DealBook: A Big Bet That May Not Be Enough

Good morning. There is a lot of worry out there. We will get through this, but acting now and genuinely practicing social distancing matters. As Dr. Mukesh Prasad of Weill Cornell Medicine in New York told me: “If this battle ends up being fought in the hospital, we have lost.” Dr. Prasad added: “Come together, care for those vulnerable in the herd, and survive. Every one of us has a role.” (Was this email forwarded to you? Sign up here.)

The Fed and other central banks are reopening their 2008 crisis playbooks, as the speed and severity of the coronavirus outbreak threatens to bring the global economy to a halt. But as the former Fed governor Kevin Warsh put it, “If you’ve seen one financial crisis, you’ve seen one financial crisis.” In other words, the tools used to combat a mortgage-driven credit crunch are of limited use to fight a global pandemic.

The Fed will spend $700 billion to shore up markets. In an unscheduled announcement yesterday, the Fed cut its benchmark interest rate to just above zero and unveiled a huge program of bond-buying to smooth out stresses in funding markets and make it easier for banks to lend to customers. It also arranged with other central banks to ease the flow of dollars around the world, which can seize up in times of crisis.

Is that all? Benchmark interest rates in all of the world’s major developed economies are now near — or below — zero. The “firing of so many bazookas at this particular stage,” notes Mohamed El-Erian of Allianz, represents a “monumental policy bet.” In essence, monetary policy has exhausted all of its ammunition. If it doesn’t work, there’s little else they can do.

Passing the baton. The finance-focused crisis playbook is, of course, designed for a finance-focused crisis: Rather than bolster the “real” economy, it helps markets function. Fiscal policy is more effective in providing support for workers furloughed or home sick, or businesses that can’t pay their bills. Or, put another way …

• “The central bank stampede has been fierce, but markets are still waiting for the fiscal cavalry to arrive,” analysts at TD Securities said.

• “It’s about making sure the engine is still running until we get new wheels,” said the economist and veteran Fed watcher Tim Duy.

Markets seem to be unsure what to make of it all. Asian and European stock markets are down sharply, as are U.S. futures. Investors are looking to lawmakers to pass aggressive legislation to support consumers and prop up hard-hit industries. The Senate is expected to vote soon on a bill passed by the House last week, and Treasury Secretary Steven Mnuchin suggested that more action is in store.

• Goldman Sachs reckons that the S&P 500 could fall another 20 percent, based on the grim earnings outlook. But analysts at the bank expect the index to end the year up 60 percent from the bottom.

• FactSet finds that stock valuations have dropped below long-term averages. But making a big bet now requires a lot of bravery: The three biggest asset managers have seen more than $2 trillion in assets evaporate so far this year.


Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York and Michael J. de la Merced and Jason Karaian in London.


U.S. health officials have warned against gatherings of 50 people or more and suggested that a full 14-day national shutdown may soon be needed. Germany is expected to close its borders later today. Data released by China on retail sales, industrial production and unemployment was shockingly bad.

Most economists expect a “major recession,” according to a survey by the University of Chicago.

• A new forecast from Goldman Sachs expects zero G.D.P. growth in the U.S. in the first quarter, and a steep 5 percent drop in the second.

• UniCredit reckons that the eurozone economy will shrink 0.2 percent in the first qua
rter and around 1 percent in the second.

• Both sets of analysts expect an equally sharp rebound in the second half of the year, resulting in annual average growth of 0.4 percent in the U.S. and 0.1 percent in the eurozone.

• Indeed, Deutsche Bank argues, the steeper the fall in the short term — driven by travel bans, business closings and the like — the stronger the recovery. The U.S. recession after the 1918 flu pandemic lasted for seven months, around half the average for recessions over the past century or so.

At some point, it’s all about confidence. “While our anxiety is likely to skyrocket over the next several days, I expect that by the end of this coming week, things will have finally reached a climax,” writes Peter Atwater of Financial Insyghts. “It will be messy, but you shouldn’t be afraid of it, nor expect it to continue.” He has tracked the role of consumer confidence through many crises, and his sober, clear-eyed analysis is worth reading.

Airlines, hotels and restaurants are suffering mightily from travel bans, government closings and more — and some in those industries are warning of dire consequences.

Airlines have warned that their industry faces a mortal threat, citing the U.S. clampdown on travel from Europe, which was extended to Britain and Ireland today. The parent company of British Airways said this morning that it planned to cut its flight capacity for April and May by 75 percent, compared with the same time last year. The C.E.O. of United Airlines, Oscar Munoz, warned that the pain could extend into the summer.

• The Centre for Aviation issued a stark warning: “By the end of May 2020, most airlines in the world will be bankrupt” — unless governments around the world coordinate to help save the industry. Airlines worldwide have been asking for just that.

New York City will close its bars and restaurants, except for takeout and delivery. Data from the reservation service OpenTable noted that the number of bookings on its platform worldwide fell as much as 40 percent year-on-year last week, with bookings in New York City falling 64 percent on Saturday alone.

“This is worse than 9/11,” said John Lam, the C.E.O. of a New York hotel developer.

The travel and hospitality industries aren’t the only ones in pain, as a drop in consumer spending hits a variety of businesses.

“This week, it has all gone to hell,” Kalena Masching, a real estate agent, told the NYT after her sales slowed down. The NYT notes that measures of consumer sentiment fell sharply in early March, and indexes of business conditions have cratered. Retailers across the country are closing stores, including Apple, Glossier and Patagonia.

The biggest U.S. banks are halting stock buybacks to preserve capital, which will instead go to help consumers and business clients. Bank of America’s C.E.O., Brian Moynihan, told “Face the Nation” on CBS that customers with cash flow or payment problems should “call us, and we’ll make it right.” Elsewhere in the financial world, hedge fund managers like Ray Dalio of Bridgewater are staring at deep losses.

More coronavirus news:

• LVMH Moët Hennessy Louis Vuitton said that it would use its perfume and cosmetics factories to make hand sanitizer gel for the French authorities. (Business Insider)

• How President Trump oversold efforts by a Google site to help direct Americans to testing centers. (NYT)

• German officials said that the U.S. offered a “large sum” to gain access to a biotech companies’ experimental vaccine. (NYT)

Let’s remember that there are happier moments in these tough times.

Italians broke into song from their balconies and windows, as they were stuck at home during a national quarantine. “It’s not like we’re maestros,” one Italian told the NYT, but “it’s a moment of joy in this moment of anxiety.”

In some European countries, citizens confined to their homes applauded medical workers for their efforts en masse at 10 p.m. local time on Saturday.


• Aston Martin was forced to sign a bigger rescue deal with investors after its stock price plunged last week. (FT)

• Impossible Foods, the maker of plant-based protein, raised about $500 million in new funding. (Reuters)

Politics and policy

• Joe Biden and Bernie Sanders clashed over health care policies at last night’s Democratic presidential debate. (NYT)

• Lawmakers in the U.S. are debating whether to lift some tariffs. (NYT)


• Social media companies are doing a better job of fighting misinformation about the coronavirus than they are for fake political news. (NYT)

• That said, researchers say that Twitter’s efforts to clean up its platform have stalled. (WSJ)

Best of the rest

• Bill Gates stepped down from the boards of Microsoft and Berkshire Hathaway to focus more on philanthropy. He’ll be replaced on Berkshire’s board by Ken Chenault, a former American Express C.E.O. (CNN)

Thanks for reading! We’ll see you tomorrow.

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