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Morning Commentary

DC Fumbles as Fed Steps Up

By Charles Payne, CEO & Principal Analyst
3/23/2020 9:56 AM

Over the weekend, the United States Congress debated a coronavirus stimulus bill. Then it was rejected yesterday, sending equity future spiraling.

Democrats are worried Wall Street and Big Business will be given a blank check.  Then Democrats and the media lamented over how the crashing stock market was destroying Main Street pensions, even folks that told Americans for three years how record stock market gains meant nothing to Main Street or everyday workers.

Obviously, they were lying and obviously lawmakers were playing politics yesterday.

I have said for weeks any rescue package must focus on Main Street, small business and folks in things like the gig economy.  There is no doubt past bailouts were all about banks and corporations and hedge fund managers.  Of course, those challenges were centered around the investing system run amok to create profits from extraordinary risk leaving the biggest names in the financial system vulnerable.

The same folks that preach the importance of failure, and cheer Schumpeter, got fat bailouts and soon it was business as usual.  Globalists say there was no other way and the pain would have been too unbearable for Main Street.  I get the resentment toward bailing out big corporations and banks, but there is no time to quibble socially from the same folks that passed one of the biggest pieces of legislation and told Americans they could read the bill later.

On that note, I’m sure the $1.8 trillion isn’t enough, but it’s a start.  If there was going to be a holdup, it should have been to make the package larger rather than focusing on how much businesses would get. Concerned lawmakers should have demanded more for Main Street.  They are back at the drawing board and this time they must deliver.  I know it’s a free-for-all in those rooms, and everyone is asking for money, even industries and businesses that were busted long before the coronavirus bug showed up.

Treasury Secretary Mnuchin thinks Congress will get its act together today. 

This would be amazing, especially for small business (500 employees or less), which would receive funds from the government to keep workers and rehire workers.  Mnuchin says these loans will go to the smallest business, including retail Mall-based names that were already in a world of hurt.

Of course, both parties will come to the aid of big business, but some understand they better write monster checks to small business before coming to the aide of companies like Boeing (BA).

Powell Steps Up Big Time

Release from Federal Reserve

The Federal Reserve is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time. The coronavirus pandemic is causing tremendous hardship across the United States and around the world.

Our nation's first priority is to care for those afflicted and to limit the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.

The Federal Reserve's role is guided by its mandate from Congress to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system. In support of these goals, the Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit to American families and businesses. These actions include:

In addition to the steps above, the Federal Reserve expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.

The PMCCF will allow companies access to credit so that they are better able to maintain business operations and capacity during the period of dislocations related to the pandemic. This facility is open to investment grade companies and will provide bridge financing of four years. Borrowers may elect to defer interest and principal payments during the first six months of the loan, extendable at the Federal Reserve's discretion, in order to have additional cash on hand that can be used to pay employees and suppliers. The Federal Reserve will finance a special purpose vehicle (SPV) to make loans from the PMCCF to companies.

The Treasury, using the ESF, will make an equity investment in the SPV.

The SMCCF will purchase in the secondary market corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds. Treasury, using the ESF, will make an equity investment in the SPV established by the Federal Reserve for this facility.

Under the TALF, the Federal Reserve will lend on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. The Federal Reserve will lend an amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS. Treasury, using the ESF, will also make an equity investment in the SPV established by the Federal Reserve for this facility. The TALF, PMCCF and SMCCF are established by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary.

These actions augment the measures taken by the Federal Reserve over the past week to support the flow of credit to households and businesses.

These include:

Taken together, these actions will provide support to a wide range of markets and institutions, thereby supporting the flow of credit in the economy.

The Federal Reserve will continue to use it full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.

Bottom Line

I knew the Fed would step up and still think they have more tricks up their sleeve.  I have always said, and wrote to subscribers, there was no limit to their creativity, which began in 1961 with Operation Twist.  I salute Powell who had made a mess of the job; he and his colleagues are stepping up big time now.

What to buy?

We are going with two new ideas this morning.  Ideally investors want to scale into the market over the next couple of weeks, by the same token, individual names will put in bottoms long before boarder indices. If you are not a current subscriber to our Hotline service, call your account representative or email research@wstreet.com.

Portfolio Approach

We are increasing Consumer Discretionary and Technology to a 4 weight and lowering Cash to 4 (20%).

Today’s Session

There has been less volatility overnight, and equity futures have been higher for most of the morning, but there’s still a sense anything can happen at any time during the session. 

Technical View

The S&P 500 is locked into the perfect downward spiral with a very ridged channel that continues to resistance hold, and new lows created.  This pattern must be reversed to gain any traction to an upside move.

Right now, key support is 2,367, which must hold, or we tumble to the bottom of the channel. The first big upside test is 2,562.


Thanks for your advice, the president should have you as a member of his team

Timothy Bladzik on 3/23/2020 10:36:43 AM
This is my first read. This was very helpful.

plasencia plasencia on 3/23/2020 12:26:54 PM
looks like we tumble to the bottom, unless congress acts today. S&P 2000 hope not

robert soutas on 3/23/2020 12:36:19 PM
Peelousy ? ChittShu give themselves Praise & Glory FOR DOING NOTHING & these a-hole's can’t praise President Trump for anything. Whatever he does it is pre-ordained to be BAD! Newman & Cuomo at least had the balls to tell the truth about what President Trump has done for the country AND Every Democrat voter must be blind stupid corrupt or just doesn’t give a S**T about anyone or anything other than themselves!

fred wiese on 3/23/2020 2:51:36 PM
The House and Senate leadership along with many of their colleagues should be tarred and feathered in front of 1600 Pennsylvania Ave.

garro on 3/23/2020 3:31:18 PM

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