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Market Meltdown: How I’m Trading It and What the Fed, Treasury and SEC Should Do Now

I have created a Covid-19 trading subset that is broken down into rebound plays, virus plays, and revenue plays.

Holy meltdown, Batman.

OK, what do you do now that planet earth is burning?

What should investors do? I can't tell you that, but I can tell you what I am doing.

What should the Federal Reserve do?

What should the Treasury Department do?

What should the Securities and Exchange Commission do?

I have ideas. I have a lot of ideas, and I think our policymakers should probably pay attention.

OK, everybody on board? Let's rock.

I'll try to keep it short and simple. Because I want you read the whole thing.

Here we go.

The Federal Reserve

As I mentioned in my Market Recon column on Real Money, I want the FOMC to call an emergency meeting this weekend, and cut the Fed Funds Rate by 50 basis points. I want them to hold a press conference and imply that another 25 basis points are on the table for March 18.

I want the Fed to keep expanding the balance sheet by aggressively buying the short end of the curve (T-Bills). These actions will pressure short-term rates, and get us half way to normalizing the yield curve.

I want the Fed to continue making short-term liquidity available to overnight cash markets.

These actions will not cure, nor will they prevent the coronavirus from spreading. However, they just might prevent small-to-medium businesses from having to make tough decisions regarding payroll.

It is also imperative to remove all obstacles that might slow down any velocity in transaction while Mother Nature slows down commerce on her own.

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Treasury Department

I think the U.S. Treasury Department needs to borrow at the long end of the curve, and do it in size. Fiscally irresponsible? I know, but we have some issues.

For one, coronavirus testing is expensive. People with no insurance, or lousy insurance are just going to stay home sick, or worse, try to work through their ailment because they need the money. The expense cannot be a reason for not getting tested.

Second, does anyone else think that globalizing production over the past 30 years now seems like a bad idea? Oversized issuance of 10, 20 and 30-year debt will work to normalize the yield curve, while proceeds can be used to pay for Covid-19 testing (and care?) while also working to incentivizing U.S. multi-national corporations to bring production home.


Here's an idea that is long overdue. Actually, it’s two ideas that would work well together, and likely improve real-time price discovery -- you know, actually put buyers and sellers together like we used to.

I would love to see mandatory five cent increments in decimalized pricing in equity markets. Then re-impose the old short sale uptick rule in full.

Think maybe the selling slows down if one who does not own a security cannot sell it unless somebody else pays up five cents? Yeah, me too. This would also reduce the perverse impacts of high-frequency trading upon honest price discovery.


Finally, the part that you have been waiting for. I think investors, nah, scratch that.

I am taking a three-pronged approach to my own trading. Within my portfolios, I have created a Covid-19 subset that is broken down into rebound plays, virus plays, and revenue plays.

My rebound names are Adobe Systems  (ADBE) , Nvidia  (NVDA)  and  (AMZN) .

My virus plays would be Peloton  (PTON) , Gilead Sciences  (GILD)  and Moderna  (MRNA) .

I am long all of these names and have been quite active in working net basis lower in most of them. I would also like to grab a few Teladoc  (TDOC)  and some Clorox  (CLX)  shares, but have not seen my price. Clorox is lower Friday, and I will likely be an add this afternoon.

Now for the revenue team. About the only bright spot in an equity market meltdown is that so many dividend yields now look very large.

My current dividend book includes BP  (BP)  (8% yield), Kraft Heinz  (KHC)  (6.4%), AT&T  (T)  (5.8%), Outfront Media  (OUT)  (5.5%), AbbVie  (ABBV)  (5.5%), Verizon  (VZ)  (4.5%), Store Capital  (STOR)  (4.2%) and ViacomCBS  (VIACA)  (4%).

Admittedly, BP and ViacomCBS have been awful, but the rest have hung in there, and really been sort of stable in relative terms. If someone is going to punch you in the gut, they might as well have to pay to stand there.

We, as investors can also day trade the equity market, or equity index futures as long as there is a commitment to remaining dollar neutral. I have been doing that in a number of the names I know best just to try to mitigate the overall impact of the selloff on my portfolios. It has helped.

Stephen “Sarge” Guilfoyle writes on stocks and the markets each trading day for Real Money, TheStreet’s premium site, including his popular Market Recon column every morning. Guilfoyle is also co-portfolio manager of TheStreet’s Stocks Under $10.

At the time of publication, Guilfoyle was long ADBE, NVDA, AMZN, PTON, GILD, MRNA, BP, KHC, T, OUT, ABBV, VZ, STOR, VIACA equity. Short BP, VIACA calls. Short AMZN, VIACA puts.