US GDP contraction worse than 2008

As expected, the Fed was all about building confidence and reassuring the public that they have them covered. The Fed Chairman in his remarks, mentioned about protecting against long term economic damage.

He added that this is not a time to worry about debt, but to use the great fiscal power of the US to avoid deeper damage to the economy.

As the Wall Street Journal pointed out, state and federal governments are now essentially running the American economy. People are being incentivised for not going back to work whenever that can happen. In some cases, the compensations are more than what it was when they were working. This should force production and service companies to move abroad or stay abroad and consumption to reduce within the country.

As reported yesterday, the US GDP fell at a 4.8 % annual rate in the first quarter of this year. This is the worst quarterly contraction since 2008, when the country got into a deep recession.

The next quarterly report could be much worser. It could be something like a contraction of 30% on an annualized basis, a number not seen since the Great Depression in 1930‘s as it will capture all the lockdown period.

The Fed with all its brilliance can only print money. It cannot print medicines for the virus nor can it print jobs. One thing for sure the Fed will be reactive to the extent of being proactive as the economy will take much deeper downturns and it will make things up as it unfolds. Let’s look at the markets.

Equities

The markets are swiftly approaching the final frontiers of this counter trend rally, that we have been discussing about. Ever since we made a bottom on Mar 23, there has been only one day when the daily trading volume exceeded its 10-day moving average. That is not indicative of a bull market but only a move below 2855 will convince us that the bear move is starting in full force.

Bonds

The 30-year bonds are in the early stages of a significant down move and we will have to wait for more price action to make any tradable decision.

Euro

As mentioned before, the risk remains for a countertrend up move that should not exceed much above 1.1000.

Gold

There is no new information to comment anything on gold.

Be safe. Be small. Be home.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.