Perhaps just to share notes. Perhaps for catharsis. Or perhaps just for a historical record. Today we share an investing diary entry from a stock market man.
So much stuff going on that it is hard to digest it all. Markets ripped higher in the US into the close after Trump press conference and declares a national emergency. The SP500 closed up 9.3%.
If there was any doubt as to what poll or data point Trump looks to to measure his success then him sending signed copies of the rip in the SP500 to people says it all. Wow, how do you explain this level of narcissism to your children.
Anyway, a few things happened over the weekend:
Disney shuts themeparks, Apple reopens China stores, Apple shuts all other stores around the world etc.
This morning the Fed cut the fed funds rate 150bps to 0-0.25%, buying $700bln MBS and Treasuries, cutting the discount window rate to 0.25% and removing reserve requirements. NZ also cut. Coordinated rate cuts across Central Banks. This was a common theme in the GFC to get the news out on Sunday night in the US so it was ready for Asian open.
US Fed has basically emptied its magazine from the start. No holding stuff back. They want to make sure that the liquidity is maintained in the system. Over to the fiscal policymakers — whatever that looks like.
I think it would be a mistake to say the Fed is signalling to the market that if we are going to cut rates and do asset purchases that the problem is solved. To suggest this is disingenuous and silly. The Fed role is to make sure we don’t have a financial crisis and the plumbing does not seize up. They learnt their lesson from Lehman.
Allowing banks to borrow at the discount window at a low rate won’t make it have the appearance you are in stress and in dire need of capital. Perception matters and the Fed knows this. Priority 1 is making sure the liquidity is there.
Next argument will be all this QE will be inflationary at some point. Wasn’t last time. Fed was just replacing liquidity that was draining from the system. It was the right thing to do then and it will be the right thing to do now. Tin foil hat shit can be dealt with later.
US cities starting to shut down in bars, restaurants cafe and allowing take away. Nightclubs, movie theaters closing. New York taking the lead. Would expect more of this. They are also providing childcare for health care workers etc which will be crucial to maintaining services.
Priority 2 will be fiscal and making sure this does not turn into a human tragedy. Over to you Trump et all. The fiscal response will be a tricky one as a lot of high fixed costs business with low margins will fail. The argument will be to let the free markets decide, this is a cost of capitalism. Not sure it is that black and white. There is a human tragedy element to this, this is an exogenous shock that can not be allowed to leave people on the scrap heap.
Support for people will need to come from multiple angles. Rent freeze, then what about the landlord? Does the govt pick up the tab or partial tab?
What about loan stress? Do banks give a freeze on mortgage payments? What about renters do they get a rent freeze? Who compensates the landlord for this? We need to make sure that people can focus on reducing the human tragedy not worrying about the financial one.
Short selling bans will most likely be next. Interesting that ASIC and the financial regulator have asked large firms to reduce their trading load by 25%.
China cases only increase by 16. Shows that in a time of crises centralised leaderships works, you want an authority taking control and doing whatever it takes. In peace time we can afford to argue and take our time. Not now.
Cases still climbing around the rest of the world, you would expect this to continue as testing becomes more prevalent.
In Aus we are down around 7% today after having a massive rip on Friday afternoon. Vertical price action. XJO went fro 4873 to close at 5539.
Hard to know where to go from here markets wise. Volatility will continue for sure.
Leaders have to lead.