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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