‘Working Fine Right Now’

(Updates with comments from Pelosi, Schumer, Meadows, Mnuchin after latest negotiations)

In an attempt to prove to voters he’s not totally inept in the face of a potentially disastrous fiscal cliff, Donald Trump said Thursday he’s prepared to take executive action on extra federal unemployment benefits, eviction moratoriums, and student loan payment deferrals in the event a deal on a new virus relief package isn’t struck by the weekend.

Trump also said he could sign an order imposing a payroll tax holiday, something he’s long championed despite garnering almost no support from lawmakers on either side of the aisle.

The president’s remarks came as he departed Washington for Ohio, where Governor Mike DeWine tested positive for COVID-19, according to his office. He was checked as part of standard procedure for meeting Trump on the tarmac of an airport in Cleveland. He’ll be quarantined at his Cedarville residence for the next two weeks. That’s how close America came to a potential “Bolsonaro event“, if you will.

It wasn’t immediately clear how Trump intended to fund his prospective “orders”. Apparently, one idea was to somehow scrape together leftovers from the CARES Act. “I don’t think they know what they’re talking about”, Nancy Pelosi shrugged. Commenting on a potential payroll tax holiday, Chuck Grassley said he needs to “find out whether [Trump] thinks he’s got the legal authority to do it”.

Mitch McConnell, meanwhile, told CNBC he expects a deal in the “near future”, although he lamented a lack of progress. For his part, Chuck Schumer cited incremental steps towards an accord, but said it’s not enough. Republicans want a “bandaid”, Schumer chided. “We are going to keep working until we get it done”.

Later, in a tweet, McConnell accused Democrats of deliberately sabotaging the talks, which continued into Thursday evening. Pelosi called the White House’s proposal “most unfortunate” and “anorexic” in remarks to the press, while Schumer contended Mnuchin and Mark Meadows refused to “meet halfway”. The Senate minority leader described himself as “very disappointed in the meeting”. “Their position is almost ‘my way or the highway'”, he said.

“I think there are a lot of issues we are close to a compromise position on”, Mnuchin remarked, before admitting that on a “handful of issues” the sides are still very far apart. Meadows said Trump’s instructions were to reach a narrow deal if no larger agreement was possible. “We are going to continue to stay engaged”, Meadows promised.

Equities took in all in stride, as is their wont. The MSCI All-Country World index erased its decline for the year on Thursday.

“There remains a consistent sense that the underlying disconnect between lower rates and higher equity valuations can only end one way; poorly”, BMO’s Ian Lyngen, Benjamin Jeffery, and Jon Hill wrote, in an afternoon note. While they flag “a collective sense that risk assets are just waiting for ‘the next shoe to drop'”, they simultaneously admit to having “long ago gave up attempting to fade the bid which has been attributed to renewed faith in the Fed to do everything necessary and the positive benefit of extremely low risk-free rates”.

An unexpectedly large decline in jobless claims tempered labor market worries ahead of Friday’s July NFP report, which remained a giant question mark. There was little else in the way of news for investors to latch onto.

Richmond Fed President Tom Barkin delivered a somewhat downbeat assessment during remarks to CNBC Thursday.

“The downturn is longer than we anticipated and the recovery path is less steep”, he cautioned. “We have a lot more people in trouble now than we had hoped we would have four months ago, and a lot of them are in need”.

Like his colleagues, Barkin urged Congress to move forward with additional fiscal stimulus calling it “exactly the right vehicle for this part in the cycle”.

The Fed has done its part, he suggested: “Markets are working fine right now”. (At least something is.)

In a testament to just how “fine” markets are “working”, the latest Lipper data (out Thursday afternoon) showed another massive inflow into corporate credit funds. Investment grade funds took in another $7.2 billion in the week through August 5. It was the 17th consecutive inflow. Nearly all of the bleeding seen during the panic has been reversed.

That’s the power of the Fed backstop for you.

Meanwhile, high yield funds grabbed $4.39 billion over the period, marking the fifth straight weekly inflow and the eighth largest on record. Seven of the largest eight weekly junk inflows ever have come in 2020.

On the geopolitical front, the situation remains as tenuous as ever. The Senate passed a bill aimed at banning TikTok from government-issued devices, and Reuters cited a half-dozen sources in reporting that the US is in the process of negotiating with Taiwan for the sale of “at least” four SeaGuardian surveillance drones.

“Taiwan submitted its request to buy armed drones early this year”, Reuters said, citing one of the six sources, and adding that the US sent along “the pricing and availability data for the deal” last week.

Suffice to say that’s not going to please China, especially not with Health and Human Services Secretary Alex Azar set to visit Taiwan starting Sunday, marking the highest-level delegation in decades.

“We have long expected that noise levels around the US-China relationship would increase as we head into a tightly contested election, and with further bans on companies being contemplated by the administration, that assumption seems justified”, Goldman said. “Regardless of who wins, the slow-motion decoupling of the two countries will probably continue [as] both political parties are unhappy with the bilateral relationship”, the bank added.

Speaking on the tarmac in Ohio where he was set to meet Governor DeWine, Trump made his case against Joe Biden.


“No religion, no anything. Hurt the Bible, hurt God. He’s against God”, the president said. “He’s against guns. He’s against energy”.

It’s only going to get more contentious from here, folks.


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8 thoughts on “‘Working Fine Right Now’

  1. Speaking of major binary events that are not priced into options, a la the early vaccine post, a Chinese land grab of sorts in Taiwan with the cherry of Taiwan Semiconductor leading up to/in the midst of a disputed US election has a probability above zero.

    1. Appropriately, the chance of a Chinese invasion of Taiwan in 2020 would hardly be measurable beyond the Heisenberg uncertainty principle.

      To begin with, Taiwan has a credible military deterrent. The Taiwanese would not be able to keep China from eventually taking control of the island but they could make doing so a drawn out affair at a prohibitively high cost. The island would still represent a strategic asset between the South and the East China Seas. However, its value as a source of high tech infrastructure would be rendered moot if said infrastructure was a pile of rubble.

      More importantly, China has no reason to take such a high risk gamble at a time when its signature strategy to achieve global parity with the United States, the Belt and Road initiative, is proceeding as well as its designers could have desired when it was originally rolled out. So far, the Belt and Road initiative has done a creditable job of soaking up China’s excess construction capacity while also granting the Chinese a number of strategic bases in the Indian Ocean (which helps China circumvent US containment in the Pacific).

      In truth, China has not escalated the war of words with the Trump Administration because the CPC would not be adverse to four more years of Trumpian misrule.

      1. Appreciate the color. We will see if Belt and Road will be enough to soak up a possible first recession in 40 years, to go along with what may be a protracted global depression. I was at Tsinghua in 2008 listening to economists talking about the need to shift to a model focused on domestic consumption. From what I can tell, they’ve made little progress in this regard, and according to Michael Pettis it will be a very difficult transition. So far 2020 has been more of the same, a doubling down on production. Their internal economic (and political) vulnerabilities remain a white swan for the rest of the world. Of course if something happens it will be called a “black” swan.

  2. I can hardly imagine that our government, should it have been infiltrated by foreign agents, could have done more harm to the state of our hegemonic advantages than what has occurred. Maybe it’s always been this way for hegemonic powers in decline. The people within do not see it happening.

    Either way. This sucks and is stupid. I’m going to drink another White Claw and call it a night.

  3. I feel the odds are at least even that the People’s Republic of China becomes a multi-party democracy before the Republic of China (Taiwan) becomes a unitary one-party socialist republic. The time frames, however, are very long…

  4. What should be of interest is how during the DEM primary, the voters rejected the Progressive in favour of a return to “normalcy” in the form of an old white guy. Historically, nominees tack back to the centre, Biden, when he is lucid, which is not that often, appears to be tacking even further left. Why does he do this? Is he going to give this election to Trump? A key here is that 1 out 3 DEMs polled are pro-life, but there is apparently no space for them in this party.

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