Coronavirus: Wall Street all in as Donald Trump plays his hand

The huge rise on Wall Street — the biggest since 1933 — was no accident.

US President Donald Trump called major investment houses to tell them that he planned to take on the medical establishment and ease the clamps in the US economy after Easter. At the same time the massive US stimulus bill looked like passing the Congress and the US Federal Reserve was out there printing money by buying US bonds, including corporate bonds.

The President’s actions were in stark contrast to the actions of UK Prime Minister Boris Johnson and what is happening in Australia where we are looking to increase the clamps and are talking about a six months shut down.

In taking these steps Trump is gambling his presidency, because if the US goes into a medical morass as a result of the easing of clamps then Joe Biden will be the next US president.

But Trump has gambled that if there is a deep recession in the US, he will lose the election anyway. So let’s look at how he consulted the US investors and then move to the wisps of medical evidence that he relying on. Those “wisps” could be important for Australia.

Trump first declared that he wanted the US economy to reopen by Easter.

Then Trump and Vice President Mike Pence arranged a call with Wall Street’s top investors and hedge funds, including Third Point, Blackstone, Vista Equity, Intercontinental Exchange and Paul Tudor Jones, hedge fund manager and co-founder of JUST Capital.

The call focused on how America’s top money managers are viewing markets and the US economy. It extended to what more the Federal Reserve could do to support industries that are under pressure and how the central bank could help companies from seizing up.

Trump’s view that the US economy cannot be allowed to crash was reinforced by the views of the investment leaders.

At the end of the call, the “buy, buy” signal a went out and Wall Street surged. And once it started to move, computer-driven “buy signals” appeared from all directions.

To that was added desperate short covering. In Australia, our initial market was boosted by the US buying rush extending to Australia as well as short covering. The market was led by resource companies such as BHP and Rio Tinto, who were also boosted by the good news coming out of China. But Australia’s strategic plan is very different to the US, although, as I explain below, there is one common theme.

The first reaction around the world is that the US president is mad and is taking too great a risk with the lives of Americans. Our prime minister would certainly have that view.

My task is not to pass judgment but to help readers understand why the US President made such a decision. On Monday I described how that, if the Australian economy retains the current clamps for six months, vast areas of small and medium business will be destroyed and will take years to recover. .

The government’s aid is not sufficient to keep them alive for six months. Banks face big losses on loan repayments.

The long lines of people seeking unemployment relief are set to get a lot longer.

Transpose that onto the world’s largest economy and we have a disaster that will rank with the 1930s.

But a repeat in the US of what has happened in Italy would be even more horrific. In switching direction, Trump will be following the research of the Duke National University of Singapore which indicates that like SARS the COVID-19 virus weakens over time.

Its purely anecdotal but there is some evidence that this might be true. For example in Australia in some regions the virus does not seem to be as severe as others. I emphasise this is no way proven.

Also fascinating is the fact that the world is looking at existing drugs for a cure, or at least a moderation, because new drugs take too long to test.

Two existing drugs have jumped into contention as a possible cure: chloroquine and hydroxychloroquine.

President Donald Trump has called the drugs, which are used to treat malaria and other conditions, game changers, and a rush to procure the pharmaceuticals spurred several US states to take measures to prevent shortages.

New York has moved to begin trials procuring 70,000 doses of hydroxychloroquine and 750,000 doses of chloroquine, Bayer, has donated 3 million doses of chloroquine to the federal government. In Australia more than 2000 Victorian health workers will support Melbourne’s Walter and Hall Institute of Medical Research in the pioneering of research inTO the effectiveness of the anti malarial drugs.

Some of the early evidence indicates that the drugs work best when combined with zinc tablets because they enable zinc to enter infected cells on a scale not possible with normal zinc doses. Zinc actually does the job but I am no medical expert.

We are looking at a major diversion in strategies between leading nations. I am not in the medical forecasting business but we all have to hope President Trump is right.