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3 Things Under the Radar This Week

Stock MarketsMar 13, 2020 07:52PM ET
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© Reuters.

By Yasin Ebrahim and Kim Khan

Investing.com - Investors would be forgiven for feeling seasick after all sharp moves in the markets this week.

And amid all the historic stock moves, huge sums of Fed money and whipsawing rates there was plenty out of the spotlight.

That includes a broader look at the economy, rather than the daily market gyrations, a Fed program that didn’t get the big headlines and the question of whether we may actually need new words to figure out how to address the problems of the virus.

Here are three things that might have flown under the radar this week.

1. It’s Not Just the Market, It’s the Economy

U.S. stocks staged an epic rebound on Friday, a day after plunging to their worst defeat since the 1987 market crash. But while such wild swings are expected to be commonplace in markets over the next few months, the global economy is set for a gloomier backdrop, analysts warned.

"The worst for the economy is still to come over the next several months," said Joachim Fels, global chief economic adviser at Pacific Investment Management Co. (Pimco).

The stark warning comes as a slowdown in both demand and supply in China - amid Beijing's aggressive efforts to contain the virus - is expected to spill over into the world economy.

Fels' warning may even seem tame compared to those of his peers, some of whom are not only sounding the alarm on a coming recession but are urging investors to get out of risk assets.

"The sky is falling," said Chris Rupkey of MUFG Union Bank in a note last week. "Get out, get out while you can. Wall Street’s woes have to eventually hit Main Street’s economy hard. Bet on it."

Much of the forecasting power on the economic impact from the coronavirus centers on assumptions over when peak infections will likely occur, particularly in countries outside of China.

But with cases showing no sign of a slowdown, particularly in Europe, which has become the epicenter of the outbreak, fears are running higher the pandemic could last a long time.

Against the growing economic threat of the virus, however, global central banks, including the Federal Reserve have pumped liquidity in the market to cushion the blow. But while many argue that demand-boosting stimulus measures are of little use in the fight against the Covid-19, knowing that central banks stand ready to act can be a comfort.

"With rates already at historically low levels, a further reduction is unlikely to provide a meaningful boost to investment or consumption," Stifel said in a note. "But the willingness and ample readiness of central bank officials to deploy policy should reassure investors and help quell knee-jerk reactions to the latest coronavirus tally."

2. QE4 Is Here

When it came to the Federal Reserve this week, the $1.5 trillion in repo funding stole the headlines, both for its size and its failure to arrest a huge stock selloff (if indeed that was an aim).

Then attention turned to next week’s FOMC meeting, with Goldman Sachs (NYSE:GS) predicting a rate cut of 100 basis points, up from its previous estimate of 50 bps.

But what may be the biggest weapon in the Fed’s arsenal was slightly overlooked: the return of quantitative easing.

The Fed started Friday with plans to buy around $37 billion in five maturity sectors, with $17 billion in purchases of maturities of seven years or more to address “highly unusual disruptions in the market for Treasury securities associated with the coronavirus outbreak.”

If rates go to zero next week, as expected, then QE is the only avenue to monetary policy accommodation, economists at Pantheon Macroeconomics said.

“(W)e expect the Fed to purchase $60 (billion) of securities across the spectrum for the foreseeable future: QE4 is here,” Pantheon wrote in a note.

“This broader action will offset the inevitable downward pressure on money supply growth as economic activity contracts,” it added. “It should weaken the dollar and raise asset prices, other things equal. They won’t be, but these actions should limit the damage.”

The Fed did not promise that the Treasury purchases will continue beyond April 13, but “it’s inconceivable to us that the Fed will not extend these operations,” Pantheon said.

3. What’s Another Word for ‘Stimulus’?

Along with monetary policy measures, the market is looking for fiscal measures to ease the economic shocks of Covid-19. But in discussing the best tactics, what if we’re not even using the right terminology?

That debate arose on Twitter, centering on whether it’s useful to use a generally accepted term like “fiscal stimulus” in exceptional economic times.

We’re currently in a situation where a “stimulus is anything that slows the spread of the virus, even if in the immediate sense it ‘hurts’ the economy,” Austan Goolsbee, former chairman of the Council of Economic Advisers, argued.

Bloomberg’s Joe Weisenthal replied that “stimulus” is the wrong idea, as that boosts the economy, and what’s needed is something that keeps households supplied with cash to meet their financial obligations.

We’re “trapped with the semantics of a (pre-Covid-19) world,” said Diane Swonk, chief economist at Grant Thornton. “We need to hit the reset button on thinking and verbiage, while not losing sight of the meaning. This doesn’t have to be the Titantic. We need lifeboats in all ways we can think of to fight the chill.”

3 Things Under the Radar This Week
 

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Comments (24)
jemin An
jemin An Mar 15, 2020 9:17AM ET
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U.S focus on test system, that' right but has vulrunable to curing infected people, short of isolation hospital bed. U.S is first class nation so overcome the pandemic more stronger but the late preparation for anti virus system, anyway will have to has huge casualties.
Chazlin Naidoo
Chazlin Naidoo Mar 15, 2020 5:04AM ET
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Every problem that we face has a root where it all started. Unless we chop off the roots of that problem it will always come back again - like weeds for example. Reducing interest rates and pushing fiscal stimulus to boost the economy won't solve the problem. Like a pimple filled with puss the Covid-19 is. Governments worldwide are rubbing cream on this pimple whereas the only solution is to find the cure and press out this puss that is causing so much pain globally. We depend on Gods Divine intervention on the Sunday morning to give scientists or anyone out there wisdom to find a cure and a solution to this global mess. This should be our humble prayer on Sunday morning and I believe that a united city, country etc can overcome but if divided they will fall. God said, the devil has come to *******to steal and to destroy but I have come so that you may have life and life in abundance. Let's return to God in prayer and beg for a miracle.
jemin An
jemin An Mar 15, 2020 12:43AM ET
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The characteristic of virus and concerns to pre impacted asian countries, within 10days the day will come the number of infection and death toll rockets more than 10 times high than previous day. People suffering for short of hospital bed, facemasks, etc, some of them should waiting the end of his life without any medical support. It was happened in real in South Korea. Friday address by Trump was great but too late. Only 25% of bed is available than needed for predicting serious condutions by corona in U.S now. God bless America.
Tony Hepner
Tony Hepner Mar 15, 2020 12:43AM ET
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Not too late....for America.  Trump will take care of his citizens.  We're not going the way of China.
jemin An
jemin An Mar 15, 2020 12:43AM ET
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Dear, I also hope so either, but How about the Italy? Maybe even communist country has some advantage to isolation, for China. In many investment, lack of medical facilities, isolated and double sterilized room for each patient is brutally short in U.S, and it can not be built only several weeks. Sorry, Trump wasted precious time more than 1 month, like UK did so. Anyway good luck.
Mike Lore
Mike Lore Mar 14, 2020 8:14PM ET
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Put options on almost anything. Then popcorn.
Gary Reid
Gary Reid Mar 14, 2020 8:14PM ET
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Call or put? Depends which way you think it will move...
Chazlin Naidoo
Chazlin Naidoo Mar 14, 2020 5:57PM ET
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God said, I am the vine and you are the branches and without Me you(humans) can't to nothing. This applies to everything we do every single day. The air we breathe, the plate of food on our tables, just waking up to see the sun rise - who provided It? Most people in the stock market is stressed...WHY? No God no peace. Know God know peace. I sleep like a baby because I don't rely on my own decisions and on my own strength but on wisdom from above. If you plant bananas you cannot reap oranges. God is not mocked, what you plant you shall reap. Like Trump said, let's all unite in prayer this coming Sunday. Mr Ryan, the world's most powerful man (Trump) acknowledges God and His divine intervention and you speaking of a cult? God bless you and may He open your eyes.
Chimanlal Patel
Chimanlal Patel Mar 14, 2020 5:16PM ET
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Along with QEs let us consider creating QS ,Quantitative Stimulus that will provide ,say, 10% of monthly expense of house hold expense into QS account of the house hold.Money in the QS acct. can only be used for paying medical bills and similar expenses determined by the experts.This will help the goods on the shelves  in the market place move faster and in turn help economy move at a higher speed and will bring some long awaited  inflation in the economy. I am not an economist.
Dr Faisal
Dr Faisal Mar 14, 2020 4:38PM ET
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What's happening now was projected earlier. The "Corona" just trigger the beginning of a recession.All stimulus are temporary escape gate for late comers to get out.Take this opportunity and bull out now,you only have one or two days before another major fall down.
Mike Lore
Mike Lore Mar 14, 2020 4:38PM ET
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two days might be optimistic
Sage Homosapiens
Sage Homosapiens Mar 14, 2020 12:04PM ET
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panic around us. really serious to everyone? severe flu, dangerous to the 60 over person. need a time to develope vaccine and medicine.
jemin An
jemin An Mar 14, 2020 12:04PM ET
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Forget about vaccine. We never get it in time of mostly needed. U.S has only 25% of hospital bed than needed for the peak of virus that will happen in real after 10 days. U.S suffers from short of medical facilities, facemasks, goggles, etc.
Rich Kambak
Rich Kambak Mar 14, 2020 11:15AM ET
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Tulipmania Repeated- 1636 outbreak of bubonic plaque at Hollands bulb exchange auction caused a panic buying at the highest priced bulbs that then caused buyers to stay away. The Dutch futures market-to-market spot price drop is exactly the same scenerio- Our Tulips- high priced tech stocks/Indices and commodities futures: Plague-COVID-19. Trumps endgame- big pharma profits while crippling Democratic president campaigns rallies to undermine voter turn out in November declaring COVID-19 emergency is still in effect.Retail panic consumption will skew the consumer/household tax revenue- just like panic buying of Dutch tulip bulbs upon the breakout of the bubonic plague.Repo gets $1.7 Trillion payout. $60BN Securities infusion to Wall Street. Banks speculation (your money) on oil futures drops into sell off- setting off global currency spot price skews. Read Nash Equlibria.Lowering interest rates blowback- home values drop. Make America Bankrupt Again
Peter Masouredis
Peter Masouredis Mar 14, 2020 11:15AM ET
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so whats your general position on this? are you for America or against?
Sebnem Oden
Sebnem Oden Mar 14, 2020 11:15AM ET
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Rich, why specifically would lower rates, in themselves, cause home values to drop?I see values dropping for other reasons but not for low rates.
jemin An
jemin An Mar 14, 2020 11:15AM ET
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F.R should not cut the rates in coming Wed, money liquidity is little affective to virus war, also they have to have a plan for after this disease chaos, I mean fear for recession, real bankrupt of oil, tour, airlines, and any industry suffering from broken global supply chain
سفيان السعليتي
سفيان السعليتي Mar 14, 2020 10:26AM ET
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I think it's not a time for investments "just we wait" until we passe this problem of "corona" so we hope the end of it comes very soon
Bảo Trần
Bảo Trần Mar 14, 2020 10:26AM ET
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i totally agree wth u
Francesco Lucchesi
Francesco Lucchesi Mar 14, 2020 10:20AM ET
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if only they had left those poor pangolins and bats alone
Chris Bartling
Chris Bartling Mar 14, 2020 10:17AM ET
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some of the comments on here are crazy. listen folks next 6 months or more will be shaky times. market's growth will be very limited. keep cash on hand and buy dips when you can. stock market just stepped into a time machine 4 years ago. times like this if you make a few smart moves will put you in better financial shape for the future! cheers!
William West
William West Mar 14, 2020 10:17AM ET
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you're fundamental it's true for long term (》2 years). But bares problematic individual holdings as most overextended households suffer their financial comfort zone from the previous 11 years of stimulus handouts. The average household will take a beating for a minimum of 5 more years after the Fed's "reclaim" all these cuts.
Notvery Goodathis
Peteymcletey Mar 14, 2020 10:11AM ET
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I maxed out my 401k contributions for foreseeable future. Probably should have done that before... but doing it now!
邦夫 藤澤
邦夫 藤澤 Mar 14, 2020 10:11AM ET
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Keep a cash and wait
Mehrdad Gh
Mehrdad Gh Mar 14, 2020 10:11AM ET
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Cash left over has become more money.
Adamo Nals
Adamo Nals Mar 14, 2020 10:10AM ET
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How we got to this point in the first place is by doing ignorantly quantitive easy and low rates. So the movie Dumplin dumber. Well the Fed is Dumb and dumber and dumber and dumber and dumber and dumber and dumber. Sometimes you have to go through recessions or a depression. But a recession is healthy. And if the market suffers it suffers. And if some businesses suffer they suffer. that’s life. You just can’t continually bankrupt America which will eventually happen. Very soon. So if the S&P goes to 1700 it goes to 1700. It’s time to stop the madness
Sal Loiacon
Sal Loiacon Mar 14, 2020 10:10AM ET
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Lots of bail outs with this one. The titantic is def sinking. Its only a matter of time before we see the effects on main street.
Pl Red
Pl Red Mar 14, 2020 10:09AM ET
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Forgive all federal student loans
Dominic Sherman
Dominic Sherman Mar 14, 2020 10:06AM ET
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Its just the beggining. The nasdaq will fall more 50% at least.
Erik Holton
Erik Holton Mar 14, 2020 10:06AM ET
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Over reaction
Chazlin Naidoo
Chazlin Naidoo Mar 14, 2020 10:03AM ET
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HOW did we get to this point in the first place? The answer is in the Bible, read Malachi chapter 3. God said return to Me and I will return to you. He also says that if we don't return to Him, than we are under a curse. If we return to Him, He will rebuke the devoured (Covid-19, Tsunamis, Earthquakes, in otherwords all that is evil) for our sake and nations will call you blessed and you will be a delightful land says the Lord of Hosts. It was better for the devil to say we are under a curse than for God to say that. It's better for the devil to be our enemy rather than our Creator. Those who know the truth shall understand what I am saying but those who despise the Word of God will tell me I'm talking nonsense.
Ryan Hibbett
Ryan Hibbett Mar 14, 2020 10:03AM ET
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you're part of a cult
Aleksandar Vuletic
Aleksandar Vuletic Mar 14, 2020 10:03AM ET
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loollll bible and stock markets, jeasusss christ leave the god and bible out of this stupidity
Kevin Kuemper
Kevin Kuemper Mar 14, 2020 10:03AM ET
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then you must also believe the Earth is only 10,000 years old .... hmmm
Sachin Kumar
Sachin Kumar Mar 14, 2020 10:02AM ET
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the time is came for investment
Peter Dikeakos
Peter Dikeakos Mar 14, 2020 9:49AM ET
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If it's all about money-honey bears are ready to climb the tree to lick it. It was a long restless winter for the bear. Time To Enjoy Spring Golden Honey.
Chris Martin
Chris Martin Mar 13, 2020 11:34PM ET
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For me, the obvious answer is not only China, but various forms of welfare. People fly here from many places rto have their babies here to be immediate citizens which give meant benefits. Illegals & refugees are given apartments, checks, food stamps and many incentives that draw them like a magnet. How many are there? What do they cost? Why does nobody seem to care, especially Democrats? Some of these people Is be fine with but the exodus from elsewhere ro here is less about work than for "free". Wr could pay for the institutions that were closed down years ago. We wouldn't have to rent someone an apartment, give them a check for 500 s month and have them wander around when they should be institutionalized. We could actually buy all homeless veterans a condo or similar. This sanctuary stuff??? Simply crazy. Or would appear there's no way out either. When modernization and robots replace people, we'll have a rash of people that have no work and will commit more crime.
Alberto Mallari
Alberto Mallari Mar 13, 2020 11:34PM ET
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very well said,chris!
Michael Mroz
Michael Mroz Mar 13, 2020 11:34PM ET
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Who is John Galt?
Ray Atwood
Ray Atwood Mar 13, 2020 11:34PM ET
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Nothing provides "obvious answers" like sweeping generalizations.
John Snow
John Snow Mar 13, 2020 9:20PM ET
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I think the important question to ask is how did we get to this point in the first place? The point where most of our society is 14-30 days away from going bankrupt? This is not healthy.
Nicholas Consiglio
Nicholas Consiglio Mar 13, 2020 9:20PM ET
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Umm 3 years of stock buy backs, loose monetary policy, coperate tax cuts, pointless trade war didnt take long to take something weak and make it super fragile
Sean Livingstone
Sean Livingstone Mar 13, 2020 9:20PM ET
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Let me give you some idea. When China was attempting to contain the virus, instead of getting ready ourselves to limit the flow of virus into our borders, develop checks for the virus, shore up the economy etc. We went ahead to question China, point fingers, laughed at them. And then this. And still we decided that it's still China fault. What brings down a nation isn't something from the outside but from within.
Juho Peltola
Juho Peltola Mar 13, 2020 9:20PM ET
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Economy should'v been crashed in 2016. Trump is just an undertaker. Learn to cach a fish...
 
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