Barron\'s 03.16.2020

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M12 BARRON’S March 16, 2020


Market View


Thiscommentarywasissuedrecentlybyinvestmentmanagementandresearchfirmsandmarketnewsletterwriters.IthasbeeneditedbyBarron’s.


A Helping Hand for Business


Economic Alert


byStandard Chartered


sc.com


March 13:The corner grocer may face an


activity disruption because both supply


and demand fall. If the business was viable


on Feb. 1 before the crisis hit, it will likely


be viable on July 1, when the disease is


likely to be losing strength. The rebound


from the activity disruption will be faster


if the store does not permanently close.


There is a debate over whether the owner


should take all, some or none of the hit


from the activity shortfall; but from an


economic viewpoint, a shutdown runs the


risk of extending the damage from the dis-


ease well beyond the necessary period.


We suspect that the Fed and the Trea-


sury are coming to realize that the most im-


portant policy to ease the crisis is to ensure


that cheap credit is made available to viable


firms in the private sector. The ECB already


does this to a limited degree via TLTROs


(targeted longer-term refinancing opera-


tions), but there has been some debate over


how much credit ends up with firms. The


Fed may need to do the same on a larger


scale, although possibly for a much shorter


period and with more emphasis on ensuring


that credit reaches the private sector.


Equivalently, the Fed could take Trea-


sury yields so low that fiscal measures


could be used to keep the private sector


afloat for a few months, for example by


providing ultra-low-rate small business


loans. Either way, the intention is that


credit reaches businesses and households


during a period when banks may be incen-


tivised to cut back on credit extension.


—STEVEENGLANDER


Panic Selling Slams Gold


Gold & Silver Stock Report


byClif Droke Market Analysis


clifdroke.com


March 13:Gold has always been one of the


last bastions of strength in a world beset


by serious economic growth-related wor-


ries and geopolitical problems. But even


gold isn’t completely immune to the all-too-


human tendency to panic from time to


time. That was plainly evident on March


12 when gold prices plummeted in re-


sponse to the U.S. stock market’s biggest


one-day drop since the October 1987


crash. [Gold fell again Friday, losing about


$61 an ounce, or 3.8%.]


In the mad dash to raise cash, some-


times even the safest of safe-haven assets


get liquidated. During the worst part of


the 2008 credit crash, gold was similarly


subject to liquidation pressure. Yet the


2008 experience is also instructive in tell-


ing us what is likely to be the outcome af-


ter the panic related to the coronavirus


pandemic eventually subsides. At the


depths of the 2008 crash during October


and November of that year, gold prices be-


gan stabilizing even as the S&P 500 Index


(SPX) was still declining.


—CLIFDROKE


Assessing the REIT Landscape


U.S. Sectors


byNDR Ned Davis Research


ndr.com


March 12:Real estate has the lowest beta


and second-highest dividend yield (3.5%) of


all [S&P 500] sectors. Investors should be


cautious within REITs, however, as hotel


and resort REITs, retail REITs, and office


REITs should be negatively impacted by


social distancing. Industrial REITs could


also see stress if we have a prolonged global


economic recession. Residential and health-


care REITs look like safer places to be.


—PATTSCHOSIK ANDROBANDERSNO


Second-Half Rebound?


lobal Research


byJ.P. Morgan


jpmorgan.com


March 11:The global recession risks re-


main elevated, but we do expect double-


digit gains in China’s GDP growth in


2Q20, although Western Europe’s GDP


growth will contract by 3.2% in the same


quarter. The policy response is building


and broadening quickly, and policymakers


are showing greater creativity in address-


ing the unique nature of COVID-19


shocks and the constraints posed by the


effective lower bound on [developed-mar-


ket] central bank-policy rates...In total, we


forecast 75-100 basis points in cumulative


monetary easing ahead, alongside liquidity


provision in the form of targeted credit


and fiscal support for the parts of the


economy most badly hit by COVID-19.


Stress will be greater on small and me-


dium-sized enterprises and the energy


sector. As the peak of the virus fades in


May/June, we expect a synchronized re-


bound in 2H20.


—BRUCEKASMAN


Room for Fiscal Stimulus


Special Commentary


byWells Fargo Securities


wellsfargo.com


March 11:Financial markets have begun


to assess the prospects for a fiscal stimu-


lus in the United States as conventional


monetary policy approaches its limit.


There is a common perception, however,


that fiscal capacity in the U.S. is equally


as limited. Is this true? In our view, the


answer is mostly no.


The U.S. currently has the fiscal ca-


pacity to implement a large-scale fiscal


stimulus, should it choose to do so. Admit-


tedly, the federal fiscal outlook is bleaker


than it was prior to the last recession. The


federal budget deficit was just 1.1% of


GDP in 2007, compared to 4.6% in 2019,


and the stock of debt has more than dou-


bled as a share of GDP over this period.


But just because budget deficits and


debt are historically high, that doesn’t


mean that there is no capacity for addi-


tional stimulus. Despite this rising debt


burden, the federal government’s interest


costs as a share of GDP are historically


low and right around the levels that pre-


vailed in 2007. Furthermore, these data are


as of Q4-2019, before Treasury yields


plunged by more than 100 basis points [one


percentage point] across the curve. At


present, real interest rates on federal gov-


ernment debt, as implied by yields on


Treasury Inflation-Protected securities


(TIPs), are firmly in negative territory for


the first time since 2013. This implies that


the U.S. federal government could borrow


$1,000 today and pay back less than $1,000


10 years from now, after adjusting for in-


flation. This suggests that the federal gov-


ernment can, at least for the time being,


quite easily service both its existing debt


and some new debt, should it so choose.


—MICHAELPUGLIESE


Cheaper Gas = A $1.4B Tax Cut


Cumberland Advisors Market Commentary


byCumberland Advisors


Cumber.com


March 10:The Saudi-Russia price war


means OPEC disarray and a lower oil


price for the U.S.


The Energy Information Administra-


tion (EIA) reports: “In 2019, about 142.23


billion gallons (or about 3.39 billion bar-


rels) of finished motor gasoline were con-


sumed in the United States, an average of


about 389.68 million gallons (or about 9.28


million barrels) per day.”


Let’s look at the impact of a price


change. If the Saudi-Russia oil-price war


lasts a year, for the American economy ev-


ery penny per gallon that the gas price de-


clines will be equivalent to a $1.4 billion


consumption tax cut for the American econ-


omy. Estimates of the likely gasoline price


change now range from a 30 to 40 cents per


gallon cut to a 70 to 80 cents per gallon cut.


No one estimates the price will rise.


—DAVIDKOTOK


To be considered for this section, material,


with the author’s name and address, should


be sent to [email protected].


”We suspect that the Fed and the Treasury are coming to realize that the most important policy to


ease the crisis is to ensure that cheap credit is made available to viable firms in the private sector.”


—STEVEENGLANDER, Standard Chartered


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