Modest Tools as the Crisis Deepens — Fed, Fiscal, Bailouts; Joe Biden Passes a Big Test
Author: Greg Valliere
March 16, 2020
CRISIS DEEPENS THIS MORNING: Despite all the tools that we’ll quickly review below, the only issue that matters is when the number of new infections begins to drop. There are signs of hope in China, but the ghastly numbers from Italy portend what is coming here in the next few weeks.
DONALD TRUMP ludicrously asserted yesterday that “we have tremendous control” of the virus, but he’s increasingly irrelevant, reduced to tweeting that he may soon pardon Michael Flynn, as if that might change the subject. The key players are Mike Pence — getting decent reviews — Steven Mnuchin, Dr. Anthony Fauci, and Fed Chairman Jerome Powell.
THERE ARE MORE TOOLS: Mnuchin will strong-arm reluctant Senate Republicans, who will pass a bill within days that will help virus victims. But there’s a need for much, much more on the fiscal front. Two issues stand out:
First, will there be a massive tax stimulus? Probably, but it may not be a payroll tax cut; there isn’t much support for that in either party. Some type of cash infusion, a one-time payment, is increasingly popular.
Second, there will have to be bailouts (although the politicians hate that word). Airlines, hotels, and cruise lines are almost certain to win federal aid, along with thousands of small businesses. Aid to the staggering energy industry is not on the front burner.
JEROME POWELL’S GAMBLE: Hats off to the beleaguered Fed Chairman, who had the guts to swing for the fences. The initial market reaction has been alarmingly negative, but we think once the extent of his action is appreciated, it will ease fears of a crippling and prolonged recession. The financial system is now awash in liquidity and Powell has pledged to do more; the second half snap-back should be dramatic.
THE NEXT CRISIS will involve ventilators; there simply aren’t enough in the U.S. to treat the hundreds of thousands of patients who will soon flood hospitals. (For a sober assessment of ventilator rationing, check out a chilling article in this morning’s Washington Post by Ariana Eunjung Cha on who gets to live and who gets to die.)
WHEN DOES THIS END? The CDC recommendation on self-distancing is for the next eight weeks, so it seems that this crisis will extend at least into May. Life is returning to normal in China, which may signal an end of the beginning, to paraphrase Churchill. But this nightmare is just beginning in North America, as a very grim new week looms.
* * * * * *
JOE BIDEN, STILL STANDING: Bernie Sanders, snarling and confrontational last night, has to drop out after tomorrow night’s primaries (which Biden will win comfortably, assuming they aren’t cancelled). Biden was better than adequate last night, and he made some major news — he’ll pick a female running mate (most likely Amy Klobuchar, in our opinion).
WHAT A CHOICE: The elderly Biden, the yelling socialist Sanders or the incompetent narcissist Trump. Biden struck us last night as a decent old uncle who could calmly lead — and unite — the country in a crisis; the other two lack those skills.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2020 AGF Management Limited. All rights reserved.