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  • Transcript


    Welcome to the Bryn Mawr Trust Wealth Management podcast, providing commentary on what’s moving the financial markets, financial planning, and other timely business and monetary topics. Please welcome today’s host, Jim Barnes, director of fixed income at BMT Wealth Management.

    Jim Barnes:

    So happy to be back with you once again. The last time that we were together was back on January 29th. That was the first meeting for the FOMC for 2020, and it’s interesting because here we are a few months later and the environment today is just completely, completely different. And so today we know that with the coronavirus, COVID-19, this ongoing pandemic. It’s just absolute havoc when you think about our economy, economic growth, both here domestically as well as globally. In fact, we actually, earlier today we got our first quarter GDP numbers here in the U.S., they were down roughly a 5% and now that was expected. You know, when you think about the number of lockdowns and business closures, social distancing that has taken place over the past couple months or so, it was inevitable that you weren’t going to have a negative impact there for economic growth. And again, just not here at domestically but, but overseas as well.

    Jim Barnes:

    So the last time we met, as I said, was back on January 29th. Now the federal reserve has been very, very busy from then until now. So today would be their, their third scheduled meeting that’s up there on a, on the calendar. And although they did not initiate any new programs or facilities, as I said before, they’ve done so much and enormous amount over the past you know, three months or so, including bringing the federal funds target range down from it’s then one-and-a-half to 1.75% all the way down to zero. When you think about quantitative easing (QE), they basically opened the door to endless amounts of QE and they are referring to the federal reserve, buying a U.S. Treasury securities and, and agency mortgage backed securities. And then they also unveiled a number of programs or facilities that were basically geared to trying to get stability and inject some liquidity within our, within our financial markets here.

    Jim Barnes:

    So they had a couple of credit facilities in there. They had some facilities that were geared toward trying to support the money market area. And so it was very, very widespread and rampant. And so I would say based on the enormous amount of effort that had been put in place and the Fed’s reaction to trying to head off some of this illiquid I have in developing within the financial markets, nobody was really looking for any new information today. But what I think investors were really focused in on, they wanted to get the Federal Reserve’s opinion as it relates to well, so here we are. We think about all the different things that all the injections of the liquidity and all the measures that that you have done to bring stability to the financial markets (rates down zero, endless amounts of quantitative easing), how long can we anticipate this to go on for. Exactly what is your, what is your economic outlook look like based on what we’re dealing with today.

    Jim Barnes:

    And chairman Powell, he got up there and he was, he was very Frank, he said, listen, when you think about the Federal Reserve, you know, we have a tremendous amount of resources that we can unveil, that we can unleash, that we can inject, to help the lending markets, to bring stability to the financial markets. Because at the end of the day, it’s a lending markets that are the, the ultimate engine to the U.S. Economy and to economic growth. So they believe very strongly that they have the powers to continue to promote that stability going forward. But he stopped there and said, but you know, we do not have the powers to control the virus. We don’t have the powers to come up with some type of remedy that’s going to make this virus go away. So, although the economic outlook is, is very, very uncertain, what we can assure you is that the federal reserve is there and willing to do whatever it can to kind of act as a bridge from now until all of a sudden from when the economy can get itself back on track.

    Jim Barnes:

    And he reiterated over and over that that’s at this point kind of the Fed’s role. And so I thought that part was important and stressing that if things warrant additional action, the Federal Reserve is ready to do more. And so I think those were some, some important takeaways from today’s meeting. And just as a quick refresher, you know, over the past couple months, we’ve just, we saw so much credit spread widening, meaning that the borrowing costs for corporations, for consumers everything kept going higher and higher. And that was because you just had a certain level of fear that had been somewhat widespread and rampant as people and companies were looking at the impact from the coronavirus. It was too difficult to predict how this pandemic was going to play out here in the short and medium term that many people didn’t want to wait.

    Jim Barnes:

    They headed to the sidelines, meaning that they sold risky assets. Those asset prices went down in value, yields were going up, credit costs were going up. That’s when the fed stepped in with all these various facilities and so forth. So at this point, all that stuff worked. We’re in a much better position today. The financial markets are much more stable. So in terms of being optimistic there, I think there’s a lot of good reasons to be there. This was all good in terms of economic growth. Unfortunately, I said before that the economy, which we shrank by close to 5% so far in the first quarter. Unfortunately, there’s a lot of expectations for us to exceed that. Again, another way, it’s on the negative side for us to have an even worst second quarter of 2020. But at this point it’s expected, but we think that as time goes on and this epidemic will pass as, and it will, it will, you should start to see more of a pickup.

    Jim Barnes:

    So those are all the positives and the fact that the Federal Reserve is there. That’s a good thing. The other thing I also wanted to mention that I thought was interesting, the Federal Reserve today, they were talking a little bit about the U.S. Government and how the U.S. Government was very good with through their fiscal policies jumping in there very aggressively with that $2.2 Trillion of the Cares Act, that money and trying to direct money to different parts of the U.S. Economy. That’s very, very helpful. And one of the questions that Chairman Powell got, you know, are you concerned about the deficit? So are you concern about the amount of outstanding debt? You’ve noted in the past that you can’t keep piling on debt after debt after debt. At some point it’s going to be to be very detrimental to the country itself.

    Jim Barnes:

    And chairman Powell was very quick to respond and said no, in situations like this you do whatever. You can be kind of bridge the gap, try to provide your stimulus measures, provide your economic support to the areas of the economy that needed and continue to do so until the economy is able to stand on its own two feet. That’s the take of today’s meeting. Overall. When I think about the financial markets reaction, bond yields were somewhat, they were mostly unchanged. You did see the long end go up by like the 10 year yield probably jumped up maybe two, three basis points or so. Ended the day around 62 basis points and the S&P 500 was up about a 2.6%. Now I oddly enough, and it’s kind of interesting when you think back to what chairman Powell said in regards to they don’t have the power to come up with with a medicine to combat this, Covid-19.

    Jim Barnes:

    Gilead sciences. There was some positive news in regards to one of their trial drugs out there and its ability to have a positive impact to those patients today that have COVID-19 so that got the market started off in the, in the right direction earlier today and it just maintain its momentum at the beginning of the fed meeting until the end. So the Federal Reserve ended both at statement and its comments by saying that, you know, at this point the economic outlook is very, very uncertain, very, very cloudy that the, you know, when we think about the coronavirus, it is going to have a very, very negative impact to the U.S. Economy economic growth wise. But we do think that, at some point, this will pass and the Federal Reserve will be there to act as somewhat of a bridge and provide as much stability as they can waiting until the economy kind of take off on its own. The next meeting for the Federal Reserve will be on June 10th so stay well, stay healthy and look forward to catching up with you again at the next FOMC meeting. Again on June 10th again, this is Jim Barnes, director of fixed income at Bryn Mawr Trust. If you have any questions at all, please visit us at Very much appreciate your time. Thank you.


    This has been a production of Bryn Mawr Trust. Copyright 2020. Visit us online at forward slash wealth. The views expressed here in are those of Bryn Mawr Trust as of the date recorded and are subject to change without notice. Guest opinions are their own and may differ from those of Bryn Mawr Trust and its affiliates and subsidiaries. This podcast is for informational purposes only and should not be construed as a recommendation for any product or service. BMT wealth management provides products and services through Bryn Mawr Bank Corporation and its various affiliates and subsidiaries, which do not provide legal, tax, or accounting advice. Please consult your legal, tax, or accounting advisors to determine how this information may apply to your own situation. Investments and insurance products are not. Bank deposits, are not FDIC insured, are not backed by any bank or government guarantee, and may lose value. Past performance is no guarantee of future results. Insurance products not available in all States. Any third party trademarks and products or services related thereto mentioned in this podcast are for discussion purposes only. Third party trademarks mentioned in this podcast are not commercially related to or affiliated in any way with BMT products or services. Third party trademarks mentioned this podcast are not endorsed by BMT in any way. BMT may have agreements in place with third party trademark owners that would render this trademark disclaimer not relevant.