It’s a great day to do talk on what’s happening in the markets and the economy as the stock markets globally have rallied despite Europe doing all they can to wreck it by putting on short sale bans in Italy, Spain, Belgium and France. Today, the markets were inundated with actions by the US federal government to address the spread of the virus.
Quick check to see where the number of infections is today: 5,704 up about 1k from yesterday and 4k from Saturday. I’ve been saying my over/under for Friday is 20k. Over 20k is the equivalent of the saying on Groundhog Day, the varmint saw his shadow and we’ll have 6 more weeks of growth. Under 20k, the Groundhog didn’t see his shadow and we’ll have an early reprieve of the virus.
That said, what happened over the last few days is nothing short of spectacular. S&P was up 9%+ on Friday, down 12%+ on Monday and up 6% on Tuesday. My top three catalysts for the rebound today are:
- Federal Reserve cutting interest rates to zero, starting QE again and starting 2008 financial crisis programs again like backstopping the commercial paper markets which weren’t functioning well and are around $1.1trillion.
- Three different spending bills out of Congress. One was signed, one was passed by the House but not the Senate and one is being proposed for somewhere between $750B to $1T. One proposal from Treasury Secretary Mnuchin is for a $1000 check to go out to every American and that’s about $250B.
- Globally, central banks and governments are acting to provide liquidity and stimulus to their financial systems and economy.
Now, there is a lot of bad news on the global economy that’s coming and there are additional concerns about shutting borders and curbing trading hours. The EU and other countries have announced the shutting down of their borders to foreigners. The US has announced bans on incoming international travelers. This comes after the CDC put out guidelines on limiting meetings of people 50 or larger that was eventually reduced down to 10. Sadly, a lot of college kid Spring Breakers ignored this as did those participating in St. Patrick Day’s celebrations in places like Chicago.
This led IL Governor Pritzker to announce the closing of all bars and restaurants until March 27th and San Francisco telling their citizens to shelter in place. NYC is considering a similar ‘shelter-in-place’ order coming from NYC Mayor de Blasio. The UAW President has asked Ford, GM and FCA for a two-week shutdown.
Remember, NIAID Director Dr. Fauci has stated he wants to risk overreacting rather than underreacting to this virus. He said that they are trying to prepare for what is coming instead of what is happening now. All of these are tough measures, but all may be required to flatten the infection curve to a lower level and eliminate a spike with infections like Italy.
What does this mean for the economy?
When I was working in the theatre as the stage manager for a show and I was in the booth calling the cues, we had a major problem occur. Our computer light board went out during a blackout. I asked our light crew what they would suggest before the next scene started. And they said the only thing they could do would be to turn-off the keyboard to reboot it. I asked if we would lose all of our 100 cues for lights and sound if we did that and they said, “Maybe, we’ve never done it before?”
This is where we are at with the US economy. We are essentially turning it off to see if we can reboot it and not lose all our cues for the economy. The forecasts from the major financial institutions for Q2 GDP run from -3% to a high of -10%. Millions are likely to lose their jobs in the hotel, airline, bar, restaurant and energy fields. Dire stories of the airline industry going under are circulating. These are dark times to be sure.
But in the darkness, there is always hope and there are always opportunities. I’ll be talking more about this over the coming days and weeks.
BTW, we turned the computer light board off and then on and…it worked!
I’m Andy Busch, economist, market expert and keynote speaker.
You can get all these videos on my YouTube page and they’ll be posted on my website. Check out the description area for great resources on the virus.