Stairway to the Basement

Jerome Powell pushed the panic button today and he has accelerated the eventual Fed funds ZIRP process.  It was not a matter of if, but when.  Powell decided that this was the right time to push the button, and I don't disagree.  And he probably knows that it isn't going to help much in this situation, as he admitted so in the press conference.  It is obvious for anyone that has any grasp of the magnitude of the economic consequences of consumer and business behavior in coronavirus infected countries how bad the economic data will get over the next 6 months. 

And the U.S. government has decided to be an ostrich, and pretend like the coronavirus is no big deal, with almost no testing, which assures that there will be very few infected numbers.  The CDC has been a cheerleader and have been totally incompetent since the coronavirus first hit the news, have tried to downplay the coronavirus almost as if to protect the stock market. 

This head in the sand approach can be a very short term positive for the market, as there will be less panic near term, as the number of coronavirus cases is kept low with almost no testing, until it blows up, and it can't be hidden from view any longer, when an outbreak occurs, at which point, the market will really panic.  Considering the government response to the situation, and the contagiousness of this virus as seen in other countries, an outbreak seems almost inevitable, and no one will know until hospitals are flooded with virus laden patients.
 In fact, for non-virus infected people, going to the hospital would probably be the most dangerous thing they could do, as it will be a literal virus factory at that point. 

Anyway, back to the markets.  The market is not dumb, which makes it harder than it used to be to make money.  Because it rightly has rallied bonds strongly off this 50 bps emergency cut.  The main benefactor of lower Fed funds rates is not stock investors, its bond investors.  Rate cuts during an epidemiological crisis are basically meaningless.  Isn't it unusual that the country with one of the fewest recorded coronavirus cases is the most aggressively easing?  It tells you how dovish and prone to ease the Fed is, and how reluctant Europe and Japan are to go to even more negative rates, as it is painfully obvious that the European banks can't handle even lower rates. 

The door is now wide open for the Fed to press on the gas, go straight to zero, and if there are any more drops in the stock market, a full blown across the curve QE.  That will obviously be dollar negative, as the rate differential between US and Europe will be about 1/2% and considering Europe's fiscal restraint relative to the US, it makes a euro a safe haven from MMT, where the US is already halfway there to embracing it to solve future problems. 

The volatility is through the roof, yesterday's high low trading range during regular trading hours was 5%, and as I write, there is a nearly 2% gap up mostly based on Biden's Super Tuesday wins.   I was looking to buy any dips today, but with such a big gap up, I will take a pass and wait for better opportunities.