‘Reality’ Is Knocking

Steve Mnuchin did something exceedingly rare for a top Trump administration official on Wednesday — he acknowledged reality.

In this case, that’s not a good thing. Because when it comes to fiscal stimulus, the reality is that the chances of a comprehensive package making it through the legislative process prior to the election are not good.

Nancy Pelosi has extracted concessions from The White House, but at this juncture, the only thing she’d likely accept would be total surrender — or something close to it. She knows Trump wants to send out stimulus checks and she also knows he’d enjoy any bump in equities from the announcement of a deal. Thanks to last week’s about-face, she also knows how desperate the president is, something he inadvertently underscored Tuesday with his exhortation for lawmakers to “go big,” a thinly-veiled rebuke of Mitch McConnell, who said he’s prepared to hold another vote on a narrow bill addressing only small businesses.

Read more: Go Big Or I’ll Tweet!

For his part, McConnell just doesn’t care. The White House is a coin toss, and so is the Senate. No stimulus bill is going to materially alter the course of the election. The number of undecided voters is probably low at this point, and anyone against Trump isn’t likely to change his or her mind just because they get a $1,200 check in the mail. All that matters for McConnell is getting Amy Coney Barrett confirmed.

And, so, Mnuchin delivered the bad news. “At this point getting something done before the election and executing on that would be difficult, just given where we are in the level of details,” he said, at the Milken Institute virtual global conference.

Although both sides continue to insist talks are “productive,” Mnuchin acknowledged that Pelosi may simply wait Trump and McConnell out, hoping to win the Senate, paving the way for the passage of a bill that checks all of Democrats’ boxes. That’s “definitely part of the reality,” Mnuchin admitted.

Later, Larry Kudlow told CNBC that the Treasury secretary is “frustrated.” Pelosi, Kudlow said, “keeps stringing us along.” Stocks weren’t amused. US equities dropped a second day.

Bank shares fell again Wednesday, as Goldman’s predictably stellar results failed to offset underwhelming numbers from Bank of America and a characteristically rough report from the perpetually beleaguered Wells Fargo.

BofA’s lackluster trading results and lower net interest income were a drag, while Wells logged a 56% decline in profits.

Getting back to stimulus, it’s an unequivocal tragedy that everyday Americans and working families are essentially being held hostage by both sides. But even as we mourn the plight of regular folks, let us not forget that recent events have further undermined Trump’s claim to legendary dealmaking prowess. Master dealmakers don’t get “strung along.” If you “keep” getting the runaround, as Kudlow complained on Wednesday, it almost by definition means you have no leverage.

Kudlow also admitted that Republican senators might not support Trump’s latest offer to Pelosi. Let me clarify, since Larry didn’t: Many GOPers in the Senate absolutely won’t back that offer. Because it’s in excess of $1.8 trillion, three times more than the maximum price tag Senate Republicans have shown a willingness to get behind.

“With only 20 days to the election, the urgency appears to have waned and while the political calculus surrounding why/why not to push forward with a deal is far outside of our realm of expertise (which is limited by most accounts anyway), the proximity to decision day at this stage appears to have entrenched both sides,” BMO’s Ian Lyngen, Ben Jeffery, and Jon Hill wrote on Wednesday afternoon (and do note the humor they inserted — they’re a joy to read). “This isn’t to suggest fiscal 2.0 won’t be a reality in the next several weeks, rather that early November might be too ambitious.”

Yes, indeed. On the bright side, I suppose you could argue that stocks have held up well considering the fading odds of a deal. That could suggest (once again) that equities long ago resigned themselves to the possibility that a big stimulus deal wouldn’t materialize prior to the election. Investors could also simply be of the mind that no matter who wins, another fiscal package is coming — that it’s not so much a matter of aversion to more spending as it is a combination of the usual wrangling over how much to spend and pre-election posturing.

Meanwhile, the public health situation in Europe is worsening. In France, Emmanuel Macron imposed a new curfew in large cities from Saturday. “This virus is dangerous and serious for everyone,” he warned. “We are at a stage where we need to react.” The new measures will last for at least four weeks. Italy reported a record number of new cases for Tuesday, which is saying something considering the country was one of the early epicenters.

Boris Johnson is totally lost on all manner of fronts, including in the fight against COVID-19 (sorry to my handful of UK readers, but that’s just about the only way I know to characterize the situation). The pound will be watching to see if Boris does, in fact, walk away from talks with the EU later this week.

Wednesday didn’t pass without geopolitical tensions. Reuters effectively confirmed Bloomberg’s scoop from last week that the Trump administration is angling to knee-cap Ant Group, just as Jack Ma is poised to take it public in what could be the largest IPO of all time.

“The US State Department has submitted a proposal for the Trump administration to add China’s Ant Group to a trade blacklist,” Reuters said, citing a pair of sources. Although the timeline is unclear, the people said “China hardliners in the administration are seeking to send a message to deter US investors from taking part in the initial public offering.”

Again, this is effectively confirmation of a Bloomberg story and it is a potentially big deal. Ant’s dual listing (in Hong Kong and Shanghai) could raise as much as $35 billion, topping Saudi Aramco’s December 2019 listing. Any interference from Trump could serve to further stymie the IPO and would be a major slap in the face to Beijing.

Read more: US May Target Tencent, Ant Group With Potential To Disrupt World’s Largest IPO

At the same time, Fox reported that Trump has back-burnered TikTok for now. According to the network’s Charlie Gasparino, Trump may hold off on further action until after the election.

One might very fairly ask this: If the video app was really a “national security threat” in the first place, how can it so easily be pushed down the list of priorities?

All in all, just another day of the usual tomfoolery. Only none of it is very funny.


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15 thoughts on “‘Reality’ Is Knocking

    1. Yeah, I don’t think the market is pricing in a Biden White House and a Republican Senate. Such a scenario is a bad environment for gold, BTC, maybe stocks, bad for oil, interest rates probably go down (will probably do so whoever wins what). It’d be stagflation.

      Two years later is the next election.

      1. Yep, the odds of a Republican Senate and Biden White House are reasonably high and I think that’d be worst case scenario for the economy and markets. McConnell will pull out the Republican greatest obstruction hits from 2010 and kneecap the economy in the process. I suppose there could be Republican crossovers, but unless those same Republican Senators are willing to nuke the filibuster, it’s a moot point. No way in hell you get enough Republican Senators to cross the aisle and agree to any meaningful stimulus. To me, that’s a much bigger risk when the likelihood of it happening is considered than a contested election at this point. The lasting damage of at least two more years of inaction will just lead to the Fed doing everything it possibly can to stave off a depression, but that’ll be small solace to the people that are barely hanging on.

        1. I cannot see the rich and powerful benefiting from continued bickering during a crisis when the economic needs are so perfectly clear. But then the mood of the time seems firmly entrenched in screwing thy neighbor regardless if it screws themselves or not.

      2. Unfortunately I suspect that is entirely likely, Biden WH, GOP Senate and DNC House. Two years of exactly nothing happening, at that point I suspect the budget even dies. McConnell would probably let the whole thing crater if it meant he could throw it in the DNC’s face in 2022. Two years of state economies collapsing in the face of Covid which lets face it without extensive measures is going to continue to ripple through the country in waves. Followed of course by 2 more years of the same until Biden is voted out.

        Alternately we could see a Trump WH, GOP Senate and DNC house. I’m not sure honestly what of the above changes… McConnell won then without having to do anything and so will have no incentive to do anything.

        The only situations which fundamentally address anything would be at least a DNC house and senate majority. The presidency would be good but the senate is the key to it all and the deck is stacked heavily there.

  1. Time for the SP to start testing some moving averages, I say. Unless, of course, uncertainty and chaos is the new narrative for why the SP so rides above the MAs. Talking head on some business channel: “Oh, it’s different this time. It USED to be that investors wanted stability and predicability. Now investors want chaos and uncertainty.”

  2. I don’t get Pelosi’s strategy here. Align with the President on this one thing . . . “the White House and our caucus are close, but the President can’t get the Senate to make a deal . . . the issue is Mitch McConnell and the Senate.” I’m not a political strategist, but I do believe this could be an enormous wedge issue between Trump and McConnell.

      1. Yep, the best outcome is a split in the Republican party where Trump takes his ball (i.e. his rabid supporters) and goes home. McConnell can point out that Trump lost in a landslide, but the diehards will eat up whatever narrative Trump spins about the big loss (it was rigged, RINOs sabotaged me, deep state, blah blah blah). If Trump loses big and Dems make it a sweep, it’ll be very interesting to see what happens with the Republican party. No way Trump goes quietly into that goodnight.

    1. I think her assessment may be that aligning with Trump still won’t get a meaningful stimulus bill through the Senate, and there are not enough days between now and the election for a wedge to do anything.

      A long shot might be for Pelosi to tell Trump that McConnell is selling him down the river by putting the Barrett nomination ahead of the stimulus that the President wants for his re-election, so he should pull the nomination, force the Senate to give him a YUGE stimulus bill, then re-nominate Barrett after the election. Its not clear if she and he communicate well enough to do that.

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