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Afternoon Note

The Fed to the Rescue

By Charles Payne, CEO & Principal Analyst
3/12/2020 1:43 PM

I’ve always had mixed feelings about Christine Lagarde, because I’ve never been a fan of the International Monetary Fund or the European Central Bank or ECB. She was the managing director of the former and is currently president of the latter.

This morning, the ECB enacted several measures, which disappointed equity markets, but her press conference was fantastic.

She says, it’s still too soon to know if there will be a recession this year in Europe, but stressed Europe and the World are facing major shocks, but the level and duration depends on the speed and the strength of a collective approach of all the players.

Her press conference emphasized that near term risks are the downside and fiscal actions will make a difference.  In fact, she pounded the table on the need for fiscal authorities to act, underscoring it must be:

·         Collective

·         Ambitious

The ECB’s decision not to cut interest rates, left many investors complaining about a lack of “shock and awe,” but they made funds available to banks for liquidity to keep credit flowing and increase access to refinancing.

Plus, they will be using 120 billion euros for special asset purchases.

But all these actions go through banks, and Europe and the United States need a direct injection of cash.

Lagarde pointed out, EU fiscal measures amount to only €27.0 billion, which is a pitiful number.

Not only do I hope leaders in Europe are paying attention, but also elected leader in the United States.  The stock market wants central banks to pour on the spigots, but economies need immediate help and that will only come from governments.

I find it amazing, how leaders in the EU and the United States, who have run up $35 trillion in debt could claim fiscal restraint. When it’s transparent, it’s the political bickering that is stalling swift action.  We don’t need to take advantage of the crisis by writing a blank check, but Lagarde, and the stock market are sending a loud thunderous message to world leaders.

It's time to lead, not time to bicker, stall or go on recess.


This doesn’t mean we are going to force the issue, but every investor has to make tough choices on closing out names that can only enjoy a short-term bounce, to free up cash for those that are sincerely extremely oversold.

Make sure to use your open line of communication with your account reps and the research desk.

The Fed to the Rescue

Hot off the presses, I got this email from the Federal Reserve, which is making massive amounts of money available to banks and Wall Street loves this.

Statement Regarding Treasury Reserve Management Purchases and Repurchase Operations

March 12, 2020

The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released a new monthly schedule of Treasury securities operations and has updated the current monthly schedule of repurchase agreement (repo) operations.  Pursuant to instruction from the Chair in consultation with the FOMC, adjustments have been made to these schedules to address temporary disruptions in Treasury financing markets.  The Treasury securities operation schedule includes a change in the maturity composition of purchases to support functioning in the market for U.S. Treasury securities.  Term repo operations in large size have been added to enhance functioning of secured U.S. dollar funding markets.

As a part of its $60 billion reserve management purchases for the monthly period beginning March 13, 2020 and continuing through April 13, 2020, the Desk will conduct purchases across a range of maturities to roughly match the maturity composition of Treasury securities outstanding.  Specifically, the Desk plans to distribute reserve management purchases across eleven sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating Rate Notes. The distribution of purchases across sectors will be the same distribution as the Desk uses to reinvest principal payments from the Federal Reserve’s holdings of agency debt and agency MBS in Treasury securities.  The first such purchases will begin tomorrow, March 13, 2020.

Today, March 12, 2020, the Desk will offer $500 billion in a three-month repo operation at 1:30 pm ET that will settle on March 13, 2020.  Tomorrow, the Desk will further offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement.  Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule.  The Desk will continue to offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.

These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak. Reserve management purchases into the second quarter will continue to be conducted with this maturity allocation. The terms of operations will be adjusted as needed to foster smooth Treasury market functioning and efficient and effective policy implementation.

One Last Thought

The knee-jerk spike on the news sent the S&P 500 to 2,655, which is now our new breakout trigger. While the first point to an early rally failed, it  will become the key downside test of support 2,574.



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