Markets stocks

The Good Kind Of ‘Weird,’ The Bad Kind Of Message

Global equities surged Thursday, as markets were seemingly thrilled at the prospect of an imminent Joe Biden victory in the US which, when coupled with a split Congress, means some form of gridlock will remain the status quo inside the Beltway for the next four years.

The sense of desperation from Donald Trump’s campaign was palpable. The president sued in Michigan, Pennsylvania, and Georgia and wanted a recount in Wisconsin. As Thursday morning dawned stateside, Biden needed just one more state, assuming all the other calls stood.

The same price action that defined Wednesday’s rally spilled over into Thursday, as tech was buoyant and Treasurys were poised to extend gains.

The message is clear: Reduced odds of tax hikes, lower chances of onerous regulations, smaller deficit spending, and a more predictable White House is a combination that the market views as likely to reestablish many “norms” from the post-GFC conjuncture.

With the fiscal impulse seen as likely to be muted, more Fed liquidity is probable and growth should be slower. With no tax incentive to sell winners, tech is resurgent.

“Work From Home (WFH) names received an additional boost,” JonesTrading’s Mike O’Rourke said. “Despite a second wave of the pandemic and new lockdowns, investors probably avoided the WFH group on the capital gains fears. That headwind was removed.”

For Democrats, flipping the Senate is now wholly far-fetched even as it’s still not totally impossible. Nancy Pelosi will also be compelled to play with a weaker hand in the House. None of that is great news for Democrats, but markets will take it. Again, I think it’s impossible to overstate the extent to which investors are looking forward to four years of sanity at the very top against a set of legacy, business-friendly fiscal policies that will be difficult to unwind considering Republicans’ solid performance on the down-ballots.

“We’re in this weird situation where Biden could be elected president and Democrats are going to be beating themselves up over what happened in this election,” one commentator told Bloomberg.

It might be “weird” for Democrats in that it’s hard to know how to spin an objectively disappointing election that despite itself, looks poised to achieve the most important goal: Ousting Trump. But for market participants, this is the good kind of “weird,” especially if the hobbled fiscal impulse means more Fed easing.

“What seems clear… is that even if Biden wins the White House, the Democrats look set to fall short in their quest to win the Senate,” SocGen’s Kit Juckes said Thursday. “That limits the near-term scope for fiscal easing and places an even bigger burden on the shoulders of the Fed.”

There are all manner of cynical takes on this. And, indeed, one of my own election night pieces was a lament for the country, which is quite clearly more predisposed to Trumpism than anyone cared to admit. Even as Trump himself looks to be on his way out the door at 1600 Penn. That sends a worrying message to the rest of the world: A sequel to 2017-2020 is entirely possible at some point down the road. Just not during 2021-2024.

“Forget about fiscal expansion, or much of what Biden promised on the election trail (apart from the Buy American part?). No reflation trades for you, just the virus –and lockdowns?– and hopes for a vaccine,” Rabobank’s Michael Every wrote Thursday. “Of course, long-end yields are already pricing that in to some degree and more of that is surely to come,” he added, noting that “equities are loving it, of course: No tax hikes, no spending, no legislation – just the same old political-economy that led us to a Trump victory in the first place in 2016.”

Commenting in a piece for The New Yorker published Monday, Ian Bassin, who worked in the White House counsel’s office under Obama, and now runs a nonprofit, said this: “I think Trump’s a canary in the coal mine. Trump 2.0 is what terrifies me—someone who says, ‘Oh, America is open to a strongman kind of government, but I can do it more competently.’”

It’s Time To Be Honest About What America’s ‘Values’ Really Are


17 comments on “The Good Kind Of ‘Weird,’ The Bad Kind Of Message

  1. Emptynester says:

    My take on the last 4 years and the 2020 election is this-
    The American people (in a collective sense) know exactly what they are looking for-
    1. strong domestic and international leadership abilities
    2. Liberal on a personal level – national healthcare and better education, pro-abortion, freedom of personal choice in our lives, etc.
    3. Fiscally responsible
    4. Does not answer to far right or far left ( politicians or media) or to mega donors.
    5. Puts the future of America and the American people before all else

    Looking for candidates

    • “Fiscally responsible” has no meaning outside of inflation. We really have to stop thinking in these terms at the federal level. If you want to talk about states being fiscally responsible that’s fine. But at the federal level it’s meaningless. It’s just not reality. If you want to couch it in terms of what levels of government spending are likely to stoke unwanted inflation, that’s fine, and I expect that you’re likely not open to abandoning false notions about the national debt irrespective of what I or anyone else says, but just know that if you are talking about “fiscal responsibility” at the federal level and you aren’t talking about inflation, you are speaking in literal nonsense terms. It’s just not factually accurate. It’s like saying the sky isn’t blue. There is no such thing as the “national debt.” You can’t have a “debt” that’s denominated in a currency you issue. That makes no sense. “National debt” is a gibberish phrase.

      • There needs to be 4 years of education coming from the media to prepare people for the next major election. Otherwise expect even more brutal candidate to emerge in our politics. Could even be a brute from the left.

      • Emptynester says:

        Fiscally responsible also includes how you spend it, encompassing much more than just “how much taxes, debt and printing of USD’s to pay for the budget.
        A leadership elected by a clear majority with a platform that is supported by a clear majority will be trusted to balance short vs long term needs in establishing a budget (along with a clear discussion of how it is financed) supported by the American people.
        This is my hope.

        • Well yeah, obviously you want to make intelligent choices about what to finance. You don’t want to just give everyone a lifetime supply of Twinkies and balsamic vinegar because there are no restraints on spending. lol

  2. joesailboat says:

    Even the most fiscally responsible way of thinking has no intentions of responsibility when it comes to Military budget.
    Mr H, just like the Bible, if people believe it, it is true. I think China has a tactical advantage over us in this respect.
    Dalio has pointed out that China has a long history of FIAT money, we have gold money history in the west.

  3. DownstreamV says:

    here is a quick opinion piece from north of the border on the stark realities facing the Dems and the American populace at large


    David Rosenberg: Here’s the bigger, undeniable – and ultimately bullish – reason markets are rallying after the election

    It is clearly a legitimate question as to what the stock market is thinking here.

    We had a near-1,000 point pop in the Dow on Monday and Tuesday. Maybe some of this was purely a technical bounce from oversold levels, but some and likely most was an anticipation of a big “Blue Wave” and all the gobs of fiscal stimulus that would entail.

    Well, there was no “Blue Wave.” Donald Trump looks as though he will lose the White House, but that is it for the Democrats. It is a bittersweet victory for them. Their representation in the House declined 3 seats and that wasn’t supposed to happen. And in the days leading up to the election, the polls were suggesting the Democrats could take the Senate, too. That obviously didn’t happen.

    So, no “Blue Wave” means no big stimulus. But the stock market surged anyway. Why?

    It’s not about being irrational. It’s about what the market is seeing. It may be tunnel vision, and I certainly think that is the case, but there is a reason why the market soars on visions of big fiscal spending, and then soars when the odds of that are obliterated. All of a sudden, the attention turns to no tax hikes, and at the margin, the prior correction in the growth stocks reflected selling ahead of any prospective increase in capital gains taxes. Now the investors that sold are buying back these stocks because, with the Senate in GOP hands, there ain’t no tax hikes coming of any kind. And if you recall, Joe Biden’s corporate tax hike plan would have shaved the future business profit trend by 10 per cent. Well, the markets like that!

    Indeed, I know what you’re thinking. The market is choosing what it wants to focus on in any given day. Did I mention tunnel vision? One day it’s salivating over public sector spending and ignoring tax hikes down the road. The next day it’s salivating over no tax increases and ignoring the fact that a big fiscal stimulus isn’t happening so long as Mitch McConnell leads the charge in the Senate. A classic case of “tails I win, heads I win.”

    But there is a much bigger picture narrative here that is bullish and here it is, and I really hope this does not offend my Democratic friends. Remember – I’m Canadian. However, here is the reality, as I see it.

    First, despite the fact that Trump lost (or seems to have), he made it much closer than the polls suggested. This was a far bigger miss than was the case with Hillary Clinton. Outside of his hardcore base, everyone knows about the President’s character, or lack thereof. He never had a period when he had better than a 50 per cent approval rating and Trump went into the election with just a 45 per cent score. Everyone knows this and knew it four years ago, too. Yet, let’s face facts – he still nearly won. That says a lot. And it says a lot about the current state of the Democratic Party.

    It would be a tour de force in Europe and would win landslides in Canada. But that is not America. Trump nearly won despite his own high dis-like-ability ratings. The Democrats woefully underperformed expectations in the House and Senate. So the electorate said that, no, sorry, despite the pockets of support out there for the likes of Bernie Sanders (who I actually like and I think he is brilliant) and Elizabeth Warren, we are not all-in on green energy, massive income redistribution, taxing capital, modern monetary theory and reregulation of wide swaths of the economy.

    No sense denying this message.

    And that is why the stock market, the heartbeat of capitalism, responded to this electoral message —because it was a message that said loud and clear, to the world and at home, that “we are a center-right country, and will never be center-left, under any circumstances.” End of story. The notion in the primaries that the United States would ever turn European (or Canadian) has now been put to rest. And the equity market Wednesday (and today so far) put an exclamation mark on that assessment.

    David Rosenberg is founder of Rosenberg Research, and author of the daily economic report, Breakfast with Dave.

  4. runamok says:

    That is exactly right in the last paragraph. Someone organized and competent will come along.

    “I think Trump’s a canary in the coal mine. Trump 2.0 is what terrifies me—someone who says, ‘Oh, America is open to a strongman kind of government, but I can do it more competently.’”

    Mic drop.

    I need to rewatch “The Handmaid’s Tale” (2017 edition) to re-familiarize myself with the inevitable.

  5. Bob says:

    It looks like we have a four year reprieve. The next would be strongman may not be so incompetent.

  6. Mr. Lucky says:

    Remember, folks, the House and 1/3 of the Senate will be up for grabs in two years. What are the odds that Biden (if he actually gets to win) will even have a cabinet in place by then?

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