Pro Perspectives 3/13/20

March 13, 2020

Yesterday we discussed the policy response we’ve seen on the economy, but as we discussed, the other piece we’ve needed is visibility on a gameplan and action on the health crisis front.  

Today, we got it.  

Trump’s press conference late this afternoon, positively surprised markets with a big, bold private-public partnership to address the health crisis, which includes widespread drive-through testing.

This follows a morning interview of Mnuchin (Treasury Secretary), where he committed a whole of government approach to do whatever it takes, including virtually unlimited liquidity (from the Fed).  For those looking for another shoe to drop, some sort of blow-up event for markets, like in corporate bonds, Mnuchin is telling us, it’s not going to happen.  I think it’s pretty clear that the Fed would be in buying corporate bonds or working with banks to do workouts. 

On that note, Mnuchin also made clear that they are committed to helping industries “get through this.”  That means airlines, cruiselines, hotels.  As Trump said this afternoon, they are important to the country. He’s also had the heads of the airlines in the White House.  

So, you can follow the government money in these stocks and buy them for a fraction, if not pennies on the dollar, of where they traded two months ago: 

Norwegian Cruiselines: -84% 
Carnival: -72%
Royal Caribbean: -78%
Delta Airlines: -46%
United Airlines: -62%

Trump also announced he’ll be buying oil at these prices for the Strategic Petroleum Reserve. 

This is a bazooka response.  

What’s left?  A fiscal response looks like it could be done over the weekend. And I’ve said over the past couple of weeks that we need “a signal from global leaders (Presidents and Prime Ministers) that they are working together on a containment strategy, AND are committed to support the economy and those suffering with big fiscal stimulus and government aid.  Today it was announced that the G7 leaders will hold a video conference on Monday to discuss a coordinated response.  The boxes have all been checked.

All of this leaves us with this chart of stocks as we head into the weekend …

Remember, yesterday, we talked about this big line that represents the recovery from the Global Financial Crisis-induced lows of 2009.  We close today about 8% above this line.