Monday, March 23, 2020

We are expecting the equity markets to fall today due to the fact that Congress has yet to pass a Stimulus package.

We saw a similar behavior in March of 2009. The low was reached days before the Congress finally passed the Stimulus package for the Obama Administration. At that time, the delay in passing the stimulus package was blamed for trimming 100s of billions of dollars from the US GDP.

It is our belief that the US today is following a similar pattern and just like March of 2009, we are seeing the equity markets drop due to the delay of Congress. In 2009 it was because the package was too big and possibly benefiting people who did not deserve to be helped. Today it is that the Treasury has too much flexibility, the airline industry should receive grants rather than loans, corporations are not restricted enough from using funds for bonuses and stock buybacks, and not large enough barriers to prevent companies from laying off workers.

At some point, these differences will be eliminated and a stimulus package will be passed; once that occurs, history suggests that the equity markets should start to recover from the recent bear market.