Simon, there is an old saying in finance that sometimes nothing happens for decades and then there are weeks during which decades happen. I think this is one of those weeks.
Monday morning just after 8am this week, we got news that the Federal Reserve made what I think was the biggest monetary intervention announcement in recorded history, announcing unlimited quantitative easing to react to the coronavirus crisis.
It was very, very controversial when QE2 was introduced several years ago. That was a spending program of $500 billion over the course of about eight months. And it was very controversial. A lot of people thought that was just too much and they shouldn’t do it.
What the Fed announced this week is, first, they’re going to spend more than that this week alone. And they’re going to continue spending at that rate indefinitely.
The thing that I think is even more – we could do a whole show about that announcement, but what I think is even more newsworthy is the market’s reaction. Of course, asset markets had to jerk higher on the news. That lasted, Simon, less than two hours before the move up in asset prices had fully retraced. Which really speaks volumes, in my mind.
It says that the Fed put has finally expired worthless. Please give us your interpretation of these events. And what are the knock-on effects and consequences as you expect them to play out in financial markets?
I want to refer our listeners – we don’t have a slide deck today because Jim has just been flat out with the various situations in markets. Jim’s timeline on Twitter has some of the best graphs and charts showing the case growth of COVID-19 cases around the world. So I encourage our listeners to check that out.
Jim, I want to start with the big picture of, okay, monetary policy two weeks ago versus today is a very, very different story. I think some of our listeners have been overwhelmed.
We know there was a massive intervention last weekend. We know there is an alphabet soup of new accommodative facilities, but almost nobody can keep track of all of them.
Give us the big-picture summary. What has happened? What are central banks doing? And what’s the summary of all the actions that they’ve taken?
Let’s start with the high-level big picture of what’s going on – both the stock market coming off of its all-time highs, new all-time lows in bond yields.
Is this all about the coronavirus crisis? Or is the coronavirus just a catalyst that brought something else about?
Axel: Great to be with you. In this industry we always love to give a story to the action and, by all means, let’s fit that story, right?
Clearly, we’ve had a many-year bull market, stocks were at an all-time high – that may have been due for a correction according to many. And sure enough, we got a shock. And it helped us. And so, ultimately, does it really matter?
One of the things, if you’ve been around the block a few times now, is that there is a storyline that starts these things. And then these stories evolve. Remember in 2000 for example (or whenever you’ve had a crisis or a bear market coming), it starts somewhere. But then suddenly there are ripple effects that you don’t foresee.
Jesse, it’s been way too long. It’s great to get you back on the program.
I want to start with the market because you have been a voice of reason for years now, saying, hey guys, it’s great that the stock market is making money for people. But it’s 10 years straight up. It’s too much, too far, too fast.
The question on my mind now, Jesse, obviously the COVID-19 situation is the proximal catalyst that’s caused the recent selling. But is this the extent of what’s going on? Or is it more likely the case that COVID-19 is the catalyst that was needed to bring about a change in market direction that might have been overdue to start with?
Erik: Joining me now is Fasanara Capital founder, Francesco Filia. And I always enjoy interviewing Francesco because, not only does he always send us a terrific slide deck, but it’s usually a big slide deck. So we won’t be able to get to all of the slides in this deck. I do strongly encourage our listeners to peruse the entire deck because it has some really fantastic content in it.
You’ll find the download link in your Research Roundup email. If you don’t have a Research Roundup email, that means you haven’t yet registered a free account at macrovoices.com.
Just go to our home page at macrovoices.com, look for the red button that says Looking for the Downloads? right next to Francesco’s picture on our home page.
Francesco, we can’t get into every single slide here, so I want to start maybe with Page 6, I believe, where you’re looking at the 50-year swap rate. Tell us what’s going on here and fit it in to the big picture of what you see in the market.