As concerns about a second wave of coronavirus infections grow amid rising cases in many parts of the world, we will likely see rolling shutdowns in areas where cases are spiking, Real Vision CEO Raoul Pal said During Today’s Daily Briefing.

Pal said that Apple’s (NASDAQ:AAPL) decision to close stores in Florida, Arizona, and the Carolinas is telling given the vast amounts of data it has to go on, and localized shutdowns are a reality the U.S. and other countries will need to deal with as the virus lingers.

To gauge the impact of these marginal shifts in economic activity, we need to see how much the virus will change people’s behavior, since behavior is what drives markets, he said.

On the European front, Pal said he is unconvinced that the ECB’s recent meeting around fiscal policy will galvanize support for ongoing debt mutualization, and he believes we’ll soon see the ECB and the BoE go into hyperdrive with their printing.

Because he doesn’t think Europe is doing enough to deal with the size of the economic damage it’s taken, Pal said he is extremely concerned about European banks and is still negative the euro.

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Pal also discussed the potential impacts of the Fed’s buying of individual corporate credits. He said the Fed doesn’t want BBB companies to be downgraded to junk because there are no buyers of junk and then it has to step in and buy those.

The reason it says it’s buying fallen angels is that it’s trying to stop the cascade of the doom loop that blows up the pension system. That’s great, Pal said, but what happens as a result is the equity goes to zero. He sees shareholder equity being wiped out in companies like GE (NYSE:GE).

The credit markets are distorted now that the Fed is buying them, and Pal said it is interesting that right now companies aren’t buying back shares or spending on infrastructure, but shoring up their balance sheets instead.

The fact that corporations are raising cash is an important signal. According to Pal, it tells us they’re fearing a solvency event more than they’re expecting growth to go back to normal.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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