Washington to the Rescue! (or, When Will This Be Over? Part III)

While the coronavirus continues to spread through the U.S. and communities large and small are essentially shutting down, the seemingly unrelenting destruction of trillions of dollars of global wealth amid the pandemic may be coming to an end (at least for now).  Congress finally passed, and the President signed, a gigantic fiscal stimulus package after much negotiation for the multi-trillion-dollar bill.  The bill passed will send money to middle class families in the form of direct payments.  It also provides emergency money, mostly in the form of loans, to businesses small and large.  Of course, the bill also provides billions for the healthcare industry to fight the virus.  We will provide more information on how the bill may affect you in another piece.  The hope is that this massive amount of money simply offsets the massive amount of money that will disappear from our regular output of goods and services, commonly referred to as GDP. To give you just one snippet of the change in business conditions, the app OpenTable reported that restaurant reservations were down 100% last week in the U.S. from the same time a year ago.

In addition to the fiscal bills passed and the ones still to come (think about how many out of work families of four who have no emergency funds can survive more than a few weeks on one $3,000 check and unemployment compensation that is less than their normal income) the Federal Reserve has taken an all-in, do what it takes mentality to the current crisis.  In addition to taking short term rates to zero (and btw short-term treasury yields went under zero yesterday), they have committed to flooding the credit markets with trillions of dollars to buy everything in sight with perhaps the exception of junk bonds.  For the first time ever, they will be buying corporate bonds and commercial mortgage backed securities (CMBS). The credit markets seized up in the last couple weeks, damaging bond investors who usually rely on bonds for steady income and/or as a hedge against stock market volatility.  We have seen the effect of this in our client portfolios as well, but the Fed’s actions that triggered the recent stock market relief rally have also breathed some much-needed calm into the bond market. While we certainly don’t know if the stock market has seen the bottom, we think that the bond market has (at least for now).

As I stated in a recent note, markets often bottom while the news is bad and getting worse.  This historical trend is going to be tested in the next couple weeks, as cases of the virus are not expected to peak until mid-April if not later.  If the fiscal and monetary response continues beyond what just came out, investors may conclude that the economic damage will be sufficiently muted and the markets continue to heal.  If communities across America continue to be shuttered well into May and cases don’t peak until then, conditions in the markets could erode again.  We are hopeful, but careful.  We continue to monitor conditions across the world with very smart and capable research partners and investment managers.  Our team has been participating in discussions with most of our managers and general market calls almost daily. We will keep you apprised as things change.  Don’t hesitate to reach out to us if you have any concerns.


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