Is Trump's Priority the Stock Market or COVID-19

March 20, 2020

It seems to me that the global central bankers are using their stimulus bazookas all at the same time. The real problem that no one is talking about is consumer confidence that has been essentially shattered over the last few weeks. The market is not going to recover simply because of global stimulus. The psychological effects of COVID-19 are detrimental because consumer demand will never be the same due to the effects of prolonged confinement. This undoubtedly puts pressure on the family with respect to life and death that reigns in the spending that survival is not based on conspicous consumption.


COVID-19's effects on volatility in the financial markets is showing that global liquidity is undermined by the credit allocation of the people who really need it to pay their mortgages and have little savings leftover for any outstanding monthly expenses. The ongoing financial turmoil has resulted in increased discussions surrounding liquidity. More importantly, it's been reported that the Federal Reserve was a key catalyst in supplying liquidity to the economy and financial markets during these distressed times that we are faced with today.


The Fed plays a role in supplying liquidity using open market operations and by lending to depository institutions at the so-called discount window. Another channel is by optimizing the liquidity of portfolios of certain institutions by replacing their illiquid and less-liquid assets with more-liquid assets. The Fed has used the latter approach since 2007 and for the ongoing COVID-19 pandemic.


However, "liquidity" is often used ambigiously as it describes very different things. Liquidty is often used to describe a particular characteristic of an asset and implies the "degree of ease and certainty of value with which securities can be converted to cash. Cash of course, is pure liquidity. Other assets have a high degree of liquidity determined by how much the price of the asset must be reduced to be able to be converted to cash, and how quickly the asset can be converted to cash. The first requirement stems from the notion that almost any asset can be converted into cash rapidly if prices are sufficiently attractive.


The friction of global liquidity is the unwillingness of banks to extend unsecured loans to corporate America's debt load. Markets simply weren't efficient in determining "real" asset prices because they were mismatched with share repurchase programs and stock buybacks. Stock buybacks are the market and unfortunately dividends have become a rare oddity in the market place. Central banks' liquidity may not be enough to kickstart corporate share buyback programs.


What's really disturbing is when you have Republican Senators telling Americans and the world that they are safe, that their assets are safe, and that their financial obligations are sound, only to finish the press conference and proceed to sell the majority of their stock portfolios after realizing the true implications of this pandemic.


Soybean Donny was simply sleeping on the job. Unfortunately, what people fail to realize is that the United States is on pace to experience a similar path as that of China and Italy. The virus bug may have latched on to Soybean Donny as he looked very sickly and tired as if he had the flu during the last press conference. During his three years in the office, nothing else has stuck to Soybean Donny, so it would be ironic if the virus did. Soybean Donny's appereance has deteriorated and made him look incompetent in handling the COVID-19 pandemic. At Mar-A-Lago last weekend, a team of Brazilians were infected as they partied on and traded germs passing the bong along. Trump was tested and the results came back negative, but in all seriousness, would you think they would be dumb enough to report otherwise?


First Donny called it a hoax, then he indicated he always knew that it wasn't a hoax. Then he decides to call the COVID-19 pandemic a "Chinese Virus". The only reason why he's doing that is because Trump is up to his old tricks again. He simply wants to divide and conquer. It's obvious Trump knew about the threat of COVID-19 well before its escalation. After all, that's why he downplayed the crisis and failed to take it seriously, instead proposing that everything was "totally under control," even as the pandemic took a sharp turn for the worst. The United States now has over 7,000 people infected and about 100 deaths, according to the CDC. The largest concentration of those infected are represented by the states of Washington, New York, California, with many experts warning this is probably just the beginning.


The problem with Donald Trump is that he wants to sing the tune of global stimulus. The truth however, is that his true intentions is propping stock markets back up without knowing the reasons. Liquidity is based on assets that are priced too high and relies on getting some cash rather than none at all. If the banks have underperforming mortgages, they will want the Fed to purchase these toxic assets and let the public hold the bag. It's the same old story that claims central bankers are always there to clean up and wipe the mistakes of financial institutions.


Ask any banking institution if they would loan money to Trump's enterprise businesses. He may get a few bucks here and there since he's the President of the United States. Once he's gone from the Presidency he will have a clear understanding of how much cash he will get versus his debt load that are breaking banks' backs.


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