Hope Floats.

Risk assets were buoyant globally on Tuesday as the Fed’s latest raft of measures aimed at supporting US credit markets and bolstering the world’s largest economy inspired confidence or, at the least, gave market participants an excuse to shift their mindset to risk-on for a day.

Shares in Tokyo and Seoul surged more than 7% and the dollar took a breather from what’s been a truly epic winning streak, turbocharging the good vibes (dollar strength has been extremely pernicious of late for what it says about the persistence of funding stress and that’s on top of the self-evident fact that a stronger dollar generally leads to tighter financial conditions). The Norwegian krone, which had been in free fall, surged the most ever against the dollar.

“The dollar is weaker across the board as markets respond positively to liquidity measures…with demand for dollars largely sated in the sterling and euro markets, though not yet in yen”, SocGen’s Kit Juckes said. “Equity indices are higher, bond markets calmer”.

Globally, stocks have wiped out ~four years of gains. Another couple of bad sessions and US equities will be below levels seen when Trump was elected.

Total losses across equity markets are around $25 trillion.

But, hey, look at the bright side. History is on your side if your investment horizon is longer than a decade (and if you’re not Japan). “Over a 10-year time horizon, negative returns are rare: outside of the 1930s, the 2000s was the only decade with negative total returns”, BofA notes.


The Kospi rose nearly 9% as the government moved to stabilize markets. It was the largest one-day gain in a decade for beaten-down shares in South Korea, which briefly became the ex-China epicenter for COVID-19, before containment measures quickly flattened the curve and deaths were limited.

US equity futures were limit-up prior to the cash open. With the Fed having placated markets, investors now hope for movement on Capitol Hill, where Nancy Pelosi has floated a $2.5 trillion virus stimulus bill in an apparent bid to influence the negotiations in the Senate. Chuck Schumer is said close to a deal with Steve Mnuchin.

“The world has declared war on COVID-19 [and] this has major implications for markets”, Rabobank’s Michael Every wrote, in a note.

“War and economics have history; before there was economics there was political-economy, and the development of central banking is rooted in war”, he went on to say, adding that “a key lesson is that major wars are staggeringly expensive — this one will be too [and while] fiscal measures so far are huge, they arguably underestimate what is required”.

“When you take a step back and look at what the Fed has done so far (150bp of rate cuts this month, a QE program that started with USD 700 billion in buying but is now unlimited in size, an expanded cross-currency swap program and measures to support commercial paper, money market mutual funds, municipal bonds, investment grade corporate bonds, and MBS), it’s incredible”, SocGen’s Juckes marveled, on Tuesday. “All that’s really lacking is equal Government dynamism”.

On Monday evening, during a combative press briefing, Donald Trump said he called Jerome Powell and praised the Fed for its actions.


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14 thoughts on “Hope Floats.

  1. The American economy since 2005-2006 has been nothing more than a heroine addict looking for it’s next Fed fix. As long as it keeps going up – devoid of fundamentals and the inability cut off the Fed drip – the American people and leadership are willing to look the other way. This way of operating is unsustainable.
    ***Whatever happened to the Tea Party that rose to prominence when the last guy tried stave off the last crisis???

    1. @Dave The tea party was opposed to bailouts for bad behavior. The virus is an externality, so different circumstance.

      That said, with the Fed now nationalizing half the economy, we may be heading for an monetary overdose.

      As I’ve been saying for years, don’t underestimate human creativity to get out of a jam. I fully expect a Bretton Woods II type settlement after this is all over. If global leaders can all act like adults and not steer us into a war, the key items on the table should be fair negotiations wrt:

      Corporate tax regimes
      Exchange Rates
      Write-off of inter-agency QE debts.

      Whether this is the event that precipitates such a settlement remains to be seen, but if it doesn’t I feel the alternatives.


    2. All the former Tea Party enthusiasts I know are on Facebook this morning clamoring angrily that Nancy Pelosi is holding up their Trump Checks. 🙂

  2. ***Whatever happened to the Tea Party that rose to prominence when the last guy tried stave off the last crisis???

    Silenced once pleasing Trump’s base became the overarching GOP priority. Populists don’t care about deficits nor are they always business-friendly.

  3. You know what’s gonna be awesome? A 4 Trillion dollar deficit on top of a 30% reduction in tax revenue for 2020, this decade is gonna be GREEAAAATTTT!

  4. It’s bounce day, as usual after one/two red days. It’s the pattern after the first week (end of february), where the markets had five red days in a row (then the bounce were only intraday); we have one or two red day, then a geen day, then red again; we never had two green days in a row. Vol. is subdued, and you explained why, so now the swing are 5% instead of 10%. It’s even easy to trade, in a way.
    I guess that we have a date with a bottom at a certain level (could be 2000, 1800, 1600…), but the date is in April so we are going there not in a straight line but bouncing around for a while.

  5. Surely, Europe will not go forward with Huawei 5G. This is WW3 and the purpose is economic gain.

    Less ground troops are required to take over financial markets, but some ground troops will still be needed to take over factories and other physical locations where commerce is transacted.

  6. See my comment in other post. Rally today based (partially) on false belief of Trump being able to shorten shut down and that economics rather than public health will have the upper hand in policy and strategy. Infection and death rate growing exponentially. How could he shut down with less than 500 deaths then open up as deaths top that figure by a wide margin. I call bullshit and another Trump lie to juice the market. Disappointment coming. Market not touched bottom. Short covering also prevalent today according to Bloomberg. Bide your time.

  7. Love the BoA chart of returns by decade. Analysts and investors cite the old saw the markets always come back, just hang in there, dollar cost average, yada, yada, yada. But in 2 periods, the 1930’s and the 2000’s were long disappointing ones.

    Interesting to note the ’30’s were preceded by the hyper 20’s and the 2000’s had the 1999 dot com boom/crash and the 2008 housing/debt boom/crash.

    Wonder what we might learn from those 2 decades?…;)

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