Disappointed Markets, waiting for a new Marshall plan

4 March 2020

“The disappointment of the markets despite the surprise cut of 50 basis points by the Federal Reserve? This is the first cut in America between two monetary policy sessions since 2008: on the one hand it gives the sense of urgency and concern of the Central Banks, Fed in the first place, on the other hand, however, the cut itself is a necessary condition, but not enough. Without forgetting that Wall Street had risen by 5% on Monday, anticipating the move », says Guido Brera, 50 years old, Chief Investment Officer of Kairos Partners SGR. “But if fiscal policy doesn’t follow monetary policy, this time we won’t get out.” While remaining “optimistic in the medium term”, because if the crisis is serious in the short term, it will be “the opportunity to change the paradigm of production and to rethink the concept of globalization while respecting the environment”.

Why won’t we get out?

“Because we have three problems together: demand, offer and health shock, never seen before even in times of war. We need an immediate monetary response. Then others will follow, from the Bank of England and the other central banks. ”

Also by the ECB?

“The ECB will have to continue buying securities on the secondary market. Mario Draghi this time saved us, because he saw in advance the need to restart the Quantitative Easing before leaving. We will miss Draghi very much at this stage, having him in Frankfurt would have guaranteed continuity”.

The biggest risk?

“The corporate bond bubble. The market has already adjusted to the prices drop, however the companies have been purchased from private equity funds on the basis of expected profits, to repay the debt, used as a disproportionate lever to exploit years of very low interest rates. This creates a lot of fragility”.

What do we need?

“A Marshall plan. We used the world as an assembly line, but this paradigm has stopped today, the supply chains are jammed. In the medium term, however, we have the opportunity to review global value chains. And this can help not only Europe and countries like Italy, but also the environment. But in the short term, a community Marshall plan is needed immediately. This is one of the famous crises that help us build Europe. “