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Congress Fiddles While the U.S. Burns

Written by Briton Ryle
Posted March 23, 2020

This morning on CNBC, Mohamed A. El-Erian said: 

People are suffering. There is real pain in the street. This is an economic sudden stop that takes away your livelihood, that makes you feel insecure … people are looking to Washington to do something...

If you don't know, El-Erian was Bill Gross' second in command before Gross went wingnut and got canned. El-Erian is the one who brought us the phrase "new normal" in the wake of the financial crisis a decade ago. And he's perhaps one of the most reasoned and realistic voices commenting on the current crisis. 

As you can tell from the quote above, the man is not simply worried about how stocks and portfolios are doing. He remains keenly aware that people are hurting. A week out of work and a good portion of savings has already gone to food and necessities. Many Americans are rationing what they have in terms of days...

And here, Congress seems to be dickering over the fine print of the only relief Americans might get. 

But let's hold the hate for a minute because the problem of how to help America's small businesses is immense.

$350 billion in small business loans has been made available, a drop in the bucket when you consider a few things. Reuters reports that nearly 10 million small businesses would be eligible under a Senate bill. These companies employ up to 500 workers each for a total of 100 million people. And the payrolls total $100 billion — every week. 

Permanent Losses

For the services sector — restaurants, bars, etc. — the loss of sales doesn't get magically made up when demand returns. When I can finally go to a bar, you can bet I'll order a double Tito's and soda. But I can't possibly order enough Tito's to make up for what I didn't drink over the previous weeks...

Those sales are simply gone. And so, as an owner, how do you take on loans that will be difficult to pay back? Might it be better from the owners' perspectives to cut bait and let their businesses fail? 

To this point, we've had action from the Fed and the Treasury. Just this morning, they got out their biggest bazooka yet. They're gonna buy bonds to provide liquidity, they'll buy corporate bonds for the same reason, with the hope that companies will keep meeting payroll. And later this week, they're gonna offer small business loans that may be forgivable to address that owners' dilemma. 

People are gonna gripe about a Fed gone wild, a balance sheet that is growing virtually unchecked. But the biggest problem is the same one that came up in the 2008 financial crisis: The Fed's tools only help the banking system and the corporations.

It's needed, yes. But if Congress doesn't step in and backstop people, then the people will have to rely on trickle down from the corporations. And we know exactly how that will end. Corporate executives will be made whole while the average American will slog it out for perhaps years, and we will have another lost decade where the income disparity grows. 

Congress Fiddles 

So what about those checks to individuals for things like, you know, groceries?

Once again, it seems Congress cannot come together on the simplest things. Truly unbelievable. 

As I understand it, Democrats want to make sure that corporate America isn't getting a free infusion. That is, they want any loans/bailouts to include stipulations that companies can't just start firing people en masse. 

Seems reasonable to me. I'm not on the Hill, I can't tell you exactly what the hold up is. But perhaps assistance for individuals shouldn't be part of a larger bill that also targets business? Maybe cash for people should be its own thing? 

Seriously, it seems like this could've been done last week. But as it stands, Congress itself hasn't done a damn thing. 

And trust me, the thought of saying "the government needs to do something" scares the sweet jeebus outta me. But times like these are why we have a central government in the first place.

It may not be an enemy country threatening to storm our borders, but we are damn sure under attack. Time for Congress to act like it.

As for the stock market, the crazy moves continue. Futures started trading at 6 p.m. EST last night. They were limit down (5%) by 6:02. This morning, they had rallied to a gain of ~3% only to plunge again at the open. 

My sense is that the Fed has likely limited the downside at this point. You can only take trading positions just now, but I'm looking for a little upside action. Bottom line is: Stay nimble and do not take large positions. 

That's it for now. Take care, and if you have thoughts or comments you want to share, send them to customerservice@angelpub.com. It may take a day or two, but I'll get them. 

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.

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