It will be worse before it gets better – much worse, according to Scott Minerd.
Guggenheim Partners’ global chief investment officer says investors continue to hold hope in many sectors, and this could be a sign that the worst hasn’t gone through a market that has had a beat in the past month.
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“Since we have not yet seen the capitulation, it would be premature to aggressively take action and buy at current levels, whether it be stocks or credit activities.”
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Minerd offered some sad insights for his customers in a Sunday research report, published during the period when the Republican-controlled Senate failed to pass a bailout package to help companies and individuals in difficulty navigate the pandemic. global that has brought economies around the world to a sharp halt.
“Since we have not yet seen the capitulation, it would be premature to aggressively intervene and buy at current levels, whether it be stocks or credit activities,” said Minerd.
Minerd said that the turmoil that the markets are facing now is a combination of the viral epidemic exacerbated by companies and investors who have resolved the debt in a rapid sequence to readjust the new reality caused by the onset of the deadly pathogen, which it has infected with more than 335,000 people and have caused nearly 15,000 casualties worldwide, according to data compiled by Johns Hopkins University.
“The turmoil we are seeing right now is the result of this leveraging,” wrote Minerd.
In his report, Minerd reiterated that the United States government and the Federal Reserve, in particular, need to allocate substantially more than they have already arranged to correct dislocations in financial markets and contain the economic blow resulting from the rapid spread of COVID- 19.
He explained the market situation and possible Fed strategies in this way:
| To get a foundation under the markets we will need something very large, something in the $ 2 trillion range in the form of a pool of liquidity that can be quickly made available to the companies and businesses that need it along with funding facilities from $ 2 to $ 4 trillion from the Fed. A facility like this will be much more efficient than a targeted, time-consuming approach to attempting to design bailouts. |
Similar comments were made by Minerd on Wednesday and the editorial board of the Wall Street Journal on Monday.
“That’s why I said we would need to see around 4.5 trillion dollars in quantitative easing (QE),” he said, adding that those funds would come in addition to all the measures that the American central bank has taken so far. , including a structure for the recently unrolled commercial paper market.
On Sunday, Treasury Secretary Steven Mnuchin said the Fed will play a key role in lending funds to businesses affected by the coronavirus pandemic.
“By working with the Federal Reserve – we will have up to $ 4 trillion in cash that we can use to support the economy,” Mnuchin told Fox News on Sunday.
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‘I’m not betting on a global depression, but I’m saying that for the first time in the post-war era we are really getting too close for comfort.’
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Minerd said that the Fed’s funding efforts could bring its budget to at least $ 9 trillion, or about 40% of 2019’s gross domestic product.
The investor said that areas of the financial market, ranging from airline leasing to guaranteed loan obligations, are in poor shape, but have not yet hit bottom.
“Interestingly, aircraft securitisations have not entered the realm of prices that would be appropriate,” he said, referring to the damage that the travel and airline industry suffers as a result of ongoing global shutdowns due to the coronavirus.
As for the epidemic that is spreading around the world, Minerd said that extrapolating from the trajectory that the epidemic took in Wuhan, China, where it originated, the United States has been able to see substantially more coronavirus cases within a month.
At the end of Sunday, there were 33,000 cases of infections with the new coronavirus strain in the United States, and he predicted that there may be around 2 million infected people in the United States in the next 30 days.
“This tells us that our life patterns will not return to normal in the next 30 days, mainly because we have not yet blocked the whole country,” wrote Minerd.
So can Washington lawmakers save the market or the economy early? Minerd said not to hold his breath, because even if Capitol Hill were to pass a bailout bill, it could take months to eventually bring about calm in the economy and market.
For this reason, he says that “buying the plunge”, or market downturns, a practice that has proven profitable in the past two years until this recent bout of stomach upset volatility could be a foolish commission.
“Even if Congress approves all the necessary legislation, we should expect the market to be vulnerable for another six months,” he wrote.
“This means that” buying the plunge “in the expectation that Congress will pass something soon is probably not a prudent investment strategy,” he said.
So far, the markets have been in freefall, with the industrial average of Dow Jones
DJIA,
the S&P 500 index
SPX,
and the Nasdaq composite index
COMP,
all with the worst weekly drops from the financial crisis of 2008 to the closing on Friday.
And Monday’s action was gearing up to be more staggering losses to kick off the week, based on the downward action of US stock index futures last Sunday.
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