Alchanati Campbell & Associates
Chapman hosted an economic webinar Thursday, June 18th to discuss the monetary credit and fiscal responses to the pandemic. They had many panels of speakers ranging from the President of the Federal Reserve Bank of St. Louis to economic professors at MIT and Dartmouth College. The common themes between all the panelists are fear, uncertainty, this event is unprecedented, and it not being a V-Shaped recovery. Some agreed that the Feds made the right choices in their monetary and fiscal policies, but others had mixed feelings and felt that the Feds could have acted differently (bringing rates to negative). Here are the key takeaways:
Where we are now in the monetary and fiscal world is in unchartered waters and the current goals of the Feds are to mitigate a financial crisis and to mitigate depression risk. So, the Feds will do whatever it takes. Their current policy response comes in three ways:
The Cares Act essentially spent 10% of the US GDP to fund some of these policies. The prediction is the 2020 GDP will be 10% lower than 2019 GDP levels. But there will be more fiscal policy going forward because the stock market is being propped up by it, and society is relying on it. Unfortunately, this can not be maintained over a long period of time. The Feds estimate that, because a typical small business can not last 90-120 days without revenue, this is how long it will last.
One economist created illustrative scenarios to predict what may happen in three different ways.
The Feds are currently buying corporate bonds and corporate bond ETFs (regardless of their credit rating). For example, they bought an ETF fund (SPDR Bloomberg Barclays High Yield Bond ETF) composed of high yield corporate bonds… junk. Some say the Feds are going to start buying equity in the stock market. Are the Feds picking winners and losers? Will the Feds hold these corporate bonds to years to come? Will they become majority shareholders with controlling interests and voting rights? Who will they send to represent them at the shareholder meetings?
The ACA Foundation
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