Fed’s $2.3 Trillion to Save the World is a Drop in the Ocean

The Fed seems to think that the $2.3 trillion in extra save-the-world money it announced on Thursday will do the trick.

And for now, at least, Wall Street seems to agree.

Well, I have news for them: It’s a drop in the ocean.

No matter how much funny money the Fed prints, and no matter how much they try to shove into the financial markets, it will be too little, too late for most U.S. companies in trouble.

How do we know?

Because we have amassed one of the largest databases in the world with the latest financials on virtually all banks, credit unions, insurance companies and publicly-traded companies in the United States.

And because we use that hard data to generate financial ratings on each, applying a methodology that’s totally independent and free from conflicts of interest.

Barron’s wrote, "Weiss is the leader in identifying vulnerable companies.”

Louis Rukeyser of Wall Street Week wrote, "Weiss provides a tougher [ratings] service."

Plus, in a major study of our insurance company ratings, the U.S. Government Accountability Office (GAO) concluded that Weiss beat Moody’s, Standard & Poor’s and A.M. Best in predicting future failures by a factor of at last three to one.

With that preamble, let me walk you through my three-step analysis — so you can better understand why I say the Fed’s $2.3 trillion is a drop in the ocean.

1. Economic decline is deep.

Economists widely agree that …

• With 17 million American citizens and residents thrown out of work just in the last three weeks …

• With that figure already implying an unemployment rate of approximately 15% …

• With current projections now pointing to unemployment of 30% or more, and …

• With no near-term prospect of safely restoring normalcy …

The hit to the economy is already more severe than the Great Recession of 2008-2009 and could soon be more severe than the Great Depression of the 1930s.

2. Our ratings warn of widespread vulnerability.

A key function of the Weiss Ratings is to measure each company’s vulnerability to a recession or depression. Generally speaking …

• If a company merits a Weiss Rating of “D+” or lower, it is financially vulnerable to a typical post-World War II recession.

• If it merits a Weiss Ratings in the “C” range, it should be able to survive a typical recession, but would be vulnerable to a 1930s-type depression.

Right now, U.S. corporations currently meriting a “D+” or lower and considered vulnerable to a typical recession include …

• 5,379 publicly-traded nonfinancial companies with a combined $14.6 trillion in assets,

• 1,381 banks and credit unions with $236 billion in assets, plus

• 642 insurance companies with $235 billion in assets.

Total assets at risk in a recession: Up to $15.1 trillion.

That’s bad enough. But if the shock to the system is similar to that of a depression, the number of vulnerable corporations (“C+” or lower) expands to include …

• 8,072 publicly-traded nonfinancial companies with $46.3 trillion in combined assets

• 4,961 banks and credit unions with $2.1 trillion in assets, and

• 2,461 insurance companies with $2.4 trillion in total assets.

Total assets at risk in a depression: Up to $65.4 trillion (excluding the assets of financially strapped municipalities, states and private businesses).

That’s 28.4x greater than the $2.3 trillion the Fed announced on Thursday.

It’s 29.7x times greater than the $2.2 trillion CARES stimulus package signed into law by President Trump on March 26.

It’s also many times higher than any emergency funding by Congress or the Fed that might be announced in the future.

3. Time is short.

The financial impact of the Great Recession was spread out over a period of 18 months; the impact of the Great Depression, over 10 years.

In contrast, the coronavirus crisis is hitting virtually all at once. This makes it far more difficult for companies to react and for the government to come to the rescue in a timely manner.

Conclusion: The crisis is spinning beyond the control of any government.

This Raises Some of the Most Urgent
Questions for Investors in History

How much money must the Fed print to save the American economy?

Will they fail or succeed?

To the degree that they fail, how many companies will go bankrupt?

To the degree that they succeed, how badly will it destroy the currency?

Most important, what is the ultimate investment of refuge?

For the answer, I recommend watching my in-depth, one-hour emergency briefing.

Best wishes,

Martin D. Weiss, PhD

Founder, Weiss Ratings