Pro Perspectives 3/11/20

March 11, 2020

Back on December 23rd of 2018, to counter the indiscriminate selling of stocks, we had a response from the U.S. Treasury Secretary.  He had a phone call with the major banks.  And the following day, he had a meeting of the “President’s Working Group” on financial markets (which includes the Fed).  That was an intervention signal. 

When stocks re-opened after Christmas the bottom was in — stocks rallied 7% over the last four days of the year — and +47% over the next thirteen months.  Fair to say the banks received some marching orders to deploy some of the ultra-cheap Fed capital.  

So, guess what Mnuchin has been up to? 

Yesterday he met with the “President’s Working Group” (again, including the Fed).  Today, he’s in the White House, with the President, meeting with the top bankers in the country. 

That has been a formula for putting a bottom in stocks. 

In 2018, the stock market decline was 17% in 16 days.  This time, it’s 20% in 13 days.  And we get the Mnuchin response to “ensure liquidity” and “properly functioning markets.”

Additionally, this time around, we have the kitchen sink of global policymaker intervention to support the economy and promote confidence (which tends to mean higher stocks). 

Central banks have responded (including a 50 basis points cuts from the Bank of England today).  And suddenly, fiscal stimulus is coming from all parts of the world.  And importantly, Mnuchin said today that the U.S. Treasury is “coordinating internationally.”  As we discussed yesterday, this “working together” globally for a global solution is a huge confidence signal the markets need. 

Tomorrow, we hear from the ECB.  I would not be surprised if the ECB responds to the health crisis by adding a new asset to their asset purchase mix:  Equities.