March 3, 2020
First came the phone call with the world’s leading finance officials. Then came a statement, pledging to “expand health services” and “take action” to “aid in the response to the virus” and “support the economy.”
A few hours later, we got a an emergency, intermeeting Fed rate cut, to the tune of 50 basis points.
Expect the Bank of Japan to do something tonight. And expect the European Central Bank to make a move tomorrow morning.
Will it work to shore up confidence? As I’ve said, it will probably take a signal from global leaders (Presidents and Prime Ministers) that they are working together on a containment strategy, AND are committed to support the economy and those suffering with big fiscal stimulus and government aid.
On that note, if we think back to the global financial crisis, we had the $800 billion “American Recovery and Reinvestment Act of 2009.” Despite what turned out to be a decade long weak economic recovery, there was one industry that boomed as a result of the stimulus package — Silicon Valley.
Specifically, the Obama administration doled out $100 billion worth of funding and grants for “the discovery, development and implementation of various technologies.” This turned into the launchpad of the “disrupters” in Silicon Valley. Why? Because big institutional money (pension funds, etc.), followed the government money — private market valuations soared.
Where might the Trump administration allocate stimulus funds? Probably healthcare (related to the healthcare crisis — hospitals, pharmaceuticals). Perhaps manufacturing, as an effort to bring the supply chain back home. And today, Treasury Secretary Mnuchin said they will focus on infrastructure if they do a fiscal package.