- March 22, 2020
- Blog , The Trusted Navigator - Bernhard Koepp
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Fiscal Response Larger Than in 2008 – YouTube Video & Transcript
In this video, Bernhard Koepp, C.J. Lawrence’s CEO gives an update on the massive fiscal package being discussed on Capitol Hill in response to the economic shutdown and what we are watching in the week ahead.
Yeah. Hi there. It’s a Sunday. March 22nd. I wanted to give you a quick update before we opened the market tomorrow. So on Friday the market sold off again, some of the things that we’re rolling over at the end of the day were oil prices, as we had mentioned oil was sort of a Canary in the coal mine. On the liquidity side, whenever you see oil rallying, you see the market rallying, and that’s really because there’s so much debt and high yield debt associated with oil. So when the markets are kind of highly correlated with oil prices right now, so the other part we were looking at on Friday was to see what the yield curve is doing. When you have a steepening yield curve, that typically means that the bond market is forecasting a better outlook. So the end of the day, again, the 10 year treasury kind of went down below 1% again.
So that was the reason the market sold off. So here we are on the weekend. I hope you’re having a restful weekend at home. Certainly we are. My family’s all here at home. Trying to stay away from what’s going on around us. So stay safe. I hope everybody’s doing well. So for tomorrow we’re getting ready for the market to open again. There was some worry about the news that the stock exchange is not opening up in terms of physical presence. So the whole New York Stock Exchange right now is going on electronic trading. We don’t think that’s a huge problem. Pretty much 90% of all the New York Stock Exchange volume was already on the electronics side. So I doubt this will have any impact on the market just to go fully electronic.
So there was a lot of activity in Congress over the weekend. I mean the numbers are really staggering that we’re hearing in terms of what the fiscal responsible be, it’s not just happening here in the United States, it’s also happening abroad. So the initial indications coming out of Congress and the Senate are that we may get up to $2 trillion of fiscal support. So just to put that into a context, a $2 trillion, that’s 10% of the total GDP. So the 10% of the total economy. So that’s far above any fiscal response that we got in the 2008 crisis. So this is pretty dramatic stuff. So the key to this stimulus package, it’s not really designed to stimulate the economy. It’s really designed to be a bridge. Fiscal response designed to get us from here to the other side of the problem, which is the outbreak. And to see that we can bridge the economy and the most vulnerable parts of the economy to that point where the virus no longer becomes a problem.
So the key to the stimulus package is really the structure of the package. How is it being rolled out? How is the money arriving at businesses and individuals? That’s going to be much more important than the amount of money. In the UK already we’re seeing some responses. 80% of worker salaries who are furloughed due to the virus will get support. We’re seeing similar programs in Germany, in Denmark, here in the US it’s a little bit more difficult to roll that type of program out. So the relief to businesses will be more in the form of loan programs. These will be in the form of loan forgiveness to meet payroll for example. So on the State level you’re also thinking to see quite a response. The problem the States are having is that most of the States in the country actually have balanced budget amendments.
So for States it’s very difficult to run deficits. So the cooperation and the response that is coming from the federal government is incredibly important for the States to respond. Private sector relief, we’re seeing some noises out of the Congress here and this is being hotly debated right now. There’s no agreement yet for the airlines. A number of about 50 billion was being discussed for other industries it’s about 150 billion, but there’s going to be a lot of disagreement here. I mean it is still an election year, so there are a lot of opinions floating around. There’s also, what we just heard is there should be a large amount of risk capital that will be approved to back corporate debt the muni market. So that’s very important if you think about corporations on the one hand issuing new debt or municipalities on the state level also being able to issue debt.
So these are things that are very important. So just in summary, what we’re going to see in the next week is an enormous response. I mean, Terry in his videos said correctly that this is whatever it takes, the policy response or what we call reflexivity is something that’s very prominent here. So next week we are going to see governments all over the world in the UK and Germany basically coming up with an enormous fiscal response. So we will monitor this. We’ll keep you up-to-date and see you very soon.