Growing up as a teenager in Baltimore MD in the late 1980’s I was all over the initial rise of rap music. Not the horrible trash out in recent years, but the good stuff from Run DMC, Sugar Hill Gang, Eric B and Rakim and others. One famous song was “6 Minutes Doug E Fresh You’re On”….the stage to rap. All the kids starting using “fresh” to denote something awesome and cool. 2020’s Doug E Fresh is none other than Fed President Jerome Powell – and he was super fresh for 60 Minutes. His comments had the market up over 3% yesterday to open the week, following last week’s fade.
According to Blaine Rollins at 361 Capital: “Jerome Powell’s appearance on ’60 Minutes’ added $2.5 trillion in value to the global equity markets on Monday. That is the same value as 4.5 million pairs of Jordan-signed 1997 NBA Finals “Flu Game” sneakers which auctioned off at $560,000 this weekend. I fully expected the markets to open lower Sunday night as the White House’s saber rattling with China intensified during the Sunday morning talk shows. And, while market participants knew Powell’s thinking, and saw some of the “60 Minutes” text and sound bites, we didn’t anticipate his delivery to be so Jordanesque.
Of course, it did help that he appeared on the highest rated show on prime-time TV, thus getting one of the biggest soapboxes available to talk directly to the American public. With Scott Pelley slinging socially distanced questions at the Chairman, he answered confidently and truthfully about the potential difficulties ahead and the large cache of tools available to the Fed to keep the U.S. economy moving in the right direction. He also further put to rest the notion of using negative interest rates. So, let’s get Jay-Pow a ‘Big Air’ license plate to go with his incoming Nobel Prize, and Time Man of the Year award. The U.S. economy and our IRAs have already nominated him for every 2020 award.
Chairman Powell did note in his ’60 Minutes’ interview that at some point in the future when the economy is better, the U.S. will need to repay these emergency debts. This will be no small feat. Many trillions will need to be deposited back into the piggy bank when this is all done. Many top market seers are turning their attention toward how to remove trillions from the economy and become more cautious. They are entirely correct to do so. It is easy to create unlimited liquidity as we have done—which is a major reason why the credit and equity markets have stabilized and recovered. So, what do you think will happen when we try and put the trillion-dollar genies back into the lamp?
Fiscal and monetary policy action to bridge the economic impact of the coronavirus has taken shape – and now the key is policy execution to ensure households and businesses get the cash being promised.
Oil prices crashed last week amid plunging demand and a surging demand for oil storage, dragging down other risk assets such as stocks.
The U.S. launched an additional $484 billion relief package, including a $321 billion top-up of its funding for small businesses. That takes the fiscal support passed by Congress to nearly $3 trillion in the past two months.
Several large public companies, like Ruth’s Chris, came under withering media attack for taking Payroll Protection Plan funds intended supposedly for only “small” business. Used to only having their steaks crispy hot in the fire, and not themselves, they returned the funds.
Markets rallied hugely Monday, with the S&500 up 7.7%, on the glimmer of hope that peak coronavirus cases could be realized in the next few weeks.
Investors were encouraged by data that shows a slowing in the number of daily U.S. coronavirus cases, although it is still early to determine a lasting trend. There were about 30,000 new cases on Thursday, 32,100 cases on Friday, 33,260 cases on Saturday, and then a slowing to just 28,200 new cases Sunday, according to the latest data from Johns Hopkins.
Last week’s job report showed 701,000 jobs were lost, and the unemployment rate jumped to 4.4%. With plenty of more losses coming in the month ahead. Markets were volatile, yet down for the week, giving up some of the recent rally’s gains.
President Trump suggested Russia and OPEC would talk leading to a production agreement – which saw oil rally hugely too – yet tangible action has not been seen yet.
Assets of all types rallied further last week, following the US Congress passing a $2 trillion stimulus program, on the heels of unheralded Federal Reserve action.
US stocks have seen a bull market bounce of over +20% in the last week and half – but still remain down -20% or more for 2020.
President Trump announced another 30 days of restricted activities for Americans – as corporate America ramped to help produce needed supplies, employees of all types learned to work from home, quarantining showed its value, and peak deaths were modeled, and hoped, to occur within 2 weeks.
The past week’s historic U.S. policy actions initially helped stabilize markets. We believe they are paving the road for an eventual – and strong – economic and market rebound, once we better understand the scale and impact of the outbreak.
"That's when we're at our best—when we support each other..." Joaquin Phoenix:
· Facing a near-shut down of the US and global economy – the Federal Reserve 1st dropped interest rates to 0%, then unleashed unlimited quantitative easing programs to provide liquidity to international and domestic markets. The Fed will now buy treasuries, mortgage bonds, corporate bonds, municipal bonds – all in unlimited amounts if needed, to backstop the financial system.
· Not to be outdone the US Congress is putting together a near $2 trillion support program for US businesses and employees - the prospect of which has the US stock market up the most in one day since 2008 – nearly 11% as we go to print.
· President Trump is also now talking about a partial return to work, de-quarantine by Easter to the support of some business leaders and condemnation of some politicians, health officials, and CNN.
· These actions follow extreme market volatility, with indices down 30% or more and even bonds down 5-10% on massive selling to the perceived safety of cash and money funds.
· It’s been a tough 3 weeks, with more volatility to occur. We will be moving toward increasing our conservative weightings in stocks to modestly higher levels in days ahead as we come back to full risk targets over time – as we believe the pandemic and quarantine will pass and markets reflect ample fear and attractive valuations.