Market researcher James Bianco calls the Federal Reserve’s move to pump $1.5 trillion into the market the “nuclear option” to calm investors gripped by coronavirus fears.
Only, it didn’t work Thursday.
Instead, stocks saw their worst day since the 1987 Black Monday market crash.
“Financial markets are not recovering. It’s incredible to think that a trillion dollars can’t get these markets moving,” the Bianco Research president told CNBC’s “Trading Nation.” “We’re at a critical time — unlike anything I’ve seen in my career even counting 2008.”
On Thursday, the Fed attempted to stabilize the markets by massively boosting asset purchases in the market. It came five days before its policy meeting on interest rates.
“What the Fed did was they restarted QE [quantitative easing], and they essentially announced that in the next two days they’re going to do more QE than they did in the last five years combined,” added Bianco. “The reason they’re doing it is because the financial markets have stopped functioning properly. There’s no liquidity. There’s hardly any trading.”
Stocks initially rebounded, but failed to hold on to gains. The Dow sank 2,352 points or 10% to 21,200 while the S&P 500 fell 261 points or 9.5% to 2,480. The Dow and S&P are deep in bear market territory, off 28% and 27%, respectively, from their all-time highs.
“This is their tool. They’ve used it. It should be working,” said Bianco.”
According to Bianco, Wall Street may still be in shock due to the magnitude of the Fed’s move. Plus, he suggests there may be logistical issues.
“[New York] Governor [Andrew] Cuomo just announced that any gathering of over 500 people in New York State is banned. So, these big dealer desks are now going to have to figure it out from home,” he said.
Bianco believes there’s a serious risk the financial markets will shut down for days, if not weeks.
“If we’re going to get widespread shutting down of businesses, we will probably do the same thing with the financial markets,” he said on the notion it could contain the virus and economic damage.
Bianco, who moved entirely to cash over the past few days, warns it’s too dangerous to invest in stocks, bonds and even gold right now.
“If financial markets don’t start moving, and if a trillion dollars cannot get them off the lows of the day of $500 billion today, $500 billion tomorrow, then we’re going to have to start worrying that a panic is going to set in… and we’re going to see a lot more losses as we go forward,” Bianco said.
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