{"id":8571,"date":"2020-03-30T17:24:37","date_gmt":"2020-03-30T17:24:37","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8571"},"modified":"2022-02-26T13:06:43","modified_gmt":"2022-02-26T13:06:43","slug":"are-the-fed-and-congress-doing-enough","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/are-the-fed-and-congress-doing-enough\/","title":{"rendered":"Are the Fed and Congress Doing Enough?"},"content":{"rendered":"\n<p>We are entering the phase of a bear market where pessimism starts\nto evolve into extreme doubt, where investors watch the stock market sell-off,\nas the Federal Reserve announces massive liquidity measures, and think, \u201c<em>Maybe this is it. Maybe the Fed can\u2019t save\nus this time.\u201d<sup>1<\/sup> <\/em><\/p>\n\n\n\n<p>This is the phase of a bear market where fear slowly starts to\novertake reason, which to me, means it\u2019s a good time to examine what is <em>objectively happening in the capital markets\nthat we can see and measure<\/em>. The Federal Reserve\u2019s unprecedented actions\nover the past two weeks are a good place to start. <\/p>\n\n\n\n<p>The first Fed move was one many investors are familiar with\n\u2013 the classic rate cut. The Fed cut its benchmark rate to near zero, and then\nlayered-in a 2008 tactic by also introducing $700 billion of bond buying (Treasuries\nand mortgage securities). Many investors remember this as \u201cquantitative easing,\u201d\nor QE. There is a solid argument for QE being ineffective, as it supports the\nflattening of the yield curve \u2013 which isn\u2019t great for banks\u2019 net interest margins\n(which can hurt lending). But history also suggests that putting downward\npressure on longer-term interest rates makes stocks more attractive by\ncomparison, which I believe to be true. <\/p>\n\n\n\n<p>The Fed didn\u2019t stop there. It then expanded its QE commitments\nto a <em>virtually unlimited<\/em> dollar\namount, signaling to the market that it would do whatever it takes to\nintervene. <\/p>\n\n\n\n<p>______________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-market-strategy-report?source=website&amp;medium=blog&amp;term=motm_blog_2020_3_30&amp;content=market_strategy_report  \">What Can You Do to Survive the Bear Market? <\/a><\/strong><\/p>\n\n\n\n<p>At the end\nof the day, I think the key for investors is to try and focus on the hard data.\nBear markets do not last forever, in fact, they are generally much shorter than\nbull markets. I recommend that investors remain calm, focus on the long-term\nand not let your emotions take control of your investments. <\/p>\n\n\n\n<p>Base your\ninvestments on data and fundamentals but not emotions! To help you do this, I\nam offering all readers our just-released April Market Strategy report. This\nreport contains some of our key forecasts &amp; factors to consider such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>The major market-relevant\nrisk for 2020<\/em><\/li><li><em>Factors behind challenging\ntimes &amp; a recession in the cards<\/em><\/li><li><em>Inside US GDP growth<\/em><\/li><li><em>A look at past epidemics\nand pandemics. How did the market react?<\/em><\/li><li><em>Our recommendation for\ninvestors<\/em><\/li><\/ul>\n\n\n\n<p><em>And much more\u2026<\/em>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<br> <br> <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-market-strategy-report?source=website&amp;medium=blog&amp;term=motm_blog_2020_3_30&amp;content=market_strategy_report  \">IT&#8217;S FREE. Download the Just-Released April 2020 Market Strategy Report<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-market-strategy-report?source=website&amp;medium=blog&amp;term=motm_blog_2020_3_30&amp;content=market_strategy_report  \">3<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>______________________________________________________________________________<\/p>\n\n\n\n<p>The Fed\u2019s actions included:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Lowering reserve requirements and telling banks\nthey would not be penalized if reserves fell below the capital requirements\nestablished by Dodd Frank;<\/li><li>Restarting the commercial paper lending facility\nand the primary dealer credit facility to buy bonds and inject liquidity and\nbackstops into the credit markets ($300 billion estimated financing\ncapabilities);<\/li><li>Taking the unprecedented step of becoming a\nlender not only to the biggest financial institutions, but also to households\nand small businesses struggling to survive; <\/li><li>Stepping in to shore-up money market funds and\npurchasing municipal bonds;<\/li><li>Opening a \u201cPrimary Dealers Credit Facility,\u201d\nwhich allows banks to get short-term loans needed to buy and hold securities\n(mainly corporate bonds);<sup> 3<\/sup><\/li><li>And more. <\/li><\/ul>\n\n\n\n<p>The Fed is working in conjunction with the U.S. Treasury to\nmake this capital available without exposing itself to high capital loss, which\nit is prohibited from doing. In all, the Federal Reserve has done more \u2013 faster\n\u2013 than it did in late 2008 when the global financial crisis was taking hold. The\nidea that the Federal Reserve is evolving, albeit temporarily, into a\ncommercial bank as well as a central bank is totally new, and appears in my\nview to be an important lesson drawn from the mistakes made in 2008. <\/p>\n\n\n\n<p>According to the former Fed Chairman Ben Bernanke, who led\nthe Fed during the 2008 financial crisis, \u201c<em>I\nthink the Fed has been extremely proactive, and Jay Powell and his team have\nbeen working really hard and gotten ahead of this and shown they can set up a\nwhole bunch of diverse programs that will help us keep the economy functioning\nduring this shutdown period, <strong>so that\nwhen the all-clear is sounded, we will have a much better rebound than we\notherwise would<\/strong><\/em>.\u201d<\/p>\n\n\n\n<p>The Fed\u2019s actions are happening alongside a fiscal cannon,\nwith plans released by Congress for some $2 trillion in new stimulus. Some\nhighlights from the Senate bill include:<sup>4<\/sup><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Providing Americans with incomes up to $75,000 ($150,000\nfor married couples) a check for $1,200, with an additional $500 per child. For\neach $100 of income above the thresholds, the check will be pared by $5.<\/li><li>Broad expansion in unemployment benefits, which\nwould extend to gig workers and freelancers, and increase monthly payments by\n$600.<\/li><li>$350 billion in loans to small businesses to\ncover payroll expenses, rent, and debt relief on existing loans.<\/li><li>$500 billion towards backstopping Federal\nReserve loans to corporations (see above).<\/li><li>Create new grant program to send $100 billion to\nhealth-care providers, with $16 billion for stockpiling medical equipment and\nprotective gear.<\/li><\/ul>\n\n\n\n<p>In all, the economic bazookas are firing, and while we are\nalmost certain to endure sharp short-term pain, the sheer volume and size of\nliquidity and spending being dedicated to the economy is unprecedented. I\nexpect it to show up in asset prices sooner than most think.<\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>John Templeton once said that the four most dangerous words\nin investing are: \u201cThis time it\u2019s different<em>.<\/em>\u201dI\u2019ve mentioned this quote a few times\nin my columns during volatile patches and even bear markets, and many investors\nand readers are familiar with it. <\/p>\n\n\n\n<p>In the current environment, however, I have seen quite a bit\nof resistance to the message of the quote. Many people are insisting \u2013\ncorrectly, I might add \u2013 that <em>this time\nis different! <\/em>We\u2019ve never seen this virus, we know very little about it,\nand the flood and speed of information in this modern era is unprecedented.\nWe\u2019ve never seen the Federal Reserve and the US government have to step in with\nthese unprecedented liquidity and stimulus measures! <\/p>\n\n\n\n<p>I agree that these unique circumstances are affecting\nsociety and driving our responses and decision-making in ways that we\u2019ve never\nexperienced before. This time is, in fact, different.<\/p>\n\n\n\n<p>But the point of John Templeton\u2019s quote is not to say that\nall bear markets are essentially caused by the same things and that they all\nend in the same way. Templeton\u2019s point is that it would be a huge mistake to\nassume that <em>this crisis <\/em>is the one that\nthe stock market won\u2019t recover from. That <em>this\nis the crisis <\/em>where the Federal Reserve and federal government\u2019s actions\ncan\u2019t save the economy. That <em>this is the\ncrisis <\/em>to ruin the economy for good. I can assure you; it isn\u2019t. <\/p>\n\n\n\n<p>In my\nview, it is essential to remember this bear market will come to an end and make\nway for another bull market, so patience in times like this is key. I\nrecommend that investors remain\ncalm, focus on the long-term and not let emotions take control of their\ninvestments. To\nhelp you focus on the fundamentals instead of the fearsome headlines, I am offering all readers our&nbsp;<strong>Just-Released April 2020\nMarket Strategy Report.&nbsp;<\/strong><br>\n&nbsp;<br>\nThis Special Report is packed with newly revised\npredictions that can help you base your next investment move on hard data. For\nexample, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>The major market-relevant\nrisk for 2020<\/em><\/li><li><em>Factors behind challenging\ntimes &amp; a recession in the cards<\/em><\/li><li><em>Inside US GDP growth<\/em><\/li><li><em>A look at past epidemics\nand pandemics. How did the market react?<\/em><\/li><li><em>Our recommendation for\ninvestors<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>5<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This crisis is truly unique\u2014but we can recover with a powerful government and Fed response <\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8571","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8571","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8571"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8571\/revisions"}],"predecessor-version":[{"id":10622,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8571\/revisions\/10622"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8571"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8571"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8571"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}