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Let’s skip the clever introductions and get right into it: yes, the coronavirus COVID-19 pandemic could easily result in a global depression and an even bigger crash of the financial markets.

And yes, this means that all summer internships and full-time jobs this year, and maybe even next year, are potentially at risk.

As I publish this on March 18, 2020, it has become clear that the global virus outbreak is far worse than anyone expected back in January or February

Well, except for me – I predicted 50-100 million deaths and massive disruptions back in mid-February.

There’s a lot to cover here, but the main topics are as follows:

Why most media commentary quoting “mortality rates” and estimating “worst-case scenarios” has it wrong.

Short-term and long-term economic and market impacts.

Why banks could cancel or postpone summer internships or rescind full-time offers – and why banks are already canceling some job offers.

What you can do about it if your internship or job offer is rescinded.

Why No One Trusts the Mainstream Media, Part 523

Most news reports and commentators have been making a simple math/logic mistake when it comes to “virus predictions”: they ignore second- and third-order effects.

For example, they’ll say that the mortality rate is ~1%, assume that 50% of the population will get infected, and then say Population Size * 50% * 1% people will die.

While this would be a human tragedy, it’s not the real problem.

The real problem is that pandemics often cause complete chaos everywhere else in health, political, and economic systems:

If 20 million people end up in overcrowded hospitals, what happens to people who need surgery or treatment for other reasons? Or, what if 50% of doctors and nurses get infected and can’t even work? The mortality rate will be far above 1%.

Or, what if 50% of doctors and nurses get infected and can’t even work? The mortality rate will be far above 1%. What about the millions of people who will lose their jobs as restaurants, retailers, airlines, and other businesses are forced to close as part of the response to the virus? What if they suddenly need medical treatment?

What if they suddenly need medical treatment? All three individuals who might win the U.S. Presidential election in November are over the age of 70 , one has already had a heart attack, one is crazy/delusional, and one may be senile. What happens if they all get the virus? What if some or all of them die?

, one has already had a heart attack, one is crazy/delusional, and one may be senile. What happens if they all get the virus? What if some or all of them die? If there’s a massive bailout and even more QE, how will that affect the value of the USD? How does that change if other countries also print massive amounts of money and bail out companies?

I could keep going, but I think you get the idea.

To be fair, there could also be positive developments that change some or all of these points:

If “social distancing,” quarantines, and country-wide lockdowns work, then maybe the virus will burn out more quickly than expected.

While a vaccine is far away, there are signs that drugs used for other purposes, such as remdesivir for ebola or chloroquine + zinc for malaria, may be effective treatments.

With better testing, there might not be as much of a need for quarantines, which could reduce the economic damage.

My basic point is that the range of possible outcomes is much wider than most people are currently expecting.

The worst health crisis in human history, the Black Death, killed ~60% of Europe’s population and upended economic and political structures for centuries.

I always assume the worst-case outcome in life, but even I don’t think that a 60% worldwide mortality rate (~4.7 billion people dead) is realistic.

Even with massive doctor/nurse/bed/supply shortages and complete economic collapse, we might be looking at 5-10% of the global population dying (~400 – ~800 million people).

In the best-case scenario, we might see a tiny fraction of that number die (< 10 million), and there might be a recovery by the end of the year.

Short-Term Economic and Market Impacts

Unlike the 2008 financial crisis, this one is a complete supply/demand shock that directly affects all individuals and businesses.

That means that a technical recession – two consecutive quarters of GDP contraction – is a near certainty.

But if this drags on for years, it could get much worse than that: what if global GDP falls by 15% or 30% (think: Great Depression)?

The other factor here is that monetary policy cannot do anything, as the Fed just found out when it slashed interest rates and… the markets fell even more.

A highly contagious virus does not care whether interest rates are positive, zero, or negative.

The government could take some measures to reduce the impact, such as:

Waive or defer interest payments and taxes.

Send free money to everyone (apparently a Republican idea now?!).

Bail out companies like airlines that stupidly spent billions on share repurchases instead of saving up for a rainy day.

Spain and Italy have suspended mortgage payments and other bills, but this one might not be possible in the U.S. because so many mortgages are collateralized into commercial mortgage-backed securities (CMBS).

In terms of the financial market impact, yes, the S&P 500 has already fallen ~30% from its peak earlier in the year, but I don’t think it will stop there.

Even after this ~30% decline, ratios like the Shiller P/E and Market Cap / GDP are still well above their historical medians.

If you combine an additional multiple decline with a 10-20% drop in earnings due to the recession, I would not be surprised to see the S&P 500 in the 1,000 – 1,500 range later this year.

On the other hand, other equity markets worldwide were more reasonably valued than the U.S. market before this crisis struck.

So, rather than a 70% decline from the peak, the declines might be more like 30-50% elsewhere.

I’ll end this section with the good news: there has been a much sharper decline than in past bear markets, which means that a faster rebound may be more likely.

The 2008 financial crisis took years to develop, with housing problems appearing in 2006, credit markets freezing up in mid-2007, and banks finally failing in 2008.

And then it took years for hiring to recover since everyone was paranoid about a double-dip recession.

In our current situation, a sharper downward shock and faster recovery seem more likely.

Long-Term Economic and Market Impacts

Even if this ends up being a short recession that doesn’t turn into a depression, there will be a profound long-term economic impact:

The Death of Globalization: Companies will realize the risk of outsourcing everything to China, relying on China for medical supplies, and so on. More production will return from overseas, and the U.S. and China might eventually “decouple” completely.

Companies will realize the risk of outsourcing everything to China, relying on China for medical supplies, and so on. More production will return from overseas, and the U.S. and China might eventually “decouple” completely. Lower Operating Margins and Higher Cash Balances Worldwide: As a result of the above, labor and supply costs will increase, pushing down margins (and likely reducing returns in the financial markets). When companies get bailed out, they should be restricted from spending their cash on share repurchases, executive bonuses should never be tied to stock performance, and industry-wide minimum cash balances should be required.

Admittedly, this point is more of my “personal wish list” – some of these restrictions may come to fruition, but most will not.

Medicare for All: I expect that universal healthcare in the U.S. will gain increased support after this crisis, even though outcomes depend more on the country’s response than on its healthcare system (look at South Korea vs. Italy).

I expect that universal healthcare in the U.S. will gain increased support after this crisis, even though outcomes depend more on the country’s response than on its healthcare system (look at South Korea vs. Italy). Remote Work Everywhere: Many companies will realize that in-person meetings are expensive and pointless and move many employees to remote work. This one benefits online education companies like us, as well as videoconferencing companies like Zoom.

In short, the coronavirus will be a catalyst that accelerates all the underlying problems in the economy and forces change.

But the most significant long-term impact may be that markets will lose faith in central banks to “solve” everything.

As we’ve seen so far, their crisis response has done nothing to calm markets.

Even if they make rates more negative or purchase even more assets, nothing will fix the underlying problems.

I don’t think central banks will “die,” exactly, but people will increasingly find ways around the current system, whether that’s via precious metals, crypto, or something new.

So… What Will Banks and Other Finance Firms Do?

So far, the large banks have sent out emails stating that 2020 summer internships are “proceeding as planned.”

I would take these claims with a grain of salt.

It’s not that they’re trying to mislead you; it’s that they simply don’t know.

The last time this happened, I lived through the story directly as I watched co-workers get laid off and internships get canceled:

Banks slowed down or froze hiring in mid-2007, but they still said everything was OK.

In early 2008, right as Bear Stearns collapsed, banks made cuts, reduced internships, and told Analysts not to expect promotions. Everything was not OK.

After Lehman failed in September 2008, banks made more serious cuts and sharply reduced hiring at all levels. Yeah, everything was really, really, really not OK.

If the situation worsens significantly over the next 1-2 months, internships will not “proceed as planned.”

Banks can offer full-time employees work-from-home options, but they’re unlikely to do this with interns because… interns don’t know anything.

“Remote work” only works if you already know the job, you have the required contacts, and you can navigate the normal office environment.

I’ve seen some suggestions online that internships will be conducted remotely, but I think that’s wishful thinking.

Instead, if the outbreak does not improve at all, banks are likely to cancel or postpone summer internships.

Since universities have been canceling classes or moving them online, the academic schedule could be delayed at all levels – making it easier to delay internships.

As far as summer 2021 internships: recruiting will proceed for now, under the assumption the virus will be under control by then.

But banks will rely even more on HireVue and real-time video interviews rather than the traditional Superday.

In terms of full-time job offers, it’s safe to assume that lateral hiring is shut down for several months.

Also, I know for a fact that some banks have been retracting lateral offers they’ve made recently (assuming the person hadn’t started working yet).

I think it’s less likely that banks will rescind offers for full-time jobs starting in the summer this year because they’re not expecting the crisis to last that long.

In the end, everything comes down to deal activity.

If deals eventually pick up, banks will need more staff to execute them.

But if deal activity stays muted for months, with no turnaround in sight, banks will maintain the hiring freeze and start reducing their current full-time staff.

The good news for you is that mid-level bankers (more senior Associates and VPs) tend to suffer the most in downturns because they’re more expensive than Analysts, but they also don’t generate revenue (unlike MDs).

In theory, banks could run any deal with just an MD and an Analyst.

So, if cuts begin, banks will start with under-performing Associates, VPs, and MDs before moving onto Analysts.

At the bare minimum, though, you should expect a hiring freeze across the entire global economy for the next few months.

And What Can You Do in Response?

This one’s tricky because when there’s a complete demand/supply shutdown, there is not much you can do.

Back in 2008, my advice usually went like this:

Look for another internship or job in a sector that isn’t hurting so badly, such as corporate finance at a normal company or audit at an accounting firm. Then, lateral your way into IB as the economy improves, deals pick up, and banks need to hire more people. And if that fails, think about Master’s or MBA programs to give yourself another shot at recruiting.

But this time around, these steps don’t work as well:

“Jobs in other sectors” won’t exist if absolutely no companies in the world are hiring. Lateral hiring at banks won’t exist if there’s no deal activity. Master’s, MBA, and other university programs may be postponed indefinitely.

So, you cannot do much at the moment other than “wait and see.”

Going back to school is potentially viable, but if you need to take on massive debt to do so, it’s probably a bad idea.

You could still network remotely, get back in touch with old acquaintances and contacts, and study and prepare for interviews.

But if everything is frozen for a few months, you’re not going to see direct results for a while.

So, the best response here depends on your top concern:

Are you most worried about your career being delayed or pushed off the tracks? Or are you more worried about money, i.e., surviving without a job for a while?

If it’s #1, then all you can do is monitor hiring trends in different industries.

If normal business activity picks up before deal activity, then you may want to consider some of the options mentioned above: corporate finance, Big 4 firms, audit/accounting roles, or anything else that’s less tied to the financial markets.

Then, follow the tried-and-true path of lateral hiring.

If your top concern is money, then you should look for part-time/contractor/freelance roles online immediately.

We published an article about freelance financial modeling work last year, and I strongly recommend reading it to get ideas for how to approach this.

It doesn’t have to be financial modeling: it could be any work that you can do remotely, from graphics to music to bookkeeping to tutoring kids to teaching languages to book editing.

Even if outdoor human activity disappears, people will still be doing something with their time, which often means “on the computer all day” – which means more demand for online services.

The Bottom Line: My Coronavirus Predictions

To sum up everything, my predictions are as follows:

Near-Term Economic/Market Impact: Negative global GDP growth for the year, a 5-10% contraction in the U.S., and a 50-70% decline from peak S&P 500 levels, with 30-50% declines in non-U.S. markets. But there may be a quick rebound depending on how the crisis plays out.

Negative global GDP growth for the year, a 5-10% contraction in the U.S., and a 50-70% decline from peak S&P 500 levels, with 30-50% declines in non-U.S. markets. But there may be a quick rebound depending on how the crisis plays out. Long-Term Economic/Market Impact: Globalization retreats even further, margins fall, remote work rises, healthcare in the U.S. is potentially overhauled, and markets stop trusting central banks. Ideally, companies would also be restricted from repurchasing shares, awarding executives based on stock performance, etc., but that is probably wishful thinking.

Globalization retreats even further, margins fall, remote work rises, healthcare in the U.S. is potentially overhauled, and markets stop trusting central banks. Ideally, companies would also be restricted from repurchasing shares, awarding executives based on stock performance, etc., but that is probably wishful thinking. What Banks Will Do: There is a decent chance that summer 2020 internships will be canceled or postponed, but I don’t think they’ll rescind full-time offers quite yet. Summer 2021 recruiting will probably be conducted remotely for now. Hiring is effectively frozen everywhere now; the real question is whether or not banks will start

There is a decent chance that summer 2020 internships will be canceled or postponed, but I don’t think they’ll rescind full-time offers quite yet. Summer 2021 recruiting will probably be conducted remotely for now. Hiring is effectively frozen everywhere now; the real question is whether or not banks will start What You Can Do: Keep studying/preparing, re-kindle old contacts, and if normal business activity resumes before deal activity, lean heavily on lateral hiring and get into IB/PE via alternative paths such as corporate finance and Big 4 firms.

One final bit of good news before closing: if you’re graduating soon, I don’t necessarily think your career will be as hindered as those of students who graduated in 2008-2009.

Since everything is shut down, you won’t need to “explain” quite as much why you couldn’t complete an internship or full-time job.

Back then, the crisis impact across industries varied, and those who were let go or who had rescinded offers couldn’t necessarily explain their way out of it.

OK, that’s it.

Thoughts? Comments? Questions? Have I gone insane?

Comment away below…