“Threat level midnight.” – Jason
Hey there carnivores,
Markets made their way back on Friday.
And today we’re talking about the tricks Jay Powell has up his sleeve.
Jeff & Jason
You’re gonna need a bigger boat
The Fed had itself a Sunday Funday, gathering ahead of its planned meeting this week and handing down an emergency action plan to combat COVID-19. The most notable, er, interesting, move was the immediate cut of interest rates to near zero percent. Rates were slashed a full percentage point, to a range between zero and 0.25%.
The Fed also projected that the economy will likely shrink in Q2, because it turns out that retailers, bars, cruises, sporting events, and conferences closing down is “bad for the economy”, and not just your weekend plans.
If at first you don’t succeed…
This is the first time in its history that the Fed has cut interest rates on two occasions in between scheduled meetings. It didn’t help settle markets on March 3rd, and judging by pre-market trading, history appears set to repeat itself. Maybe the third time would be a charm?
As for what will happen today, stock futures indicate that we might (read: will be) be in for another volatile day of trading. The S&P 500’s 5% (pre-market) slide triggered its limit down emergency shutoff. What panic?
This circuit breaker prevents traders from further pushing down share prices, but still allows trades for stocks above the -5% threshold. Dow Jones futures dropped more than 1k points, also triggering a down level limit… because misery loves company, apparently.
From a broader economic perspective, it remains to be seen if the financial markets will remain calm… or if all hell will break loose. Jerry Interest Rates’ goal is to take a page out of his predecessor’s (Ben Bernanke) book and ensure liquidity for businesses and consumers during this sh*tshow.
The bottom line…
JP and his boys dropped the nuke this weekend, cutting interest rates 1 full percentage point to near zero. While nine of the members agreed, one member did vote for a range of 0.5% to 0.75%, presumably to potentially allow the Fed to make an additional action before getting into negative rate territory.
The Fed still has some potential tricks up its sleeve, including a facility to finance short term commercial debt. Last used during the financial crisis, this would potentially result in a decrease of companies attempting to draw on their bank lines of credit, thus keeping more cash at banks.
In a perfect world, the near-zero interest rates should encourage lending from banks to businesses, and encourage consumers to invest their excess cash in the market instead of storing it away under their mattress or in a bank account. One can dream.
☑️ All in favor.
The NFLPA voted to approve a new CBA in a close vote by the players. The deal, which has been approved by the owners, will keep the league running on schedule for the next decade. That is, if coronavirus doesn’t destroy it first.
The deal gives owners the chance to add a 17th game to the regular season as early as 2021 while adding more than $600M in new money to the players’ payment pool through revenue sharing. Oh yeah, and you can also smoke weed without getting suspended, so smoke ’em if you got ’em.
It was a real nail biter in the locker room. Let’s have a look at the voting replay…1,019 voted in favor versus 959 against, which tells us that those in favor voted more than those against. Thanks, Booger. It also shows that about 400 players didn’t vote.
☑️ A different path.
Morgan Stanley is getting out of the vet hospital game. That’s right, there is a vet hospital game. Morgan Stanley Investment Management’s private equity arm is dumping its Pathway Vet Alliance to TSG Consumer Partners. Will this be Pathway’s furever home?
While a final number hadn’t been disclosed, it’s expected that the deal is worth as much as $2B including debt. The deal is one of the few mergers and acquisitions that have occurred since the market ground to a halt as the coronavirus takes the world by storm.
☑️ Beta boy.
Ray Dalio is wishing we could turn back the clock right about now. His Bridgewater Associates’ Pure Alpha Fund II has fallen 13% this month, taking it down 20% on the year, as of Thursday. Still think people are overreacting, Ray?
A bad start isn’t necessarily a sign of things to come. Bridgewater’s worst month for Pure Alpha Fund II was a 10.5% fall in April 2008, a year which it rebounded during, wrapping up 9.4% in the green.