13 March 2020 - The ultimate week ahead playbook

Head of Research

Mar 13, 2020

We close the week on what has been an emotional and draining week. There has been some pain, and many are questioning if it’s too late to hedge and if it’s even worth it after so much damage has played out.

I addressed the idea of using extreme pessimism as a vehicle to time a reversal and I feel its coming, the question of when is obviously key. When you have markets moving 10% a day, if you mistime the trade then it's costly. It’s coming though and I think we saw the whites of the Fed’s eyes last night with their bold move to add liquidity to the system, with a huge $1.5t in repo operations over the next three days. What’s more, the $60b p/m in UST bill purchases will now roll to longer duration US Treasuries – a stealth QE. But, its not the game-changer, and although participants will offer USTs for cash, this will be reversed at a defined date and in fact, I argue that buying USTs outright to hold on their balance sheet indefinitely (proper QE) would be negative in this environment.

In this video, I address the idea of what the market wants to see; that being corporate debt purchases - and how market players will keep selling risk until they get it. I argue that four days is an eternity in these markets, so the Fed should just hold an emergency meeting today and cut the fed funds rate to zero, get it over and done with. Trump needs to win back support, and we need a big response, but that may not happen until next week. But we as, what will it take to promote a better tone in these markets, as when these markets rally, it will go hard.

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