Opening Bell 3.4.20 - Dealbreaker

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WHAT THE FED?!

“Don’t worry, we’ll just drop rates and this whole thing will go away.” Jay Powell on Monday night, presumably.

In a classic heel-turn, the likes of Hulk Hogan going to the NWO, the Fed used an emergency rate cut yesterday, dropping the benchmark rate to between 1% to 1.25%. The real kicker? Stocks still tanked, giving back more than half of gains from Monday. This is why we can’t have nice things.

Over-rated

As fears over the coronavirus have ravaged markets these past few weeks, Fed Chairman Jay Powell has been vocal, announcing just last week that the Fed would “act as appropriate” to help the global economy. And here we are. The voting members of the Fed unanimously approved the rate cut on Monday night, via teleconference, of course.

This was the first time an “emergency” rate cut has been handed down since the financial crisis in 2008. Not a great thing to be associated with. Initial reactions were great, as the Dow shot up 300 points before diving right back down like a Kamikaze dive bomber in WWII, finishing down 700. Naturally, POTUS wanted the Fed to drop rates even further... because lower rates can stop the coronavirus from spreading, as we all know.

One man’s trash...

Will get you a better yield than a 10 Yr US Treasury bond at this point. The 10-yr yield dropped below 1% for the first time *checks notes* ever once the Fed rate cut was announced. See now, since investors are scared of equities at the moment, money goes pouring into bonds. When people want bonds, the price goes up and the yield goes down. Congratulations, you just passed Econ 101.

Global markets also continued their free fall today, and the talking heads at the G7 summit didn’t give much insight as to what the hell they plan to do about it, other than “use policy tools to curb an economic slowdown.”. That, of course, meaning “brace for impact.” 

The bottom line... 

The funny thing about rate cuts is that they have proven to work when there is an actual finance-related crisis happening. Tech bubble crisis? Boom, rate cut. Mortgage crisis? Boom, rate cut. Trade War? Boom, rate cut. But coronavirus? Not so fast J-Pow.

Powell acknowledged that while the cut had absolutely no impact on controlling and curing the infectious disease spreading throughout the globe, it could help ease the global downturn by providing cheaper access to funds… that apparently nobody wants to spend.

It seems like companies are obliged to take losses now and use coronavirus as a way to explain the broader sell-off. But where tech and mortgage rates were an obvious bubble, the historic bull market over the past 11 years doesn’t have a clear one. The scary part for analysts is that the rate cut was our Ace in the hole, and now we’re still in a free fall. 

The Fed cuts rates and markets still fall [WSJ]

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