Pro Perspectives 3/16/20

March 16, 2020

With the surprise move yesterday by the Fed, they made it clear that they will do whatever it takes to keep money flowing, and available, to banks, businesses and individuals (i.e. keep them liquid). 

The Treasury and the the White House have already made it clear that they will do whatever it takes to keep banks, businesses and individuals solvent

In addition, we now have clear coordination among countries, and the commitment to continue coordinating, not just on monetary and fiscal policy, but on public health measures.  Today, in a call with G7 leaders, they pledged to make efforts to increase the availability of access to medical equipment, to share epidemiological data to better understand the virus, and to work together to facilitate trade and keep the supply chain working.  

We’ve been talking about the importance of global leaders coming together and pledging to resolve a global crisis with a global response.  We finally have that commitment.  Remember, it was this type of pledge by global leaders in 2009 that marked the turning point for global financial markets. 

So, all of the above should all be working to stabilize markets and restore confidence.  Despite the performance today in stocks, I think it is.  Wall Street panics well before Main Street panics.  Wall Street panic was a month ago.  Main Street just started panicking two-to-three days ago.  

The final piece in the U.S., for markets, might come this week, as significantly more testing capacity is due to come online.  We should see a better representation of the real infection rate. That has been the big unknown. And while that will spike the numbers, it will also finally give some visibility on the outcome.  Couple that with the containment efforts of the past four days, thought to be unfathomable in the U.S. just a week ago, and we may have a positive surprise (the first in a while) — and a big turning point in confidence.  We will see. 

This all leaves us with this performance of global markets, year-to-date: