homebase

That is obviously major improvement. But in absolute terms, it remains disastrous to have 23% of workers still jobless. We now know that COVID-19 cases began rising again in mid-June in many states.
Did that slow the rehiring progress, or would it have slowed anyway? It’s hard to say. But the Homebase data was an early and accurate tip-off back in March, revealing a significant business slowdown even before mandatory closures.
It may be doing the same this time. That’s bad news generally, and especially for the permanent job losers who need to find new work., a top job search site, is a good barometer for hiring activity.
Fewer job postings mean fewer job opportunities for those seeking them.
And that is indeed (pun intended) what has happened.

Source: Indeed

Job postings collapsed in March, bottomed in early May (consistent with the Homebase data) and have been rising slowly since them. But they remain fully 25% lower than February.

The kind of job openings tells us something, too. Indeed’s data shows which industries have the worst hiring non-activity.

Source: Indeed

As you might expect, hospitality and tourism are at the bottom of the list.
Hotels are hurting badly. The fall in banking and finance listings is a bit mysterious. I suspect it might relate to mortgages, but we know banks have been closing and consolidating branches, too.

On the other end, “smaller than average declines” (since no sector was especially good) in job listings occurred in retail, driving, loading, stocking, beauty and wellness. Those may be clues about where the economy is headed.
Retail, already changing rapidly, is now moving at lightspeed to online and hybrid distribution. “Order online and pick up at the store” is gaining popularity. Driving and warehouse work relates to this as well.

The beauty and wellness part? Obviously, most of us need haircuts. But speculating beyond that, I wonder if the virus is making people pay more attention to their health.
“Wellness” can include weight loss, nutrition, supplements, etc. So maybe we are facing our mortality a bit more seriously.
That’s probably good, if people get good advice. There’s a lot of useless and even harmful wellness info floating around.

Sticky Problems

Lurking around all this are deeper employment questions. First is the latest resurgence in COVID-19 cases. Governors in some large states, notably Florida and Texas, have paused or reversed some of their reopening plans. Even if it gets no worse (which is not a sure thing), it will at least temporarily put some of the recently recalled workers back on furlough, and prevent more from being rehired.

Related to that, we still don’t have a good idea of how many furloughed and unemployed workers want to go back, or are even able to. Some have health concerns, for either themselves or a vulnerable family member.
Others have young children who may or may not go back to school this fall.
That will likely vary by location. And some who are making more from unemployment benefits than they would by working will keep doing so as long as they can.

On that point, this chart came from Philippa Dunne as I was about to wrap up this letter.

Source: TLRanalytics

Unemployment benefits are skyrocketing as a percentage of personal income while wages and salaries are dropping hard. Those trends speak for themselves.

All those are sticky problems with no good solutions. We will get some partial answers this month because Congress must extend, modify, or allow the enhanced unemployment benefits to expire.
But we know one thing for sure: An economy with double-digit-percentage unemployment isn’t going to have a V-shaped recovery. It just can’t. Yes, some specific areas and industries might do well. But consumer spending, consumer confidence, and business capital spending will be nowhere near normal. Neither will GDP growth.

And if we manage to recover from all that, we will still face a global recession and a slowdown in trade and travel. Countries that have beaten down the coronavirus are understandably not going to admit travelers from places where it is rampant.
This makes international commerce difficult, at best. And you might say that’s ok because we need to be less dependent on other countries like China. I agree. But there are good ways and bad ways to make that transition, and cold-turkey isn’t a good one.

Last month I retired my longtime “muddle-through” paradigm and said we are in a Stumble-Through Economy. Similarly, millions of workers are set to stumble through the next few years, looking for jobs that don’t exist, trying to gain new skills, juggling the checkbook as they try to stay afloat. Ditto for many business owners and managers.

This won’t be easy for anyone. We will stumble through, but not without some deep scratches and scraped knees.

Wargaming with Uncle Doug

One of my greatest privileges is that I can get on the phone with some of the smartest people in the investment business. Yesterday I talked with Doug Kass, who can politely be described as a veteran of trading and investing. George Soros tried to hire him back in the early ‘80s. He is a wizard. He is also a very thoughtful Democrat.

I called him to basically “wargame” the next 12 to 24 months. What happens if Biden wins? What happens if Trump wins? We went back and forth on a few issues but the bottom line is the same: We are in for a very rough ride.

There is no magic recovery formula no matter who controls the government. He gave me a great quote that is appropriate for our times: “We are in a major bear market of political decency.”

Doug sent me one of his latest letters (and kindly let me share it with Over My Shoulder members). The two charts below show economic activity and consumer sentiment appear to be rolling over.

Source: RealMoney

Quoting Doug:

In aggregate terms, COVID-19 will likely have a sustained impact on the domestic economy—in reduced production and profitability—for several years, and in some industries, forever.

At the core of my concerns:

*Important Industries Gutted: Several key labor-intensive industries—education, lodging, entertainment (Broadway events, concerts, movie theatres, sporting events), restaurant, travel, retail, nonresidential real estate, etc.—face an existential threat to their core. For these industries, the damage is done as they simply cannot survive the conditions they face. For these gutted industries, we face, at best, an 80% to 85% recovery in the years to come. It should be emphasized than in the case of some of these sectors, like retail, COVID-19 sped up what was already a secular decline.

Doug went on for several pages highlighting specific industries. It was not a pretty picture. Government programs and safety nets can help, but they don’t magically produce GDP and jobs.

We both agreed that investors will be seriously disappointed in corporate earnings over the next two years. However, given the Fed’s money printing, the market can keep rising even as the economy rolls over. But at some point lower earnings will have a market impact. Don’t ask me when, because I don’t know.

You Need to Have a Plan B, C, D, and…

Lately I am spending more time on the phone with those who I believe have greater insight than I ever have. There is one common theme: We are in a period of great uncertainty.

But I’m also talking with people who see greater opportunities. I have been liquidating some of my assets, in some size, to invest in a company I think will be gangbusters in the future.
It will probably surprise you that it’s not even a biotech or anti-aging company. It is in a fairly mundane industry but I think it will turn that industry upside down with new technology. I think it is a true global powerhouse in the making. It is still private so I can’t talk about it by name, but there are many such opportunities developing.

Understand, the world is not coming to an end. We are just repricing everything and trying to figure out how we move forward.

But I am also making plans for what to do if my income drops more than I expect, if some of my investments don’t pan out the way I previously hoped they would. What new income opportunities are out there? Where can I cut back? Where do I need to focus?

In other words, I am not merely coming up with a plan B. Given the uncertainty in the world, I am having to do my own personal wargame of plan C, D, and so on. I want to take advantage of the opportunities, just like you should, but we also all need to recognize that our worlds are going to change and be prepared to change with them.

A World I Don’t Recognize

Let me end with a personal note. I tend to end my day reading on Twitter and occasionally posting. You should follow me at @johnfmauldin. I follow a very eclectic group of people, purposely including many I don’t agree with so I have a feel for the zeitgeist.

So one night, this came across my iPad.

A member of a NYC Community Educational Council to a colleague: “It hurts people when they see a white man bouncing a brown baby on their lap.”

"I would like to know how having my friend's nephew on my lap was racist."

Along with this was a picture of a young lady who was evidently holding her nephew, wondering why she would be considered racist. Okay, it was late at night. Maybe I should’ve thought about it, but I responded:

OMG, what do I do? I have two black sons, two Korean twin daughters, a blonde (now bald) [all adopted], a brunette and a redhead plus a Choctaw son via Shane. I must be all kinds of racist. Silly me, I just thought I was being a father.

That got a lot of positive response but a few just made me wonder what are we teaching our children? I actually had people write me and tell me that I needed to apologize to my children for my white privilege.
One had advice on how I should ask their forgiveness. I haven’t told my kids about this because the response probably wouldn’t be printable. At least not in a family letter.

Quite frankly, this was one of the most depressing things I’ve dealt with in a long time. I was encouraged to see the original incident condemned from all corners. Hopefully such attitudes are rare.

This matters economically. We are all better off if every human can maximize their talents, without regard to race. And slowly, we are getting there. I truly believe the future will be amazing.

Your thinking maybe I should work on plan E analyst,

John Mauldin
Co-Founder, Mauldin Economics

Gold & Silver Measured Moves

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

The next few weeks are certain to attract much attention to precious metals.  Hardly anyone can argue that Gold has not experienced an incredible upside price rally over the last 12+ months.  

Recently, Gold closed above $1800 for the first time since 2011.  

Our researchers believe the next target is $1935.  Keep reading to learn why we believe this is the next major price target for Gold.

Gold Weekly Price Analysis

Over the past 18+ months, Gold continues to develop price patterns that seem to be replicating going forward.  This pattern consists of an advance in price followed by consolidation/rotation in price to set up a new momentum base.  

The example of this price advance from May 2019 to August 2019 consisted of a $267 upside price advance (just over 20%).  Subsequent advances were similar in size. November 2019 to March 2020 advance rose $248.  March 2020 to April 2020 advance rose $325. 

Our research team believes the current momentum base, near $1725, will prompt a rally in Gold that will target $1935 in a similar type of price advance.  After that level is reached, a new momentum bottom will likely setup near $1900 which will be followed by another upside price advance.  

This time targeting $2150 to $2190.  We believe once Gold clears the $2100 level, global investors will identify the rally more efficiently and the upside parabolic price move may extend very rapidly.

Silver Weekly Price Analysis

With Silver, the measured moves are averaging about $5.25 to $5.40 with each advance.  If this continues from the current momentum base level near $17.50, then the next upside price target level should be near $23.00 in Silver.  

Beyond that, the subsequent target level should be near $28.00.

This would represent a massive upside price advance in Silver of nearly 59%.  Ultimately, the upside move in metals illustrates a strong level of fear in the markets related to global market stability and solvency.  

Silver has recently begun a move above the $19.00 price level and once it clears the $21 level, the next upside price advance should be fairly quick.

We believe the early Q2 2020 earnings data may shock the markets and cause the metals markets to rally.  Initially, though, the metals may move a bit lower as the markets contract from the shock.  This should be short-lived as metals have already rallied to a point where investors know the fear of the shock should act to propel metals above recent momentum base levels.

Watch how Silver moves compared to Gold.  Silver has already started to move more aggressively higher than Gold.  

Once the real parabolic move begins, Silver will begin to skyrocket much higher than Gold on a percentage basis.  

We should know how the metals will react to the economic data fairly quickly.  

If you have not already hedged your portfolio into precious metals or miners, we suggest establishing a 15% to 25% protective hedge at this time.

The covid bonus

America’s huge stimulus is having surprising effects on the poor

Though severe deprivation is rising, not everyone is worse off

No one welcomes a recession, but downturns are especially difficult when you are poor. Rising unemployment means rising poverty: the recession of 2007-09 prompted the share of Americans classified as poor, on a widely used measure, to jump from 12% to 17%.

That economic shock, as bad as it was, pales in comparison with what America is seeing today during the coronavirus pandemic. The jobs report for June, published on July 2nd, showed that unemployment remained well above the peak of a decade ago.

Severe deprivation is certainly on the rise. According to a new survey from the Census Bureau, since the pandemic began the share of Americans who “sometimes” or “often” do not have enough to eat has grown by two percentage points, representing some 2m households.

An astonishing 20% of African-American households with children are now in this position.

Meanwhile, the proportion of Americans saying that they are able to pay the rent is falling.

Many more people are typing “bankrupt” into Google.

Yet these trends, bad as they are, do not appear to be part of a generalised rise in poverty. The official data will not be available for some time. A new paper from economists at the University of Chicago and the University of Notre Dame, however, suggests that poverty, as measured on an annual basis, may actually have fallen a bit in April and May, continuing a trend seen in the months before the pandemic hit (see chart 1).

Why? The main reason is that fiscal policy is helping to push poverty down.

The stimulus plan passed by Congress is twice the size of the one passed to fight the recession of a decade ago. Much of it, including cheques worth up to $1,200 for a single person and a $600-a-week increase in unemployment insurance (UI) for those out of work, is focused on helping households through the lockdowns.

At the same time, unemployment now looks unlikely to rise to 25% or higher, as some economists had predicted in the early days of the pandemic, thereby exerting less upward pressure on poverty than had been feared.

The upshot is that the current downturn looks different from previous ones. Household income usually falls during a recession—as it did the last time, pushing up poverty.

But a paper in mid-June from Goldman Sachs, a bank, suggests that this year nominal household disposable income will actually increase by about 4%, pretty much in line with its growth rate before the pandemic (see chart 2).

The extra $600 in UI ensures, in theory, that three-quarters of job losers will earn more on benefits than they did in work.

By international standards, America’s unexpected success at reducing poverty nonetheless remains modest. Practically every other rich country has a lower poverty rate. It is also a fragile accomplishment.

The extra $600-a-week payments are supposed to expire at the end of July. The authors of a recent paper from Columbia University show that poverty could rise sharply in the second half of the year, which seems likely if unemployment has not decisively fallen by then.

Goldman’s paper assumes that Congress will extend the extra unemployment insurance, but that the value of the payment will drop to $300. Even then, household disposable income would probably fall next year.

Whether extra stimulus would help those at the very bottom of America’s socio-economic ladder—including people not able to buy sufficient food—is another question. Six per cent of adults do not have a current (checking), savings or money-market account, making it difficult for them to receive money from Uncle Sam.

Some may have been caught up in the delays which have plagued the ui system, and a small number may be undocumented immigrants not entitled to fiscal help at all. Others report not being able to gain access to shops closed under lockdowns.

The best way to remedy this would be to get the virus under control and the economy firing on all cylinders once again.

But that still looks some way off.


What if the dotcom boom and bust hadn’t happened?

Value investing might not have the same moral authority as today

There is a lovely quotation at the start of “Security Analysis”, a canonical text by Benjamin Graham and David Dodd published in 1934. “Many shall be restored that now are fallen and many shall fall that are now in honour.” It is by Horace, a Roman poet who knew all about reversals of fortune, having lived through Rome’s bloody transition from republic to empire.

Two millennia later, amid the ruins of the dotcom mania, Warren Buffett was moved to recall Horace’s words. “My appreciation for what they say about business and investments continues to grow,” he wrote.

It is now 20 years since the Nasdaq, a tech-heavy index of shares, reached a peak after a frenzied rise during the late 1990s. The apex, on March 10th 2000, marked the end of the internet bubble. The bust that followed was a triumphant vindication of the sober valuation methods pioneered by Graham and Dodd and popularised by Mr Buffett.

True value is a low price relative to some financial measure of intrinsic worth—recent profits, say, or the book value of assets. Dotcom-era analysts, if they bothered at all, used flakier metrics: “eyeballs”, “engagement” or simply “the opportunity”.

Perhaps you can have too much sobriety. For the past decade buying “value” stocks has been an unrewarding strategy. America’s stockmarket is dominated by a handful of technology companies, whose stocks trade on steep multiples of earnings and book value. The current recession has not changed matters.

The fallen have not been restored. If anything, those in honour have more of it. Value investors, meanwhile, are unmoved. This begs a heretical thought. If the dotcom boom and bust had not happened, would value investing have quite the same moral authority today?

In posing such a question, you run into an immediate problem. Value investing is an austere creed. It is as much about moral fibre as business analysis. Value investors hope to be rewarded for enduring the pain of waiting for their strategy to come good. Most investors don’t like to be wrong for so long, to hold the unfashionable stocks and to spurn the faddish ones.

But value investing is a faith that is sustained by the scepticism of non-believers. Indeed their scorn is in large part the point of it. For its adherents, vindication will surely come. It has before, even when all seemed lost. That makes rebutting its tenets hard.

The legacy of the dotcom bust makes it all the more difficult. So as a thought experiment let’s imagine, for a moment, that the late 1990s bubble never happened. Value investing would have lacked its most spectacular vindication. Its hold on the investment world would be less secure.

The use of forward-looking scenarios to judge the long-term prospects, and thus the worth, of a fast-growing company could not be so easily decried as foolish.

The business of stock-picking would be much more about engaging with, and understanding, the peculiarities of companies rather than an arms-length selection based on financial characteristics. And without the frauds and scandals of the late 1990s, the public markets might have remained a welcoming place for small, early-stage firms. More start-ups might in turn have tailored themselves for an ipo rather than for a sale to an incumbent technology giant.

The value creed says rapid growth must eventually peter out. Instead the big business successes of the past decade—Google, Amazon and Facebook in America; Alibaba and Tencent in China—have grown to a size that was not widely predicted. Companies of this kind are characterised by network effects.

The more people use them, the more useful they are to other customers. They enjoy increasing returns to scale. The bigger they get, the cheaper it is to serve another customer. Dotcom-era gurus banged on about the power of network effects and scale economies. There is more to building an enduring company, though.

A business also needs something unique, a distinctive culture or a superior technology, that cannot be replicated by others. Picking winners is not easy; nor is paying a price for them commensurate with their chances of success. But screening for stocks with a low price-to-fundamentals is more likely to select businesses whose best times are behind them than it is to identify future success.

In the late 1990s ideas about fundamental value went by the wayside. A bubble blew up. It then burst dramatically. The bust was a painful lesson for investors. But perhaps some lessons were learnt a little too well.

“When fools shun one set of faults”, wrote Horace, “they run into the opposite one.”

The Triple Crisis Shaking the World

More than just a public-health disaster, the COVID-19 pandemic is a history-defining event with far-reaching implications for the global distribution of wealth and power. With economies in free-fall and geopolitical tensions rising, there can be no return to normal: the past is passed, and only the future counts now.

Joschka Fischer

fischer170_sorbettoGetty Images_coronavirusshockeconomy

BERLIN – The COVID-19 pandemic is entering its second phase as countries gradually reopen their economies and loosen or even revoke strict social-distancing measures. Yet, barring the arrival of an effective, universally available therapy or vaccine, the transition back to “normal” will be more aspirational than real.

Worse, it risks triggering a second wave of infections at the local and regional level, and possibly on a much larger scale.

True, political decision-makers, health-care providers, scientists, and the general public have learned a great deal from the experience of the first wave. Though a second wave of infections seems highly probable, it will play out differently than the first wave.

Rather than a full-scale lockdown that brings economic and social life to a standstill, the response will rely mainly on strict but targeted rules for social distancing, face masks, telecommuting, video conferencing, and so forth. But, depending on the next wave’s intensity, local or regional lockdowns may still be deemed necessary in the most extreme cases.

Much like the first wave of the pandemic, the next phase will involve a trio of simultaneous crises. To the risk of new infections getting out of control and spreading globally once again must be added the ongoing economic and social fallout and an escalating geopolitical bust-up.

The global economy is already in a deep recession that will not be quickly or easily overcome.

And this, along with the pandemic, will factor into the intensifying Sino-American rivalry, particularly in the months leading up to the United States’ presidential election in November.

As if this combination of health, socioeconomic, and geopolitical upheavals were not destabilizing enough, one also cannot ignore the Trump factor. If US President Donald Trump were to win a second four-year term, the current global chaos would escalate dramatically, whereas a victory for his Democratic opponent, Joe Biden, would at least bring greater stability.

The stakes in the US presidential election could scarcely be higher. Given the world’s mounting crises, it is no exaggeration to say that humanity is approaching an historic crossroads. The full extent of the economic recession probably will not become apparent until this fall and winter, when it will most likely come as another shock, because the world is no longer accustomed to such dramatic contractions. Both psychologically and in real terms, we are accustomed to continuous growth.

Will richer countries in the West and Asia be able to deal with a deep, widespread, prolonged recession or even depression? Even if trillions of dollars in stimulus spending proves sufficient to offset a full collapse, the question will be what comes next.

In the worst scenario (which is not impossible), Trump is re-elected, the second wave of the pandemic is global, economies continue to crash, and the new cold war in East Asia turns hot. But even if one does not assume the worst, the triple crisis will usher in a new era, requiring that national political and economic systems and multilateral institutions be rebuilt. Even in the best-case scenario, there can be no return to the status quo ante. The past has passed; only the future counts now.

We should harbor no illusions about what might and should come next. The crises triggered by the pandemic are so deep and far-reaching that they inevitably will lead to a radical redistribution of power and wealth at the global level. The societies that have prepared for this outcome by mustering the necessary energy, know-how, and investments will be among the winners; those that fail to see what is coming will find themselves among the losers.

After all, long before the pandemic, the world was already undergoing a transition to the digital age, with far-reaching implications for the value of traditional technologies, legacy industries, and the distribution of global power and wealth. Moreover, an even greater global crisis is already fully visible on the horizon. The consequences of runaway climate change will be far graver than anything we have ever seen, and there will be no chance of a vaccine to solve that problem.

The COVID-19 pandemic thus marks a real turning point. For centuries, we have relied on a system of political economy comprising sovereign egoistical nation-states, industries (both under capitalism and socialism) that run on fossil fuels, and the consumption of finite natural resources. This system is quickly reaching its limits, making fundamental change unavoidable.

The task now is to learn as much as we can from the first wave of the triple crisis. For Europe, which seemed to have fallen far behind economically and geopolitically, this moment represents an unexpected opportunity to address its obvious shortcomings. Europe has the political values (democracy, rule of law, and social equality), technical know-how, and investment power to act decisively in the interest of its own principles and goals, as well as those of humanity more generally. The only question is what Europeans are waiting for.

Joschka Fischer was German Foreign Minister and Vice Chancellor from 1998-2005, a term marked by Germany's strong support for NATO's intervention in Kosovo in 1999, followed by its opposition to the war in Iraq. Fischer entered electoral politics after participating in the anti-establishment protests of the 1960s and 1970s, and played a key role in founding Germany's Green Party, which he led for almost two decades.