More than 90% of NYSE issues went up yesterday – When so many issues rallied while the S&P was in a bear market in the past, SPX had a VERY STRONG tendency to rally over the next few weeks and months. “Up 100% of the time over the next year by a median of +29%”
Dave Lutz at Jones Trading
Continue readingFED Backstopping Everything
On the policy side the day started with a bang as the Fed continues to try and do everything in its power to provide liquidity and support from a monetary perspective. First and foremost the new round of quantitative easing is effectively unlimited as Treasury and MBS purchases are open-ended from a previously announced $700bn. They also announced facilities to provide support for corporate bonds, asset-backed securities, and variable rate demand notes. The Fed also expanded the previously announced Money Market Mutual Fund Liquidity Facility and the Commercial Paper Funding Facility to include a wider range of eligible securities. The Fed also expects to announce the Main Street Business Lending Program that will support lending to eligible small and medium-sized businesses. The actions take the Fed across the line – joining the ECB – in buying corporate bonds and the Fed can now buy Fixed Income ETFs which will hopefully be a big stabilizing force in what has been a troubling segment of the market over the last few weeks.-Goldman Sachs
Stocks are falling faster than they did during the financial crisis, the crash of 1987 or the Great Depression. Investors are retreating from corporate bonds at the swiftest pace ever. An index of raw materials is at all-time lows. And funding shortages around the world have fueled a race for dollars, powering the U.S. currency to a nearly 18-year high.
By Amrith Ramkumar WSJ
Barrons
March 18: Just how big could fiscal stimulus get? During the Great Recession, the federal budget deficit peaked around 10% of gross domestic product. Were the federal government to run a similar deficit this year, it would amount to about $2.2 trillion.
But even this 10% figure probably does not represent the true upper bound on federal borrowing. During World War II, the federal budget deficit peaked at nearly 30% of GDP in 1943, and was more than 20% each year in the 1943-45 period.
A federal budget deficit of 30% of GDP today would amount to nearly $7 trillion. Of course, financing these deficits required extraordinary efforts, such as sizable war-bond programs and direct coordination between the Treasury and the Federal Reserve. While we doubt the fiscal response will be anything quite that big, the federal government possesses significant fiscal ammunition, particularly when real interest rates on Treasury securities remain negative.—Michael Pugliese
https://www.barrons.com/articles/wall-street-views-on-the-virus-the-economy-and-the-markets-51584748842?mod=past_editions
http://www.crfb.org/blogs/deficit-has-never-been-high-when-economy-was-strong
Continue readingSell-off lasted 6 months and took DOW 34% lower (-40% from highs set some months before the flu), stocks rallied 25% in less than 2 months following the trough. It took 18 months to erase the flu sell-off.
The corona cycle likely will be faster and swifter because there was not electronics, twitter or texting back then!
Zach Goldberg
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