by Greg Valliere, AGF Management Ltd.
CRISIS DEEPENS THIS MORNING: Despite all the tools that we’ll quickly review below, the only issue that matters is when the number of new infections begins to drop. There are signs of hope in China, but the ghastly numbers from Italy portend what is coming here in the next few weeks.
DONALD TRUMP ludicrously asserted yesterday that “we have tremendous control” of the virus, but he’s increasingly irrelevant, reduced to tweeting that he may soon pardon Michael Flynn, as if that might change the subject. The key players are Mike Pence — getting decent reviews — Steven Mnuchin, Dr. Anthony Fauci, and Fed Chairman Jerome Powell.
THERE ARE MORE TOOLS: Mnuchin will strong-arm reluctant Senate Republicans, who will pass a bill within days that will help virus victims. But there’s a need for much, much more on the fiscal front. Two issues stand out:
First, will there be a massive tax stimulus? Probably, but it may not be a payroll tax cut; there isn’t much support for that in either party. Some type of cash infusion, a one-time payment, is increasingly popular.
Second, there will have to be bailouts (although the politicians hate that word). Airlines, hotels, and cruise lines are almost certain to win federal aid, along with thousands of small businesses. Aid to the staggering energy industry is not on the front burner.
JEROME POWELL’S GAMBLE: Hats off to the beleaguered Fed Chairman, who had the guts to swing for the fences. The initial market reaction has been alarmingly negative, but we think once the extent of his action is appreciated, it will ease fears of a crippling and prolonged recession. The financial system is now awash in liquidity and Powell has pledged to do more; the second half snap-back should be dramatic.
THE NEXT CRISIS will involve ventilators; there simply aren’t enough in the U.S. to treat the hundreds of thousands of patients who will soon flood hospitals. (For a sober assessment of ventilator rationing, check out a chilling article in this morning’s Washington Post by Ariana Eunjung Cha on who gets to live and who gets to die.)
WHEN DOES THIS END? The CDC recommendation on self-distancing is for the next eight weeks, so it seems that this crisis will extend at least into May. Life is returning to normal in China, which may signal an end of the beginning, to paraphrase Churchill. But this nightmare is just beginning in North America, as a very grim new week looms.
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JOE BIDEN, STILL STANDING: Bernie Sanders, snarling and confrontational last night, has to drop out after tomorrow night’s primaries (which Biden will win comfortably, assuming they aren’t cancelled). Biden was better than adequate last night, and he made some major news — he’ll pick a female running mate (most likely Amy Klobuchar, in our opinion).
WHAT A CHOICE: The elderly Biden, the yelling socialist Sanders or the incompetent narcissist Trump. Biden struck us last night as a decent old uncle who could calmly lead — and unite — the country in a crisis; the other two lack those skills.
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This post was first published at the AGF Perspectives Blog.
