Same As It Ever Was?

Suddenly, the pro-cyclical rotation catalyzed by the prospect of more fiscal stimulus (think: A unified Democratic government and Janet Yellen at Treasury) and the rollout of multiple effective coronavirus vaccines appears to be losing steam.

The Nasdaq outperformed handily last week, and headlines Monday were rife with references to the return of tech dominance as the titans prepare to report quarterly results.

If Netflix’s numbers are any indication, the stay-at-home trade may yet reclaim the narrative. You might recall that Netflix logged 8.5 million net adds in Q4, well above guidance and consensus, capping a truly outstanding 2020.

Now, with Apple and all the rest on deck, “it’s a gut-check for investors who’ve been fading the era of the stock giants on the conviction that firms tethered to the US economy are set to outperform,” as Bloomberg put it Monday.

In addition to the prospect of earnings beats from the tech behemoths, concerns around vaccine-resistant virus strains and the “here and now” reality of economic pain from containment protocols instituted during the winter COVID wave, have together weighed on reflation optimism in recent days.

Not coincidentally, the much-ballyhooed rise in bond yields stalled in the US. A bull flattening impulse is creeping back into the curve to the detriment of cyclical expressions in equities.

Commenting on the suddenly waning reflation euphoria, Nomura’s Charlie McElligott cited “over-position[ing] from tactical Bond shorts [and] Cyclical Value longs, creating a pretty strong profit-taking incentive.” He also noted “discomfort around the ‘realities’ of slow vaccine implementation and the government’s stimulus size negotiation.”

On Monday, Chuck Schumer said new COVID relief may not pass until mid-March. The possibility of a multi-month delay in getting Joe Biden’s stimulus plan through Congress dented market sentiment.

If you’re not righteously indignant with the US legislative process at this point, you should be. How many times have you heard, from Democrats, over the past several weeks that there’s “not a moment to waste,” or some similar exhortation to action? How many times have centrist Democrats insisted that if only they had the Senate, they’d alleviate the suffering of millions upon millions of jobless Americans and families experiencing food scarcity?

Too many times to count. That’s how many.

And yet, here we are with Democrats in control of the Senate (albeit by the slimmest of slim margins) and Schumer is talking about March. “We’ll try to get that passed in the next month, month and a half,” he remarked, on a call.

I implore you, just read the following short excerpt from Bloomberg’s coverage:

The Schumer timeline reflects the length it could take to craft a bill using the expedited budget “reconciliation” process needed to bypass a filibuster by minority Republicans. The House and Senate would need to first draft a budget resolution for fiscal 2021. That process in the Senate involves a floor “vote-a-rama” where hundreds of amendments can be offered to the budget for simple majority votes. Those can take days to resolve.

Once a concurrent budget resolution with reconciliation instructions is adopted, committees would then need to draft legislation adhering to the outline. That legislation would then need to pass both the House and the Senate, be scored by the Congressional Budget Office and survive any rules challenges in the Senate. The second process would likely take weeks.

This isn’t “new,” of course. But it’s still a joke. And not a very funny one, either. America’s government isn’t just dysfunctional. It’s paralyzed.

While lawmakers will point out that key measures under the recently passed relief package don’t expire until March anyway, the idea that this will once again go down to the wire, accompanied invariably by all manner of brinksmanship, horse-trading, logrolling, superfluous deficit posturing, and generalized screwing around, is an insult to voters — Republican, Democrat, and otherwise.

Consider this passage from Rabobank’s Michael Every, writing last week:

Of course, the economic data are going to push and pull on the “Reflation Trade” narrative as places open and close and base-effects play havoc; and, yes, genuine supply and demand in some key commodities may remain inflationary. But keep asking yourself: have the working class started to get a better deal yet or not (and one that will allow them to literally swallow higher commodity prices rather than them being a form of tax?) When they do, let’s talk reflation. Until then, let’s not.

I’ve long said that while it was obviously paramount to remove the cancer at 1600 Penn. and wrench control of the Senate away from Mitch McConnell, a Biden administration, even if accompanied by a narrow Democratic majority in the Senate, would ultimately mean almost nothing to everyday people, at least in the aggregate. It will be the same paralysis and the same brinksmanship and the same suffering and, generally speaking, the same economy.

Little wonder, then, if tech and other secular growth names reassert themselves in recognition of the likelihood that even once the virus is under control, transformational change with the potential to bring about brisk growth and sweeping improvements in the economic lives of the masses isn’t in the cards.

The final insult is always just that big tech gets to claim that if it weren’t for their products and services, the everyday lives of lower- and middle class citizens in advanced economies would be even less bearable.


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14 thoughts on “Same As It Ever Was?

  1. Noted but while I certainly wouldn’t question your Progressive credentials, H, I find the blame a bit too “a curse on both your houses”…

    Why exactly do the Dems need to use this complex reconciliation whatnot? To filibuster proof it i.e. it’s an admission they cannot hope to find 10 Republican Senators to put country over party.

    I don’t recall Trump relief package being similarly blocked or delayed by Dems. Again and again – it’s okay to be a conservative voter, to believe in personal responsibility and fiscal rectitude and all the rest. You’re wrong but so what. However, Republican elites are… I’m going to leave that unfinished so that I don’t get reported again. But you can fill the blank with the most derogatory terms you can think of.

    And if you think I’m wrong, that is, that Republican Congresspeople are somewhat honorable and competent and dedicated to the wellbeing of the public and of the Republic in the amount you can expect from politicians then please explain their behaviour since 2008 at least.

    1. The point is just that the entire thing is ridiculous. At every, single level. Elected officials have one job: Legislate. And in the US, they’re not able to do it. So, past a certain point, it doesn’t matter whose fault it is. That, more than perhaps anything else, explains why I point to Progressive lawmakers as an example of what politicians should be doing. Forget whether you agree, disagree, or despise Progressives. Think about it this way: They generally (and genuinely) think their job is to get stuff done. That appeals to me as a guy who frequently finds himself frustrated with an apparent lack of common sense in the world. If I’ve got a poisonous snake in the garage (which happened here a couple of years back), it needs to be removed. I’m willing to listen to 2 companies’ alternative approaches to removal and their proposals for post-removal action for maybe 30 minutes. But after that, if a 3rd company comes along and says: “Sir, with all due respect to those two well-established snake-removal services, that snake’s gotta go right now because it can kill you — if you hire us with no question asked, we’ll run in there this very second and take care of this for you,” I’m going to be inclined to go with that 3rd company if the other 2 won’t stop arguing.

      1. Of course, this rationale (the one I just outlined) relies on voters being intelligent. If it turns out my hypothetical 3rd snake-removal company’s method involves throwing a grenade in the garage, well then clearly I cannot use them. The parallel in US politics is, of course, Trump. He offered quick solutions and a “get stuff done” approach, but his methods (and even his professed aims) were manifestly unscrupulous. Voters effectively heard the 3rd snake company say “Our approach is to blow up your whole garage” and they hired that company anyway. So, it’s not as simple as I made it sound. But it would be simpler if voters were educated and could thus be relied upon to intelligently assess whether a given political party or politician promising to “get stuff done now” is or isn’t someone who should be “hired.”

        1. Right, H, but your analogy doesn’t quite work.

          It’s not removal company 1 and 2 endlessly arguing while the 3rd is proposing/steamrolling the other 2 to toss grenades. It’s removal 1 wants to do things like use a snake lasso and removal 2 barring them access to the garage while you, the owner, lean strongly towards hiring 1.

          Removal 2 isn’t just endlessly debating 1, they’re bodily checking them.

          And, yeah, because the average person is really… IDK… uneducated or uninterested or somehow particularly receptive to ‘grenade tossing’ as solution to complex snake related problems, the only thing we can practically get is 3. After all, 3 gives a cut of his fee to 2 and 2 kinda go along with that.

          That’s the situation. It’s pretty hard to blame 1. Unless you want to suggest it’s time for them to physically punch 2 and 3….

  2. when voters of Maine, Iowa, North Carolina, and Montana return their senators for another 6 year term after the tax cuts for the wealthy and last 4 years of trump any progress will be glacial at best, at least until the next round in 2022. Somehow someway the dems must connect and sway the bitter and ignorant Trump supporters. Maybe Bernie will help this cause in his new position of influence.

    The Founders were brilliant and visionary for maybe 200 years worth of democracy, but this current Electoral College disaster and lifetime Supreme Court appointments are now antiquated yet unlikely to be improved upon.

    1. The Founders came up with maybe the least democratic institution in the Western world–the Senate. And it’s always been bad. It’s spent 200+ years covering for slavery, white supremacy, and racism. That is all it has protected and all it will ever protect.

  3. I am wondering if “climate change” will be the next great trade.
    Even though I am in favor of saving the Earth, I am against the Paris Accord. However, what I am realizing is that it will not necessarily be a straight path to get to a cleaner environment – and any steps in the right direction are good in the sense that it gets the world on the correct trajectory.
    I noted that over 150 CEO’s from multi-national corporations have all signed a statement that they are in support of Biden’s re-commitment. This could be a pathway to a lot of good environmental outcomes ( clean up, forest management, better batteries, more batteries, fusion etc.).
    Better than pyramids, for sure. We could actually get something for our money.

    1. Maybe the Paris Accord isn’t everyone’s favorite idea, 150 global CEOs are a waste of space. There are more than 200 sovereign nations on Earth and neither the US nor a bunch of publicity seeking CEOs have any right to control the environmental policy of any of those countries. Just look at the US, two months to decide the poor are struggling and need help. Seriously, these guys are going to ever do anything about the US climate mess, let alone should they have any say about the rest of the world. The climate mess will never be fixed in time to prevent a complete disaster. And as for us all fleeing to Mars, come on. The space shuttle cost a billion per flight to take eight folks up for a week so how will we take 7.5 billion people and all the gear needed for a new life to a totally inhospitable planet?

      1. 197 countries, responsible for 97% of greenhouse gas emissions, have signed up for the Paris Agreement so the US can apply pressure to ‘encourage’ the actions those countries signed up for. In terms of ‘hav(ing) any right’ to control the environmental policies of other countries, it is not relevant. The US frequently acts extraterritorially, why would this issue be any different from others? In international affairs ‘might is right’ goes a long way, as the US and China frequently demonstrate.

  4. Give Biden and the Senate a chance. He has not been in office a week, nor has the new Senate. Right now he is trying to fix a virus that was left to run rampant without a scientific approach to control it for a year. He is trying to forge some kind of unifying consensus so we can start to put behind the abomination of the last 4 years. It was never going to be easy. So far he is making a lot of smart moves. The errors will come soon enough.

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