Biden risks being a lame duck president
Biden Faces Prospect of Gridlock Presidency After Party Losses
Joe Biden may have the inside track on Donald Trump to win the White House, but his party’s otherwise poor performance on Election Night sets up a gridlock presidency, with faint hopes of achieving liberal policy aspirations.
If he prevails, Biden would become the first president since George H.W. Bush to enter office without control of both the House and Senate — promising him at least two years of stasis and gridlock. (…)
Republicans have already telegraphed that they’re likely to rediscover religion when it comes to deficit spending, after adding nearly $4 trillion in debt during Trump’s first term. (…)
The silver lining for Biden is that he may face less pressure from his party’s left flank. He was reluctant to embrace more radical proposals offered by popular figures like Bernie Sanders, the Vermont senator, and Alexandria Ocasio-Cortex, the New York congresswoman, such as their “Green New Deal” or expanding Medicare, the insurance program for the elderly and disabled, to cover all Americans.
Now, Biden can justifiably say that the votes simply aren’t there. (…)
- John Authers: Stocks Love Gridlock. Blue Waves Are So Yesterday
(…) Markets run on narratives. So do human minds; it’s easiest to think in terms of stories. What makes markets in general, and stock markets in particular, so special is (first) their ability to shift from one narrative to another in a nanosecond and (second) the ability to make sure that any prevailing narrative is good news for stocks. (…)
We now know that there will be no Blue Wave, and so there is a new narrative, that markets love gridlock (which has been a Wall Street staple for generations), and that the risk of higher taxes and more onerous regulations under a Biden administration has been averted. (…)
How well does the new narrative work? History suggests that stock markets actually prefer periods of harmony, when the White House and Congress are controlled by the same party. That is when things get done. It is only bond markets that like gridlock, because there is far less risk of excessive spending — and it is a while since excessive deficits deterred anyone from buying bonds. (…)
With no fiscal help coming from a Republican Senate, there will be no inflationary pressure. The Fed will have no choice but to keep propping up the bond market, and possibly even resort to yield curve control. That at least is the narrative. (…)
In brief, it is probably best to brace for a repeat of the trends we have all grown to know and love in the last year or so. With rates held on the floor, and a deflationary, largely growth-less environment, duration becomes the be-all and end-all. The FANG stocks have run riot because they are seen as reliably profitable and immune to the economic cycle. Low discount rates make their future earnings streams ever more valuable. So far this year, the FANGs and long-dated bonds (represented by the TLT ETF) have done far better than the stock market as a whole. (…)
A Republican Senate means that there will be no “Bidencare” expansion of Obamacare. That is mighty good news for the managed care sector. (…) The Republican Senate means there is no way to adjust Obamacare to render it safe from being ruled unconstitutional by the Supreme Court. There is now a real possibility of the program being overturned with nothing to replace it. That could be a serious mess, particularly if it arrives before a Covid-19 vaccine. (…)
Simple narrative: slower, if not anemic economic growth triggers a stampede towards companies which can grow rapidly amid a weak growth environment and near zero interest rates boosting P/Es , assuming any E is present. This chart from Ed Yardeni is dated Nov. 4. Should we mind the gap?
McConnell Says Congress Should Pass Economic Relief Bill This Year Senate majority leader says he supports aid to schools, hospitals and small businesses, but not a more sweeping Democratic proposal.
Congress should pass a new economic-relief package this year, Senate Majority Leader Mitch McConnell said on Wednesday, as prospects for Democrats’ multitrillion-dollar stimulus bill faded along with their chances for full control of the government. (…)
Mr. McConnell said he would support including more funding for schools, hospitals and a popular small-business loan program, but not a more sweeping proposal that Democrats have sought. (…)
“If Republicans weren’t willing to spend more than $1 trillion even in the heat of a re-election battle, where it could benefit President Trump, I see almost no chance they would support a trillion-dollar plan after the election or next year, when there’s less political heat,” said Brian Riedl, a senior fellow at the right-leaning Manhattan Institute for Policy Research.
House Minority Leader Kevin McCarthy (R., Calif.) said in an interview Wednesday that Republicans’ likely gains in the House and likely continued control of the Senate would shift power away from Mrs. Pelosi in coming negotiations. (…)
Now, the administration and House Democrats may have less interest in cutting a deal, particularly with Democrat Joe Biden leading in the presidential race.
Lack of interest from a lame-duck Republican administration could push relief talks into early 2021, delaying aid for months just as growing numbers of coronavirus infections raise the prospect of renewed lockdowns. Millions of unemployed Americans could also see their benefits disappear at the end of December, when enhanced measures that Congress enacted in March are due to expire. (…)
A narrow Democratic margin in the Senate could result in a $3 trillion aid package in January, which could add roughly 4 or 5 percentage points to gross domestic product, he estimated. But as a Democratic majority looks less likely, so do the chances of such a large measure.
Even so, Mr. Tedeschi said it’s unlikely that Democrats and Republicans could reach agreement in the next couple of months—a near-term risk for the economy and households facing missed bill payments, evictions and rising poverty. (…)
Bank Stocks Fall as Stimulus Hopes Fade Shares of some regional banks fell as much as 11% even though the broader market rose
The KBW Nasdaq Bank Index finished 5% lower. The broader S&P 500 rose 2.2% in volatile trading. (…)
Other market indicators pointed to souring bets on a quick economic bounce. The yield on the 10-year Treasury note was down by more than one-tenth of a percentage point on Wednesday. The benchmark U.S. debt finished at a yield of 0.77%.
Lower long-term yields also weigh on the amount banks earn from lending. A drop of half a percentage point in the 10-year yield, for example, could hit regional banks’ annualized per-share earnings by 1% to 4%, according to John Pancari, a banking analyst at Evercore ISI.
Firms that rely less on consumer and commercial banking and more on Wall Street trading and investment banking outperformed the rest of the sector. (…)
After the election results are complete, bank investors might find more to like, Mr. Mayo said in a note to clients. For example, if Democratic nominee Joe Biden wins the presidency but Republicans hold on to the Senate, it would be more difficult for a Biden administration to raise the corporate tax rate or impose more financial regulations.
October Vehicles Sales decreased to 16.2 Million SAAR
The BEA released their estimate of light vehicle sales for October this morning. The BEA estimates sales of 16.21 million SAAR in October 2020 (Seasonally Adjusted Annual Rate), down 0.5% from the September sales rate, and down 3.3% from October 2019.
This was below the consensus estimate of 16.5 million SAAR. (…) Sales-to-date are down 17.3% in 2020 compared to the same period in 2019. Since April, sales have increased, but are still down 3.3% from last year. (…)
BTW, during the last 3 months, both domestic autos (-22.3% vs -17.3%) and domestic light trucks (-0.7% vs +2.5%) have fared much worse than imports.
Imports’ share of the U.S. vehicle market rose slightly last month to 23.2% and has been trending higher since 19.9% during all of 2015. Imports’ share of the passenger car market eased to 28.0% from 28.5%. Imports share of the light truck market improved to 21.6% and has been trending up from 14.7% in 2014. (Haver Analytics)
U.S. Trade Deficit Narrowed in September
The U.S. trade deficit in goods and services narrowed in September to $63.9 billion from a slightly revised $67.0 billion in August (initially $67.1 billion). Exports increased 2.6% m/m (-15.7% y/y) following a 2.2% monthly gain in August. Imports edged up only 0.5% m/m (-6.5% y/y) in September after rising 3.2% m/m in August.
The nominal deficit in goods trade narrowed to $80.7 billion from the record $83.8 billion recorded in August. The September reading was slightly larger than the $79.4 billion deficit in the advance report. Exports of goods increased 3.1% m/m (-9.8% y/y) versus 3.0% m/m in August. The September increase was led by to a 14.4%s surge in exports of foods and feeds, which consisted mostly of a jump in soybean shipments (presumably to China), and a 3.8% m/m rise in exports of capital goods.
Imports of goods rose just 0.3% m/m (-2.2% y/y) in September after a 3.3% m/m gain in August. Imports of autos and parts jumped up 11.3% m/m while imports of industrial supplies fell 3.5% m/m and imports of consumer goods declined 3.6% m/m. With their September increase, auto imports have now regained their pre-COVID level.
The real goods trade balance also narrowed in September–to $87.6 billion (2012$) from a record $92.4 billion in August. The widening real trade deficit in Q3 subtracted meaningfully from the rebound in GDP. The sharp narrowing in September sets the stage for some possible improvement in Q4.
Double-Dip Moves From Risk to Reality in Major Economies
Alternative, high-frequency data show that economic activity in advanced economies weakened in October amid renewed outbreaks of the coronavirus, and the latest readings suggest the downtrend continued at the beginning of November, particularly in major European countries. Activity in France and Italy turned down sharply as lockdown restrictions took effect, according to Bloomberg Economics gauges that integrate data such as mobility, energy consumption and public transport usage. Activity in the U.S., U.K. and Canada also declined.
Eurozone September retail sales correction doesn’t bode well… The decline in Eurozone retail sales brings them back to the level seen before the pandemic, but things are likely to get much worse before they get better, as new lockdown measures will hit the retail sector heavily
(…) From here on, retail sales are likely to dip further though.
The new restrictive measures announced will impact retail stores and their sales significantly, especially in November. Countries like France, Ireland and Belgium have closed non-essential retail stores to limit the spread of the virus.
The consumption outlook for the last quarter of the year has therefore turned negative again and so has the outlook for GDP in general.
US tops 100,000 Covid-19 cases in a single day Record tally of infections comes as hospitalisation levels reach their highest in three months
New coronavirus infections surged by roughly 20% over the past week as cases continued to climb in every region of the country, Axios’ Sam Baker and Andrew Witherspoon report.
TECHNICALS WATCH
The 13/34–Week EMA Trend Chart remains positive, though extended:
CMG Wealth also shows this 13/34–Week EMA Trend Chart for 10-year Treasury yields which broke above 0.70%:
San Francisco voters approve taxes on CEOs, big businesses
Under the new law, any company whose top executive earns 100 times more than their average worker will pay an extra 0.1% surcharge on its annual business tax payment. If a CEO makes 200 times more than the average employee, the surcharge increases to 0.2%; 300 times gets a 0.3% surcharge and so on.
Voters also agreed to sweeping business tax changes that will lead to a higher tax rate for many tech companies, and a higher transfer tax on property sales valued between $10 million and $25 million. (…)
The CEO tax is expected to generate between $60 million to $140 million per year, and Haney said he wants most of the money directed towards health services. He dismisses fears that the surcharge will drive companies out of the city, saying the tax is modest in comparison to the cost of moving a business. (…)
Although the surtax is annual vs moving once…
Illinois Tax Repudiation Voters may force needed reform by rejecting Gov. Pritzker’s tax hike.
The U.S. electorate Tuesday declined to endorse sweeping progressive change, and that sentiment extended even to deep-blue Illinois. Democratic Gov. J.B. Pritzker, supported by liberal luminaries like Sen. Dick Durbin, exhorted voters to pass a referendum that would repeal the state’s 4.95% flat income tax to allow for higher top rates. Voters declined.
Like other progressive defeats across the country, this one was more marked than polling might have suggested. Gov. Pritzker ran on the “fair tax” in 2018 and a March 2020 poll showed 65% support. But the measure was defeated 45% to 55% as a critical mass of Democratic voters broke with the party’s state leadership.
The state Legislature had passed tax changes set to go into effect if the referendum succeeded. The rate would have risen 2.8 percentage points, to 7.75%, on income above $250,000 for individuals and couples. For individuals earning $750,000, a 7.99% rate would kick in. For income under $250,000, the rate would be cut by a fraction of a percentage point.
Yet the usual rhetoric about only raising taxes on “the rich” fell flat. Perhaps voters recognized that it would hurt Illinois’ already-flagging competitiveness, and that lifting the flat-rate restriction was an invitation for union-dominated Springfield to ratchet up rates again and again to pay for its fiscal mismanagement. (…)