Such a Deal!
The news that all Americans had been waiting on did finally break overnight. As the wee hours passed, we did learn that just before midnight as Tuesday turned into Wednesday that the Trump administration and Senate leaders (from both major parties) had come to a rather historic agreement on a fiscal support package worth a rough $2 trillion.
"This is a wartime level of investment into our nation." ... Senate Majority Leader Mitch McConnell
"To all Americans I say: Help is on the way, big help and quick help." ... Senate Minority Leader Chuck Schumer
Final terms of this Senate bill have not yet been released. That said, at least at the household level, which is always our first concern, we do know that direct cash transfers of perhaps as much as $1,200 per taxpayer and then an addition $500 per child had been under discussion. This cash payment would phase out for higher earners.
That payment would be in addition to an expansion in unemployment benefits, which if the deal played out the way it sounds will be extended for the first time ever to "non-employees" such as freelancers and those who comprise what has become known as the "gig" economy. There will also likely be a large loan facility (>$350 billion?) announced that small businesses will be able to tap into if they keep employees on the payroll. My thought on that would be that hopefully, this particular item looks more like a grant, or has some kind of forgiveness clause, or why would it make sense to a small employer facing an extremely uncertain future regarding revenue generations or capital expenditure?
There will also be, and this is one of the more contentious points (I do think both sides were eager to help average Joes and Janes), a possible $500 billion program guaranteeing subsidized loans for troubled industries (such as the airlines) that employ a great number of people. Of course there will also be large funds created and spent that directly target quickly improving the state and capability of health care facilities and infrastructure.
The Senate bill will have to get through the House of Representatives as well before it ever reaches the desk of the president. Hopeful Americans will likely learn throughout the day on Wednesday if this is indeed a problem. Speaker Pelosi has expressed an intent to pass the bill by "unanimous consent" (which means that membership will not have to return to the House floor for a vote in person.) There is precedent. The House of Representatives did rely upon the "unanimous consent" method for legislative passage during the Flu pandemic of 1918.
Treasury Secretary Steven Mnuchin, for his part, has already made plain the fact that President Trump would sign the Senate bill the way it is currently written.
What Does It All Mean?
For a lot of folks, a $2 trillion injection of fiscal support that includes them to at least some degree, will go a long way toward easing at least some financial fears. Of course, this support from the vantage of overview does not heal a wounded economy. This is an attempt to take the one step that the Federal Reserve can not... to bridge issues of solvency at the household, local, corporate, and regional levels at a time when there is no organic cash flow.
Make no mistake, the longer this lasts the more likely it becomes that these steps even if passed will be far too small. The steps taken are necessary and will play out over time in unknowable ways as debt piles upon debt. Our central bankers have been doing everything that they can think of to at least delay the collapse of complex systems. That said, the blackness regarding the interconnectedness of these many systems will be a threat to the national well-being for many years to come as this necessary "war-time" aggression one day will have to unwind.
What the Fed has done, in short... is enable liquid markets, providing cash/credit where needed to relieve pressure on corporate paper, money market mutual funds, the short end of the corporate bond market curve, new corporate issuance, and on primary bond dealers, all the while showing an aggressive willingness to expand the monetary base though the purchase of U.S. Treasury securities as well as mortgage backed securities. There are many heroes to be noted as this nation goes through something awful. First and foremost, healthcare professionals, and first responders, have to be credited. Where would we be without our truck drivers? Our delivery service workers, those working in public infrastructure, or those who simply stack canned peas on a shelf? All of these folks have kept showing up for work. Courageously. Nor can we forget Fed Chair Jerome Powell and the board of governors who have been recognizing points of weakness in real-time and have kept the ball rolling when it wanted to stop.
Maybe for now. The Dow Jones Industrial Average did run 11% on Tuesday. Foreign equity markets and U.S. equity index futures sure seemed happy overnight. As I told viewers on Fox Business during Tuesday's Claman Countdown, I may at times increase holdings in existing positions, but I am not open at this time to expanding the width of my book.
Yes, fiscal support is cash flow. Not the kind anyone wants, but there is movement, there is some velocity. The president has expressed April 12th (Easter Sunday) as a day for potentially reopening the economy. I think this may have been intentionally aggressive dating, akin to opening a negotiation. Jim Cramer had been throwing around June 6th (D-Day), which makes more sense as I think we learn a lot more over the next 10 weeks than we do over the next three.
New York's Gov. Andrew Cuomo is citing models that show an apex in both new cases and severe cases of Covid-19 in his state occurring at some point that would be two to three weeks out. I think we need to know that as the nation's epicenter reaches that apex that there is not a second, third, or fourth epicenter building at the same time. Widespread testing will be key. There has to be an understanding of who carries the virus and who does not, and not just for scientists... but for average human beings.
I fully understand that there will at some point likely have to be a balancing of personal and economic risk. This economy can only be open for business if there is public confidence in:
- Financial systems
- Supply chains
- Transportation support
- Safe human interaction
- In workplaces
- At public points of sale
- In natural personal encounters
How do we get there? Weekly tests for everyone not in quarantine identifiable in some way such as colored bracelets recognizable from at least 10 feet away? I don't know. Just a crazy idea.
Other than this, all Americans can do is (significantly) improve personal codes of conduct. Show discipline in social distancing as a measure of respect for others. Most of us should be able to do that most of the time.
Make no mistake. The rally ahead of this deal between the White House and Senate leaders was very real. Aggregate trading volume increased across both the S&P 500 as well as the Nasdaq Composite. Advancing volume beat declining volume across NYSE listed names by more than 15 to 1, while winners beat losers at that exchange by nearly 17 to 1.
The rally was led where you might think. Energy, the most beaten down sector this year, caught a break as the U.S. dollar paused (sort of) to catch its breath. Among industry groups, consumer finance, the banks, the airlines, and aerospace all experienced increased support. Yes, that is all fiscal package related. Trust it if you will. For the day, Spirit Airlines (SAVE) , and JetBlue (JBLU) both ran 37%, while American Airlines (AAL) at +35%, and Delta Air Lines (DAL) at +25%, contributed toward pulling the Dow Jones US Airlines Index 20% higher for the session.
My thoughts? Trading this market may be easier money than investing as time passes. Would one rather wake up every day at the mercy of algorithms that could react negatively to the increasing spread of the virus, or what will be truly horrific looking macroeconomic data beginning this week or take quantifiable profits where and when you have them? Just me thinking out loud. I'll still be invested, but my focus will more than likely for the short-term, be on my daily P/L, which I feel is more manageable right now.
First, let's try to put a second consecutive positive day to the tape for the S&P 500. This is our 5th attempt over a three week period.
One Stone Still Unturned
One thing that has crossed my mind in recent weeks on a regular basis, has been U.S. dollar valuations. There has obviously been a dramatic increase in demand for "risk-off" currency over the past month or so, as cash flows dried up and liquidity issues cropped up on a daily basis. The dollar has been allowed to pause this week, finally... as the Fed has made unlimited what it will do in the way of money supply creation in order to meet the needs of not just market function, but of financing the rapidly expanding needs of government.
If after this we do see a resumption of demand for U.S. dollars that further warps currency exchange rates, I do think that there would have to be coordinated effort between the Fed and the Treasury Department to intervene in these markets.
- Both Piper Sandler's Harsh Kumar and Oppenheimer's Andrew Uerkwitz reduced their estimates for Apple (AAPL) for the next two reporting periods while maintaining "Overweight" ratings on the shares. Okay, who doesn't expect a couple of tougher quarters for the world's greatest consumer electronics company (my opinion). More importantly, was not Apple looking to reopen the firm's retail locations some time in April on a staggered basis? The development of that story more than anything else will tell us how realistic any short time frame is for reopening (partially) the U.S. economy.
- Anyone else notice the 17% move higher for Nvidia (NVDA) , on a day that the Tech sector SPDR ETF (XLK) gained 10%, as did the iShares Philadelphia Semiconductor ETF (SOXX) ? Why? An upgrade by Needham's Rajvindra Gil to "Buy" from "Hold", and a new price target of $270. Check out what Gil said... "We expect to see a surge in demand for Nvidia's GPUs in the medical field, particularly in DNA sequencing and drug development." Gil added, "GPUs can accelerate the analysis of whole genomes, which consist of 3 billion base pairs in human chromosomes, from days to less than one hour." Hmmm.
Economics (All Times Eastern)
08:30 - Durable Goods Orders (Feb): Expecting -0.8% m/m, Last -0.2% m/m.
08:30 - ex-Transportation (Feb): Expecting -0.3% m/m, Last 0.9% m/m.
08:30 - ex-Defense (Feb): Last 3.6% m/m.
08:30 - Core Capital Goods (Feb): Last 1.1% m/m.
09:00 - FHFA HPI (Jan): Expecting 0.3% m/m, Last 0.6% m/m.
10:30 - Oil Inventories (Weekly): Last -841K.
10:30 - Gasoline Inventories (Weekly): Last -6.18M.
The Fed (All Times Eastern)
No events scheduled for today.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (MU) (.31)