The Fed cuts rates to baisically Zero

The fed cut rates but it won’t help in the short run. It provides liquidity in US dollars globally which is very important!

Borders are closing in Europa, people are not following the official measurements, therefore it is a question of time until other places after Spain, France, Italy, Austria will forbid any small (less than 5) group meetings and shout down public life completly. I.e. a curfew like we have seen in China or a dusk-to-dawn curfew will be most likely implemented.

1. Monetary stimulus is not effective, but to provide liquidity is a wise step. The US will sooner or later be facing the same problems like Italy, Spain Austria etc. face: I.e. the country will shut down completely public life or millions will get infected. A simple US tax cut on wages (like proposed by the US government) will not be sufficient, because a lot of people paid by hours will simply not be allowed to work! One must directly distribute money if it should be effective, like it is done in Hong Kong

1. This is the most aggressive step in the history of the Fed.

1. Real rates are now negative: Sorry to repeat it but this is financial repression with the goal to push people to spend and invest. But in the short run, nobody real cares. It is about controlling the outbreak; or better to slow it down. The price is probably a global recession

1. We are at an average correction, but the cause is a pandemia. A lot of countries have shut down public life to a minimum. Therefore, traditional measures, i.e. rate cuts will not help as there is at once a demand and supply chock.It might help once this is over.

1. Bond credit spreads are at a 7-year markets are at a 7 year.

Bottomline: we don’t know for how long this will last. Therefore, any forecasts are pure guessing. Indicators are if published distorted and will be at extreme low levels.

The situation changes day by day. We must, however, prepare ourselves for a general house arrest in most European countries where such measures have not yet been put in place.

Published: 16/03/20 by Blackfort CIO Dr. Andreas Bickel

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