Coronavirus

The coronavirus is a black swan event but is pointing out several fundamental economic issues.

First, even with the recent market selloff, the market is trading at historically high multiples.

Second, the Fed is out of weapons – the Federal Funds rate is 1.75, the ten year is 0.52% – rates are rock bottom, and going lower won’t juice the economy. Monetary policy will have to give way to fiscal stimulus.

Third, I believe we will see a widening spread between corporate debt yields and the ten year – the spreads are up over 50 bp in the past two weeks.

That, with the backdrop of political uncertainty, is a favored condition for a selloff.

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