I think the market stopped caring once the trillions started flowing. Cases and deaths are expected now, and the hope is that economic damage is contained. I could see a sudden rush of bankruptcies causing another tumble. Think Lehman Brothers.
There was a rush of euphoria over the last several days that the Fed was going to save things again, as they did in '08 and '09 with helicopter money and bailouts and open market purchases. For over 10 years, anyone who has fought the Fed has been severely beaten, and I acknowledge my positions are bets against their activities working.
However, I don't see how throwing a massive amount of money at treasury purchases, corporate bonds, repo markets, or even helicopter money checks will cause the virus to go away. I also don't see how it will cause my neighborhood restaurants to stay in business, or will lead to more people flying to cruise ship ports, refill the malls, or increase consumption in any number of ways. 1929 and 2008 were issues of banks running out of liquidity due to investments not performing as expected. This is an entirely different problem - a massive drop in consumption problem. Even if governments ordered these businesses and schools to reopen, for one, many people would avoid entire industries like restaurants and tourism until the pandemic was actually over, and two the economy would suffer extreme productivity losses due to a significant percentage of the population (let's say only 20%) being out of work sick for a month in 2020. That's a lot of car repossessions. A 1-2% reduction in the population would also be a hit to GDP, and would result in real estate liquidations and foreclosures.
The U.S. GDP in 2019 was $21.44T. The $2T in new stimulus spending seems big even in that context, but I question the multiplier effect for most of that money.
My waitress neighbor who is earning $20-40 a day (restaurants in my state have still not closed) may avoid homelessness for a while thanks to her stimulus check, but her problem will not be resolved in May as the president seems to believe. She's not spending a dime she doesn't have to spend because homelessness and hunger are days away for her and her child. What does it matter to her in the next 6 months if Jerome Powell buys bonds, recapitalizes Goldman Sachs, or cuts rates to zero? There are still no customers, and even if there were, there's no TP so the restaurant will have to close due to supply chain failures.
@ChpBstrd correct me if'n I'm wrong but your general premise is that the severity of this entire situation is grossly underestimated, correct?
Yes, that's the premise. We have insufficient and inconsistent containment measures across state lines, a lack of testing capability which means infections are more widespread than any media report, an already minimalistic and dysfunctional healthcare system, and an executive branch that is betting everything on this thing ending in April/May. So far, in the whole world only China and South Korea have flattened their curves, and they only did so using draconian measures as soon as the virus was discovered:
https://www.visualcapitalist.com/infection-trajectory-flattening-the-covid19-curve/The U.S. on the other hand, missed the opportunity to control the spread before it got too big to control through standard methods like contact tracing. The U.S. is also not considering the sort of strict lockdown actions that worked in China and South Korea. Yes, NYC and parts of California are mostly locked down, but people are still free to travel in and out of the area. That was not the case in Wuhan, which ironically enough might now be the safest place in the world for anyone wishing to escape the virus.
The only outcome I see is the virus has to burn though most of the U.S. population before it is eliminated by herd immunity. In the meantime, bad things will happen in the economy. Meanwhile the stock market is only at correction levels. It's such a juicy opportunity I can't resist going short.
