How can we treat our ailing financial markets?
Like a medical patient with a serious disease, the market needs swift and clear action to stabilize and rebound. And, like a patient with a complex problem, our markets require a team to come up with the best strategies and implement them. Who’s on our team, and how are they doing so far?
Fed Chair Jerome Powell gets an ‘A’ for the unprecedented speed and scope of action and for providing reassurance that assistance will keep on coming. The 2008 Financial crisis was a good playbook for emergency responses. The swift and aggressive actions that the U.S. took then led to better growth in our economy relative to Europe. Powell clearly states the Fed’s job is to make sure businesses of all sizes have a bridge of support so the economy can recover faster.
No fewer than 7 separate programs have been enacted so far, including:
- Providing a backstop to money market funds so people can withdraw needed cash
- Providing ample liquidity to support short term funding markets (commercial paper and repo)
- Buying programs to purchase unlimited amounts of treasury, mortgage, and other bond types
- Corporate credit facilities to provide businesses with access to loans and to stabilize markets
The relentless fall of the S&P 500 kept the pressure on politicians for timely action. We’d give Congress a B for taking a little too long, but the size of the program partly compensated for the extra time: $2 trillion versus the $750 million originally floated, and more if needed. Big numbers at the outset are important if 2008 is any guide. Congressional tactics are aimed at directly helping workers and businesses, as well as shoring up government safety nets such as unemployment insurance and food stamps. Like the Fed, Congress wants to bridge the gap, providing a lifeline to companies so they can withstand the financial pain until lockdowns are lifted and consumer activity returns to normal. Below are the highlights of this lengthy Congressional plan:
- Direct checks to tens of millions of families to help them deal with the economic shock - $1200 per adult, and $500 per child, subject to income testing
- Funding for hospitals and expanded health care services
- Substantial increases in unemployment benefits
- Emergency aid for small businesses in the form of loans which can be converted to grants (when used to pay salaries, rent, etc. while the business can’t operate)
- Aid to large businesses getting hit hard by the coronavirus (think airlines, Boeing, hotel chains), with congressional oversight and restrictions on executive pay and stock buybacks
- Changes to retirement plan borrowing and withdrawal rules to provide other ways for people to access needed cash (for more detail and analysis click here)
The report card is mixed. Trump gets an A for stopping flights from China early, then gets a D for implying we had it under control and not galvanizing the production of virus tests, ventilators and other medical preparedness quickly enough. More recently Trump got on board with medical science recommendations for virus containment and activated war provisions compelling private companies to produce what we need. Trump is now publicly wrestling with the complex issue of people dying versus the economy collapsing during an extended lockdown - when can we say it’s been long enough? Should we be protecting elderly and high risk Americans, but allowing others to get back to work? Americans are not known for their patience, and neither is Trump. We expect to see more on this topic in the coming weeks.
Governors are on the front lines of viral containment and economic shutdowns through mandated lockdowns and enforcement, and their grades vary. California got out in front both on a local and a state government level, and infection growth rates appear more muted than states like New York and Louisiana that took longer to act and are now struggling with quickly rising infection levels. This divergence highlights one downside of decentralized government. States that are on lockdown are threatened by freedom of travel from states that aren’t.
While the Fed and Congress are working hard to provide ventilators for the markets and the economy, we don’t expect a smooth return to normalcy. Some doomsday sayers predict another Great Depression, but our leaders have read the history books. In direct contrast to the disastrous policies of the depression, the Fed is dramatically easing and Congress is bringing out the big bazooka on spending. Perhaps even Trump is worried about comparisons to Herbert Hoover as he now considers tariff relief. The trajectory of the virus is unknown, and the same can be said about the financial markets. But, this crisis will come to an end, and we can rely on Americans to pull together, recover, and prosper as they have many times before.
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Nothing contained herein is intended to be a formal research report, or as a source of any specific investment recommendations and makes no implied or express recommendations concerning the manner in which any accounts should be handled. Any opinions expressed in this material are only current opinions and while the information contained is believed to be reliable there is no representation that it is accurate or complete and it should not be relied upon as such. Investing involves risk, including loss of principal, and no assurance can be given that a specific investment objective will be achieved.
2x Wealth Group is a team at Ingalls & Snyder, LLC.,1325 Avenue of the Americas, New York, NY 10019-6066. (212) 269-7757
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