PM Daily Market Commentary – 03/25/2020
I agree. I see the speed being quicker on the downside and much shorter bear rallies. I’m not sure we will see deflation at all, or if we do it will be only in selected areas. But then again, it is all a guess on my part, and it is predicated on my supposition that there is no “real” vaccine in the next 12 months. And that is the big guess. I have no doubt that China is forcing through a bunch of vaccine candidates with little regard to the test subjects in the hope they become the world saviour. Regardless, I can not see anything but “hope” in the next 3 months as this virus continues to escalate.
I think we will find a reasonable treatment within – say – less than a month. Issue is then only manufacturing.
* chloroquine + azithromycin
There are – to my mind – way too many positive indications that these treatments have a beneficial effect. Combined with widespread testing, it can prevent a significant number of people from needing hospitalization. While the pandemic won’t be over, the treatments will prevent hospital system overload.
I believe that the “bear market rally” following solid evidence of a treatment will be a sight to behold. That’s why I say this chart will look quite unlike the one from 1929.
I think a huge amount of money will race out of bonds and back into equities. I think we’ll probably be left with a big increase in long rates, and/or a destroyed US treasury market. Can the Fed back away from Infinite QE? No more than they backed away from the last QE round. Things go boom when they do that.
What happens after this rally? I have no idea. I can’t see that far ahead. We will have to see what prices look like then.
>>>Generals always fight the last war, right?
Ding, ding, ding…Haven’t heard that expression for a while but it fits perfectly here.
I’m no macro guy, but I believe one important aspect of the deflation / inflation argument that people overlook is the velocity of money. The higher the debt load, the lower the velocity of the money supply. Thus, you could have an “infinite” money supply but if that money is not moving through the economy then you won’t see systemic inflation.
You could probably see pockets of inflation pop up, though, especially with helicopter money. So it’s probably important to figure out what most people will spend their government stimulus checks on, to know where inflated prices will pop up.
Let’s start a survey: How (and where) will you spend your check from the government?
I always figured I would immediately buy gold with helicopter money, but with no foreseeable income in the next several months, maybe I just pay the bills with it.
What about you guys/gals?
All the best….Jeff
Spending stimulus check on credit card bill for pandemic prep. Bought a little extra silver, tho.
I feel that the only sure thing is that this will happen much faster than in the past. We were in an expanding world the last time something like this went down.
What limits are there now we’re off the gold standard? 0% interest rate seems to be something of a limit, but there are plenty of other things the central banks can do to avoid deflation.
QE seems to mainly generate stock and real estate asset inflation, but the plan is to do just enough to combat the corona stock and real estate deflation. Maybe a bit more on top to make Trump and Wall street happy with the stock market numbers.
Can the Fed back away from Infinite QE? No more than they backed away from the last QE round. Things go boom when they do that.
Can’t they or won’t they because of wall street and washington taper tantrums? Surely some things will go boom, but no operation + recovery is ever painless. Just as with climate change I think we still have a tiny window of opportunity to turn things around relatively painlessly, but that human culture just doesn’t have the required appetite for short term pain in exchange for long term gain.
Anyway, we now also have helicopter money which is a sort of wage inflation, but again the best laid plan is to give just enough to combat most of the corona wage deflation. Will main street acquire a taste for this free money just as wall street has?
After more than a decade of increasingly unorthodox central bank policy I’m still left wondering when these so called bond market vigilantes are supposed to turn up demanding higher returns or else they go and invest in something that can’t be printed like gold. I guess gold has been grinding up to more or less new highs this last year, it’s just not very convincing yet with the rest of the PM complex lagging.
I just don’t understand the thinking here.
Read this, How this Pandemic Will End, and tell me the Fed can stop this deflationary depression. Trump is going to be swinging from the White House flagpole before this is even half over.
If COVID-19 follows the Spanish Flu of 1918-1919 (28% infection rate with 4% death rate) you can expect 93 million dead (globally) within a year and a half.
This will change the psychology of the masses. All financial assets will be a joke, a bad joke that nobody will ever want to talk about for a long, long time.
One hundred trillion plus in bad debt versus the FED/Gov. It’s a no brainer: CASH.
Sure, the market is going to try to fake you out in the meantime, but it’s only because they want your cash. And they will use your fear to get it.
I’m in the middle. I don’t think it’s TEOTWAWKI , nor do I think that we are back to “normal” by Easter. The world watched China in Feb and did the “it can’t happen to us”, then in Mar it was “wow those EU counties are taking a pounding”. Apr will be the rest of us actually experiencing the impact of this in our real lives.
Peering into my very very foggy crystal ball, COVID-19 will end up being endemic like with the seasonal flu. The first whip around the world will be the worst as it is novel, so high infections and mortality in year one that will then settle down to a similar (but additional) to that of seasonal flu. So instead of “just” 300-700K deaths every year from the seasonal flu, it would be a combined 600K-1.4m per year from seasonal flu + COVID-19.
From a “markets” POV, I just can’t see the mood of the world’s population going back to 2019 (which is about where the market is now). Govt’s can pump, print and guarantee all they want, but as this drags on and unemployment rises demand will change. It won’t be even, some companies will do very well, others will close. It may be time to invest in Lipstick (effect).
For me the key is watching how the unemployment # goes. If it hits 20% we are in trouble. If it sits at 20% for any length of time we are in real trouble for a long time.
I always thought I’d spend 100% of my stimulus check on gold and silver. Today my plan is to encourage my two grown children to spend 100% of theirs on silver and, if they do, I’ll send them each half of my check.