Sad ironies and sigh-inducing headline juxtapositions are a now a fixture of the daily news cycle.
Nowhere is this more apparent than the financial media, where stories documenting a breathtaking comeback for stocks are set against tales of economic calamity and widespread social unrest stemming from pervasive inequality of all sorts.
I’ve spoken at length about this over the past several days, and I imagine polarization will be an ongoing theme from now until something changes. If you ask Ray Dalio (who penned another lament for the state of American democracy and capitalism this week), the chances of meaningful change are slim. I can’t disagree.
According to the ubiquitous people familiar with the matter, Donald Trump was scheduled to huddle with top aides this week to discuss the next virus relief package.
As a reminder, this is important not just because more relief is necessary, but because existing legislation is not properly “stimulus”. Until recently, there was nothing to “stimulate” as the economy was shuttered. The trillions in aid earmarked for individuals, families and businesses was designed to bridge the gap between the time incomes and cash flows ceased, to when they flowed anew.
Having provided the oxygen to keep the patient alive during what JPMorgan has called “an induced economic coma”, it’s now generally seen as advisable to pass a new package of measures aimed at delivering an adrenaline shock now that the patient is awake.
House Democrats, you’ll recall, have already proposed just such a package (the HEROES Act), but… well, but Mitch McConnell.
CBO estimates show the legislation adding $3.4 trillion to the deficit between 2020 and 2025.
Fiscal hawks have been mostly quiet in recognition of the existential crisis facing the economy, but you can expect the squawking to start up again soon.
“The deficit could widen to 21% in 2020 and 11% in 2021, up sharply from 4.6% in 2019, and considerably above CBO baseline projections earlier this year”, Goldman reminds you.
For those interested, there’s a detailed breakdown of the CARES Act and why you shouldn’t fret about government spending in “Who’s Afraid Of Red Ink? COVID Crisis Spawns Bull Market In Deficit Fearmongering“.
Goldman expects $1.5 trillion in additional measures over the course of 2020-2022.
Trump is obviously fine with more stimulus and also with borrowing to fund it. If we’re all being honest, Trump would probably be ok with just mailing everybody a Willy Wonka-style golden ticket redeemable for $50,000 and a free trip to Doral if it meant getting the economy up to speed in time for November. Like his affinity for the Good Book, Trump’s allegiance to Republican orthodoxy around fiscal rectitude is questionable at best. He is, after all, the self-declared “King of Debt”.
But, even as the president has succeeded in transforming the GOP into a personality cult, he still finds it occasionally useful to parrot talking points about budget discipline in the same way he understands that pandering to evangelicals is useful, even though everyone (including evangelicals) knows he has no use whatsoever for religion outside of politicizing it, as he did on Monday evening.
So, the president will apparently side with McConnell who, according to reports, has told administration officials privately that the Senate would likely back another $1 trillion in spending, an amount far short of Democrats’ $3.5 trillion plan.
Whatever the amount, Americans will need it – or at least most Americans will. Unfortunately, discussions around the next package were delayed this week so that Trump could focus on the protests.
“Top aides had planned to meet this week to discuss the next round of pandemic relief as more than 40 million people have lost jobs since states began restricting public activity in March [but] that meeting has been removed from the calendar and has not been rescheduled yet”, sources told Bloomberg, for a Thursday article which notes that “the White House has been consumed this week with protests over police brutality [and] Senate Republicans had no plans to act on a stimulus bill this month”.
As Dalio writes in his exceedingly somber missive, “the racism problem is intertwined with the cycle of the poverty problem in which poverty, crime, and inadequate education leads to systemic disadvantages”. That’s another way of saying that the protests, demonstrations and, yes, riots, are an expression of a larger problem that goes beyond George Floyd to endemic issues, many of which are tied to economic disenfranchisement.
The pandemic has laid bare these problems and now, protests ultimately rooted in frustration over widespread inequality are delaying discussions between the administration and the GOP around moving ahead with a watered down version of Democrats’ proposal to help ameliorate the pandemic pain.
McConnell says he has no plans to move ahead with any stimulus package until after July 20.
Meanwhile, another 1.9 million Americans filed for unemployment benefits last week, bringing the total to almost 43 million since the crisis escalated in earnest.
William Barr on Thursday defended the decision to gas peaceful protesters gathered near the White House on Monday in order to clear the way for Trump to pose with a Bible in front of St. John’s Episcopal Church, despite not being invited or really even welcome, according to Mariann Budde, the bishop of the Episcopal Diocese of Washington.
“This is the federal city. It is the responsibility of the federal government to render that protection”, Barr declared, explaining his order for police to expand a perimeter for Trump, who Barr said “should be able to walk across the street to the church of presidents”.
He also blamed a “witches’ brew” of radicals for injecting violence into otherwise peaceful protests.
Another headline from Bloomberg on Thursday reads “Citi Says Wealthy Clients Are Holding Too Much Cash, Time to Buy”.
Apparently, some of Citi’s private bank clients are sitting on a cash allocation of as much as 35% in their core portfolios.
CIO David Bailin knows this is no time to be bailin’ (sorry) on assets just because the economy is in tatters and protesters are being shot with rubber bullets in front of the White House for the crime of standing between Trump and a church.
In a mid-year outlook piece written for wealthy clients, Bailin reminds the rich that crises are really just opportunities for hedge funds and private equity.
“In 2001 and 2008, for example, average private equity vintage returns increased by 800 and 710 basis points, respectively, over the prior year’s level”, the report reads. “The best distressed opportunities will become available later this year and during 2021”.
That’s right! If you’re rich and you’ve got cash to deploy, you can look forward to snapping up bargains aplenty once the despair really kicks in next year.
“There are plenty of things to buy”, Bailin told Bloomberg, in a phone interview. “The more study we did, the more excited we got”.
I’ll bet. What’s not to be excited about?