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Tag: Federal Reserve

Season 2, Episode 8, Transcribed: Assessing Economic Damage From Coronavirus With Political Economist Marc Chandler

Moderator 0:02
Welcome to the Contrarian Investor Podcast. We give voice to those who challenge a prevailing sentiment in global financial markets. This podcast is for informational purposes only. Nothing on this podcast should be taken as investment advice. Guests were not compensated for their appearance, nor do they supply payment in order to appear. Individuals on this podcast may hold positions in the securities that are discussed. Listeners are urged to educate themselves and make their own decisions. Now, here’s your host, Mr. Nathaniel E Baker,

Nathaniel E. Baker 0:35
Marc Chandler, you are an economist, and you have a website marctomarket.com, mark with a “c.” And I want to talk about your background later. But the first the thing that is kind of vexing everybody, obviously, these days is this Corona virus. And of course we hope everybody stays healthy. But beyond that, what people are trying to figure out now is the economic and earnings impact that is coronavirus is going to have in the US and across and across the globe. And so I’m very pleased to have you on the podcast to hopefully put into context a little bit, what types of things we’re seeing economically. how bad the damage you expect to be, how quickly we should rebound or could rebound. And yeah, just your general take on things from an economic perspective.

Marc Chandler 1:33
Sure, thanks. Yeah, what a shocker. Hmm, you know, all the things that we thought about, like what could hurt us. Many people, I mean, pandemics, Sandys, viruses. Of course, this is like, they make great Netflix series. But at the end of the day, I think that I’m hesitant to call it a black swan event. Because it’s like the third or fourth kind of virus we’ve gotten in recent years, I think about SARS. I think about MERS, even, you know, so. So on one hand, I think we’re ill prepared for this kind of shock. And ill prepared socially, institutionally and psychologically, I think that this is this is the real thing. I mean, if we’ve been saving money for a rainy day, this is a rainy day. This is the emergency that we’ve that we probably haven’t seen so much in our lifetimes. I know people talk about some man, some very clearly man made and specifically man made disasters like World War One, World War Two. in our lifetimes, you think about these other big events, maybe 9/11 here in the US, but this and maybe even some of us still have a scar tissue from the global from the great financial crisis. Well, we don’t know nine, but this is bigger and bigger than bigger than these bigger than these kind of events that we’re familiar with. I think the closest thing can be the Spanish flu, early part of the century. So so the First thing I’d make is that a lot of people I think are confused, because we kind of talk ourselves into this into these like myths. And one of these myths is that the Fed kills economic recoveries. And that that’s the cause of the last few sessions we’ve had. And I look at those other recessions, great financial crisis, the tech bubble, and it seems that loan crisis earlier in my career, these are financial crises that lead over to an economic crisis and have a business cycle. But this what we’re dealing with now, this is an economic crisis, it’s going to spill over and hitting the financial sector. So what we’ve seen around the world but also in the US, central bank’s ease monetary policy, so they cut interest rates, buying assets, like the QE versions that we saw before, but other countries are doing their own versions of it. And we’ve got the federal the federal government, slowly responding. I think at first the US was very far behind the curve still in denial. I think we were in denial up to about two days ago. So until like March 13 or so. And I think that I think that sort of now I think we’re getting more serious. And, you know, a couple weeks ago when Congress was proposing about an $8 billion spending package, it was criticized for having a lot of ideological goodies in it. And now, as of this morning, the White House to Treasury Secretary Mnuchin is talking about an 850 billion dollar package. So this is like we’re going on to war footing.

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Season 2, Episode 8: Assessing Economic Damage From Coronavirus Crisis and Plotting A Way Forward

With Political Economist Marc Chandler

Marc Chandler, a political economist and currently managing partner at Bannockburn Global Forex, joins the podcast to provide his assessment of the coronavirus impact on the global economy.

Segment time stamps:

  • This crisis is different, not brought about by the economic cycle but by an exogenous shock (3:15)
  • Assessing the fiscal and monetary response by policymakers (4:36)
  • Will there be a “V-shaped” recovery? (6:55)
  • Recovery in Q3, Q4, but growth will be limited (12:07)
  • The crisis may accelerate the move to a cashless society (13:12)
  • Background on the guest (17:43)
  • What’s something the market is missing? (27:39)
  • The Age of Surplus (34:13)
  • Greater accountability for the Federal Reserve (38:21)
  • The crisis could result in expansion to enfranchisement. To 16-year olds? (43:21)

Quick Highlights From Our YouTube Channel

For more information on the guest:

Not intended as investment advice.

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Contrarian Calls, Revisited: Barry Knapp on Yield Curve Inversion

What Was Said

In this podcast’s pilot episode last April, economist Barry Knapp of Ironsides Macroeconomics discussed the economic news of the day: the 3-month/10-year yield curve inversion.

The conventional wisdom at the time was that the yield curve inversion would lead to recession in the U.S.

But there had been numerous “false positives” from the yield-curve indicator in the past, Knapp said: 1966, 1998, and 2005. “There was no evidence that the inversion of the yield curve was really having any demand side effects on the actual availability of credit,” he said at the time. “It’s not debilitating for growth.”

The U.S. consumer remained healthy as households continued to delever from the excesses of the 2008 financial crisis. “The savings rate is high, income growth is picking up,” Knapp said. While global exports were slowing, this was “not enough of a shock to drive the U.S. into a recession.”

Additionally, there were reasons to believe the inversion wouldn’t last long. The Federal Reserve was indicating that its next Treasury-buying initiatives were more likely to lead to a steepening of the curve.

Knapp was bullish on bank stocks, having upgraded his view in 2017. He also liked U.S. small caps, expecting a rally on domestic demand.

What Happened

Ten months later, there are no signs of recession for the U.S. economy. Financial stocks have done well, judging by the SPDR S&P Bank ETF (KBE), which is up more than 14% in the intervening months:

Small caps have also done well, with the iShares Core S&P Small-Cap ETF (IJR) gaining more than 11%:

The 3 month/10 year yield curve stayed inverted for a few months before steepening. It has since inverted again, though this time few economists are calling for a recession.

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