I recorded this with the incomparable Paul Schulte three weeks ago, right around when markets were going crazy. But I think we’re still in the same state: trepidation at what’s happening and shock at what’s being done to fix things. Paul’s one of the most experienced and erudite people I know when it comes to financial markets, especially around Asia, and it’s always enlightening to get his view on things. Here’s the link: https://www.youtube.com/watch?v=A7ToACh5Hsc
We mostly talk about the market crash, and what we’re going to do about it. During the bloodbath in March, I kept feeling that absolutely no one was surprised. The last few months, I’ve kept hearing the phrase “Grey Rhino”. And that’s what this was. It was a threat we all knew was coming. When it happened, it felt like an annoying guest showing up three hours late.
What shocked me was what happened next. The Fed came out and sliced interest rates straight to zero. Besides the existing repo liquidity operations, they turned up the printers and started buying corporate bonds on the secondary market (SMCCF). Then they started buying corporate bonds directly (PMCCF). And now they’re gearing up to lend directly to SMEs (MSBLP). A few days later Congress passed a $2 trillion stimulus, signed by a Republican president, that guaranteed unconditional cash payouts to all Americans, alongside corporate bailouts (as is tradition).
Later on governments around the world started doing the same thing.
I saw a tweet that summed it up like this: if you catch a questionable text from your partner and confront them, you might have a sinking feeling they’ll yell or stammer or bluster. But if they fall to their knees and start crying and begging for your forgiveness, that feeling turns to despair because whatever they’ve been doing, it’s much, much worse than you expected.
That’s what the market today feels like to me. It looks like the Fed’s “whatever it takes” measures have worked. We’re back around the market close on Black Monday I. People have started receiving checks so they can buy food and pay rent. Whether it will stay that way is anyone’s guess. And if it doesn’t, what the hell are we going to do then?