The Four Steps Required For Recovery
by Eric Nager on Mar 27, 2020
In our previous e-mail communiques, we have focused on the immediate need and a constructive outlook for the future. This one will be different. We will lay out the four essential elements for recovery and our view as to where we are as far as the progress toward accomplishing each of them.
1) Monetary Policy – This is the realm of the Federal Reserve (Fed). We can check this box because the Fed has committed to unlimited QE (money creation) to deal with the crisis. This means that the federal government will have the backing to spend whatever is necessary to deal with the medical needs and the economic needs of the US.
2) Fiscal Policy – This is the realm of the Administration and the Congress. In a previous e-mail, we had sharp criticism for the delays caused by policy wrangling by some politicians because we felt that the American people were being hurt by these actions. Now we laud them for answering the call and passing the needed stimulus legislation. This approximately $2 trillion package may be enough with the Fed backing but, if not, it will be a significant first step with more to follow in the “whatever it takes” mentality. We cannot say that this box is fully checked, but substantial progress has taken place; therefore, we do not see the need for further defensive measures at this time.
3) Medical Progress in Dealing with Covid-19 – We need to hear some good news as to containment, mitigation, vaccines, effective medications, new cases leveling off, a decreasing mortality rate, etc. Good news is necessary not only for public health but to relieve public anxiety and enable people to engage in consumer activities that are so necessary to revive the economy.
4) Global Recovery – Virtually every nation in the world is being confronted by this virus and are at varying stages of getting through it. The good news is that most of them are using all of the monetary and fiscal tools they have in the “whatever it takes” approach. Medically, many of these nations do not have great capabilities of their own and it will be necessary for the US to help them based upon what is learned by dealing with the virus here at home. This fourth (global) step will be the crowning aspect to a US recovery based on steps 1-3 and will provide longer-term prosperity.
This is NOT the sounding of an “All Clear Alert.” Good progress has been made in steps 1 and 2 which should not be diminished, but bad news on the medical front or bureaucratic snafus on the government’s part in delivering the financial assistance to the people are potentially large problems. We have probably not seen the last of the big down days in the market, but Tuesday’s price action looks like it may be the beginning of building a bottom. A bottom is an established low point that generally contains future sell-offs, although it may be retested, and becomes the base for future market rallies. We will see.
As always, please feel free to call or email us with any questions.
From your team at Southern Capital Services