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Tuesday, September 21, 2021

The 1st Test of Our Economic Strength is a Man Made Virus


This health emergency was dismissed at 1st as a fleeting risk to the US economy has turned into a full test of whether 20 yrs of planning, regulation and research has left the financial system resilient to a major shock and the Fed able to mount a rescue.

Preparations for an economic downturn have been underway since the last 1.

The Ys 2007-09 financial crisis prompted a regulatory overhaul requiring banks to hold more capital and more cash and to show they could survive a large hit.

With an estimated $4.2-T in equity and liquid assets held by the largest financial firms they are likely prepared.

Sunday, Fed Chairman Powell said he and other regulators are “encouraging banks to use their capital and liquidity buffers as they lend to households and businesses.”

The likely impact of the virus and the public health response “is not something that is knowable,” and remains so uncertain Fed officials have canceled the release of economic forecasts that had been set for this week, Chairman Powell said Sunday.

Goldman Sachs Sunday downgraded its Q-1 1st GDP estimate to Zero. It forecast a deep recession in Q-2, followed by a bounce in Q-3. Other private economists also see a sharp contraction.

Nearly 20 yrs ago, after the attacks of 9/11, Fed economists acknowledged the difficulties of economic forecasting after a major shock.

Those gauging the impact had “to take strong stands on questions of psychology and politics,” Fed economist David Stockton told policymakers in an 2 October 2001, Fed meeting.

He penciled in large hits to economic growth continuing into Y 2002, but noted “because there simply has been no other episode that closely matches the present one, it is very difficult for us to gauge.

Sunday, Chairman Powell called a “profound” risk to the economy – an unprecedented set of circumstances that has shut down many public activities in the name of public health.

The longer it lasts, the more likely it leads to mass layoffs and problems beyond those the Fed has anticipated, for example, in the regular “stress tests” major banks must pass.

Chairman Powell rolled out programs Sunday he said will help on all fronts, but the best hope now is for a short sharp dip in economic growth as the virus is contained, followed by a fast rebound as the country reopens.

Countering that Monday, President Trump said the United States “may be” headed toward a recession as the economy continues to be battered amid the coronavirus outbreak.

President Trump spoke to reporters Monday at a White House briefing.

The President said his administration’s focus is on stemming the virus. Once the spread of the virus is stopped, President Trump said he believes the US economy will see a “tremendous, tremendous surge.

Monday, the major US stock market indexes finished at: DJIA -2997.10 at 20188.52, NAS Comp -970.28 at 6903.95, S&P 500 -324.89 at 2386.13

Volume: Trade on the NYSE came in at 1.9-B/shares exchanged.

  • NAS Comp: -23.0%
  • S&P 500: -26.1%
  • DJIA: -31.7%
  • Russell 2000: -41.8%

HeffX-LTN overall technical outlook for the major US stock market indexes is Very Bearish in here.

Looking ahead: Tuesday’s economic releases will include Retail Sales and Industrial Production for February, Business Inventories for January, and the NAHB Housing Market Index for March

Stay healthy

Paul Ebeling
Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.   

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