Apr 20, 2020

Axios Markets

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🎙“So I pray to the Lord he spare me, and I make it by and by. And I help souls stay out of Hell with what I testify. And maybe when I grab that microphone and never lie that'll merit that he spare me, I won't have to feel that fire.” - See who said it and why it matters at the bottom.

1 big thing: Powell's Fed has opened Pandora's box

Illustration: Sarah Grillo/Axios

Chair Jerome Powell and the Federal Reserve reacted with unprecedented speed to the coronavirus pandemic, but the central bank's actions could unleash a Pandora's box of unintended consequences.

Why it matters: The Fed is an unelected institution whose head is chosen by the president and its new programs have paved the way for its spending powers to be significantly amplified and politicized.

  • "America has never seen anything like it," Peter Conti-Brown, a nonresident fellow at Brookings Institution, notes.

What it means: The loans made through its so-called special purpose vehicles give the Fed a strategic interest in keeping those companies afloat.

  • This mean going forward it could either be charged with picking winners and losers — bailing out some companies while watching others fail — or adding a bonanza of new lending programs to provide financing to just about every corner of the economy.

What's happening: The Fed is prohibited from buying debt not backed by the government and from making loans that lose money, but it has emergency lending authority for “unusual and exigent circumstances,” an undefined term.

  • The special purpose vehicles it has set up through the $2 trillion CARES Act and its facilities to buy corporate bonds, municipal bonds and "fallen angels" (bonds from companies recently downgraded from investment- to speculative-grade) could all very realistically see losses.

Flashback: The Fed announced in 2018 that it would reduce the purchases of U.S. government debt and mortgage-backed securities it had been accumulating since 2009 to stem the global financial crisis.

The intrigue: The Fed has set itself up to repeat this process, but now the buying would include corporate and municipal bonds as well as direct lending to companies.

  • "They went down a slippery slope," Vincent Reinhart, chief economist at Mellon who previously spent 20 years at the Fed, tells Axios.
  • "I am worried about where Fed will be a year from now."

Why you'll hear about this again: Having now opened its lending facility to private companies and accepted the possibility of losses, it's difficult to make the case that the Fed cannot "bail out" ordinary Americans.

  • "A People’s Fed could plausibly give every worker a monthly zero-interest loan, and then forgive them all," Trevor Jackson, assistant professor of economic history at George Washington University, points out.
  • "Even setting aside wage replacement, a People’s Fed could be buying and retiring student loans and medical debt."
2. Catch up quick

Crude oil futures fell by 16% to as low as $15 a barrel and some buyers in Texas are selling for as little as $2 a barrel, raising the possibility that American producers may soon have to pay customers to take crude off their hands. (Bloomberg)

New York Gov. Andrew Cuomo said the state appears to be “on the other side” of the coronavirus outbreak. The death toll in the U.S. topped 40,000 and the number of cases rose to 755,000. (Axios)

Short sellers' bets that the stock market will fall have been raised to their highest level since 2016. (WSJ)

3. How often Americans are leaving the house

Reproduced from CivicScience; Chart: Axios Visuals

Reactions to the coronavirus pandemic and "stay at home" orders have varied greatly across the U.S., but new data from CivicScience shows that a plurality of Americans are leaving their homes just once a week.

Between the lines: "Those who have been diagnosed with COVID-19 or know someone who has been are more likely to cap their trips out at 1-2 times per week," CivicScience analysts note.

  • "The fact that those further removed from the virus are going out upwards of three to four times a week suggests that for many, it takes a personal connection for some to change their behavior."
4. Your future foretold

Even if you believe every optimistic scenario about how the coming months could unfold, America is still looking at a hole in our finances and society that could take generations to dig out of, Axios co-founders Jim VandeHei and Mike Allen report.

Why it matters: President Trump and his top officials keep telling viewers that the economy will come roaring back within months of getting the virus under control. But the long-term price of the pandemic is just barely beginning to emerge.

Consider these projections, just three months into the crisis — with untold months of twists and pain ahead:

  • Congress has already committed more than $2.2 trillion "to try to stop an economic calamity — with just limited success," the Washington Post reports.
  • And that total is already rising: The White House and Congress are close to agreeing on an aid package of as much as $500 billion.
  • Even before the virus crisis, the U.S. was on track for a $1 trillion budget deficit. Now, Morgan Stanley and Goldman Sachs both estimate that could be $4 trillion — the most, relative to the size of the economy, since World War II.

Business borrowing also is setting records.

  • Companies including ExxonMobil and Walgreens, "which binged on debt over the past decade, now are exhausting their credit lines and tapping bondholders for even more cash," the WashPost points out.
  • States and cities are losing tax money, producing an additional, closer-to-home disaster, as Stef Kight and Dan Primack reported.

On top of all that is the human cost.

  • Goldman Sachs said in a new forecast last week that the unemployment rate is expected to approach 15% this summer — a sign that the administration's "months not years" formulation for a recovery could be a pipe dream.
  • Columbia University researchers say that under the dire but not unthinkable forecast of 30% unemployment, the U.S. poverty rate would increase from 12% to 19%, the worst in at least 53 years.

The bottom line: When the health crisis ends, the effort to rebuild America will just be beginning.

  • Plus, there's an additional danger: The possibility of multiple waves of the virus, requiring cities, states, even regions to go to ground for weeks at a time.
5. Nasdaq could be positive for 2020 by Friday
Data: FactSet; Chart: Axios Visuals

Despite falling into the fastest bear market ever this year, since the Fed announced its unlimited bond-buying program on March 23 the S&P 500 has risen by 25% and the Nasdaq has gained 21%.

  • The Nasdaq is now down just 3.5% year to date.
6. Romance in the age of the coronavirus

Illustration: Eniola Odetunde/Axios

Widespread social distancing has forced Americans to get creative with how they connect to one another, including romantically, Axios' Ursula Perano writes.

The big picture: The dating industry was poised to take a hit amid the coronavirus outbreak as potential suitors are generally unable to meet in-person.

  • Match Group, which also owns Tinder and OkCupid, has seen stock prices tumble 25%. But daters are turning to digital courtship through video chats and virtual activities as an alternative.

The dating app Bumble saw increased user engagement as Americans adjusted to social distancing last month.

  • The platform reports a 26% spike in messages sent during the week ending March 27 compared to the week ending March 13. Trump declared COVID-19 a national emergency on March 13.
  • The app is also allowing users to add a badge to their profiles signaling they're open to virtual dating, and to filter out users who are not.

Web-based first dates are becoming the new normal, with platforms seeing a dramatic increase in users turning to calls and video chats.

  • Bumble has seen an 84% increase in users using the app's voice call and video chat tools.
  • OkCupid has experienced a 180% increase in mentions of FaceTime, Skype and Zoom on profiles and the platform has seen an 83% increase in users going on virtual dates in April compared to March.
  • A new dating app called “Quarantine Together” launched last month, with a built-in video chat option and periodic reminders to wash your hands.
  • Coffee meets Bagel has introduced virtual speed dating, with 10- to 15-minute video calls moderated by a company representative.

Between the lines: The dating industry argues that digital-first dates could become the standard beyond the COVID-19 outbreak.

  • The founder of the dating site "The League" told Axios in December: "In-person first dates will definitely be replaced by digital dates, as the stakes are lower and with video chatting you can figure out whether or not you click within the first few minutes."
  • OkCupid surveyed its users on their virtual-date preferences, finding that 31% favor a game or activity, 29% want digital dinner and drinks, 25% want a simple video chat and 15% would opt for remotely watching a TV show or movie together.

Quote: "So I pray to the Lord he spare me, and I make it by and by. And I help souls stay out of Hell with what I testify. And maybe when I grab that microphone and never lie that'll merit that he spare me, I won't have to feel that fire."

Why it matters: Hip hop wordsmith Killer Mike was born on April 20, 1975. The above quote is from his masterpiece "R.A.P. Music." He is also one half of the hip-hop duo Run the Jewels.

Unrelated: This YouTube video about how Jerome Powell defeats COVID-19 is good for a laugh.