The Ship Is Listing Badly and Trump Did Not Help Right It

Maybe the European Central Bank (ECB) will save the day and the Federal Reserve will follow suit and the fear I'm expressing will be over in three hours, but I'm not so sure. More Demand Destruction Every Minute --More travel bans are being put in place, though it is disturbing to me that it took at least two separate efforts to declare what was banned versus what was said on the press conference. --The NBA is putting the season on hold. --Other sporting events, conferences and concerts are likely to be cancelled or played in front of empty stadiums or arenas. --People not only are cancelling work meetings, but also small group outings. The job losses will add up, very rapidly. Too Little Support (at least in the U.S.) --Payroll tax cuts, which aren't a given, don't help those without a paycheck. I'm increasingly worried about job losses. --Access to cheap loans is only a start. I'm not sure how a business such as a restaurant recovers if this change in behavior lasts months. That revenue is never coming back and it may push some over the edge. The more you live month to month (and many businesses do), then loans don't do a whole lot for you. I am not sure what constitutes low-interest loans, but hopefully it is not based on the prime rate, which is still at 4.25%, or four times the yield on the 10-year Treasury. --No national emergency declaration. Some signs of help for medical community, but nothing like the all-out war on the virus that I (and others) were expecting. --Tax deferrals? I guess if you fund yourself at the prime rate then it has some value, but this doesn't seem very useful to me. How long before defaults mount, you ask? I wrote on last Friday that this would be a bottom-up problem and I should have stuck with that. The weakest will be hit first, and I was incredibly disappointed with the steps being taken. Yes, part of me is hopeful that can be addressed, but.... Lehman Moments, TARP and Stocks I've already harped on the subject that Lehman Bros. was not a moment, and in fact stocks were up the week Lehman filed. What I haven't done is examined the Troubled Asset Relief Program, aka TARP, which is a topic coming up with more frequency this week. I must admit I was disingenuous because I looked at the graph below earlier in the week, but since it didn't fit my risk-on mantra, I dropped it. I probably have some issues with my start and end points as the scale is a bit small and it's early and I'm tired, but I think the point is useful. The original TARP vote failed on Monday, Sept 29, 2008. Wall Street was stunned. Even after it passed, we didn't regain half of the loss, or levels we had been at two days prior its passage. And then, it didn't matter -- complete and utter carnage. I hate the Lehman moment concept, but the view that TARP solved everything, which ultimately it went a long way toward doing, is also another misconception. Things aren't moments; they are processes, and the path that process takes can impact the outcome. If TARP had been passed on that Monday, would we still have sold off almost 30% in the coming weeks? Or would decisive action sent a signal that was as important as the action itself? Former ECB President Mario Draghi worked miracles with his Whatever it Takes message. I remember ranting that he didn't do anything, but it didn't matter, because he claimed he could. If Draghi gave us Whatever it Takes back then, Washington, D.C., is giving me the too little, too late and not quite right message so far. I'm going to need to step away from the desk, because I'm working myself up into a lather, but after three days of being long from what had remained the lows until Wednesday night, I am concerned. I expressed that concern Wednesday night in my Instant Reaction - Blame Europe? post and my unease has only continued. I hate the fact that I'm sitting here, waiting for the ECB to do something, which I now think will not be enough. It may be enough to create a little pop, but without some creativity, probably not enough. Fixed-Income ETFs and Passive Investing I will wait to see if the ECB (and possibly the Fed) can do something to help markets in the next few hours, but there are lots of stories in ETF land that concern me. Here are two of them (and I will expand on them if the ECB can't jolt me out of my fear). --iShares 20+ Year Treasury Bond ETF is trading at an alleged 3% discount to net asset value (NAV). This is a Treasury ETF! This averages 0.04% deviation to NAV. iShares TIPS Bond ETF is another one, and so is iShares IBoxx $ Investment Grade Corporate Bond ETF (though I trust the marks on investment grade bonds far less than I trust the marks on Treasuries). So what is going on there? --Signs of outflows from short-dated corporate bond funds. This caught my eye and needs to be watched if the ECB and Fed can't fix it ASAP. Bottom Line: Confused and Scared I could not remain in risk-on mode after President Trump's speech Wednesday night (and the NBA announcement). I'm scared to be in risk-on. I'm less scared to be in risk-off, but want to see if maybe the ECB does something or the Fed, or even D.C., somehow tries to correct the message they sent Wednesday night that the market clearly did not like. We're still at an inflection point, where the outcomes seem binary given the lack of liquidity.

The Ship Is Listing Badly and Trump Did Not Help Right It

The markets clearly do not like the message the president delivered in his talk Wednesday night on how Washington will deal with the coronavirus.

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