Sunday morning comment post Mnuchin interview

On Fox Treasury Secretary Mnuchin outlined 5 key points of Crisis Bill that is in final stages of negotiations.  The devil is always in the details that are yet to be announced, but so far the assistance to the economy and financial system is going to be massive:

1. Small Business Retention (Forgivable) Loans.
   1. Two weeks of payroll and overhead for small business that represents roughly half of our workforce
2. Family Direct Deposit
   1. Mnuchin said a family of four would get roughly $3000.  That suggests $1000/household adult, and $500/household child
3. Enhanced Unemployment Benefits – He did not quantify
4. Liquidity Program working with the Fed
   1. Up to $4 trillion for broad based lending programs
5. Health Care Support
   1. Mnuchin said roughly $110 billion in assistance

Again, there are no details on how this is to be implemented and is expected to be passed by Monday morning.  We have said for weeks the monetary and fiscal stimulus the government is going to throw at this is going to be extraordinary and these proposals show just how serious this situation is, but also how sharp the rebound is likely to be after.  We suspended our estimates because we couldn’t quantify the downside AND the upside – and that remains the case.  Anyone that is estimating the economic and EPS impact without knowing (1) if/when we have national “stay at home” mandate, or (2) the knowledge of the final stimulus package – appears to be making a total guess.  We would rather stick with our human nature based investment plan and follow Federal, State, and Local Covid-19 guidelines until we can make a rational fundamental assumption.

Again, we expect:

• Panic Low should be imminent – We are in the process of making a panic low (should have already happened so we would suggest it is very close)
• Multi-week Relief Rally – This should be 2-3 weeks of market stabilization that recoups 30%-40% of losses from peak.
• Demoralization Low – Unfortunately, no matter how bad the crash, it is historically very rare to not test the panic low after the relief rally.  We expect to upgrade our view and take an offensive sector approach as the market moves toward the panic low.