Updated: Dec 21, 2020
The Federal Deficit & Stimulus
The federal deficit tripled to $3.1 trillion in fiscal year 2020, the largest share of the economy since World War ll. The deficit was only up 8% for the first half of the year, and in the second half it was eight times larger.
The White House is preparing a new $1.8 trillion stimulus proposal. Increasing its offer to Democrats on a coronavirus-relief package, further closing the gap between the parties in the on-again, off-again effort to pass new aid for households and businesses before the election. A person familiar with the proposal said it included $1.88 trillion in spending, with about $400 billion of the funds reallocated from unspent money from earlier relief legislation, bringing the total cost to about $1.5 trillion. Although President Trump would like to see a bigger stimulus than what is being offered.
This proposal is unlikely to pass. Senate Majority Leader Mitch McConnell stated, “we do need” another COVID-19 aid package, but “unlikely in the next three weeks.”
However, the United States trails Europe and Japan in stimulus. As a percent of GDP, fiscal stimulus packages enacted in Japan (over 40%), Italy and Germany (over 30%), and France (roughly 20%) are all well above the roughly 12% that has been delivered in the United States to date, according to date complied why Ned Davis Research. We believe the comparison further underscores the need for more U.S. stimulus.
Also, House Speaker Pelosi rejected the most generous Trump administration plan as ‘one step forward, two steps back.’ “This entire exercise from Pelosi is basically trying to jam up the Senate in the midst of a Supreme Court confirmation. They know that from a procedural standpoint. McConnell can drive this train to conclusion, so what they are trying to do is throw as many roadblocks in the way as possible – and the best way to do that is get the president focused on some extraneous issue.”
The 2020 Election Polls & Alternatives
Investors are positioning for a democrat administration and government. Vice President Biden has some of his best polls leading up last week. However, the lead is similar to the 2016 election polls. Actually, in battle states President Trump is doing slightly better than 2016. We continue to believe the race is tighter than the polls entail due to Populism. Oversampling democrats to capture the blue-collar worker will be misleading.
With the Town Hall debate being canceled, Biden and Trump will seek out their own town halls. The remainder of the U.S. presidential debate schedule is unclear after President Trump rejected commission on the October 15th debate change to a virtual format. ABC News reported Chief Anchor George Stephanopoulos will instead hold a town hall with Biden on October 15th, which will allow voters to ask him questions.
Who releases data that indicates 10% of the population is likely to have been infected by the coronavirus. This does not indicate the virus may be less deadly than the flu, but if it is more contagious it could cause more deaths. As an example, the number of hours in a plane relative to a car when travelling suggests they are just as dangerous. However, you can travel a lot further ion a shorter time in a plane making air travel much safer.
Also, Amazon has released data on its employees. Many are latching on to this as evidence the lockdowns are more harmful than good. This could be a precaution taken by Amazon. Nonetheless, further study is needed.
The Economy & Market
Initial jobless claims remain high. First-time claims for unemployment benefits totaled 840,000 last week. Smaller businesses are throwing in the towel. At what point do Americans stop going to restaurants? Also, Wells Fargo cut 700 jobs. 700 jobs are insignificant, but where they cut is significant. By the bank cutting back on the commercial banking side, it signals it is re-focusing on its consumer-banking strengths, like mortgages, amid a booming housing market. This one theme I have been highlighting. The overall economic environment is very uncertain, but the housing market is an area of strength.
U.S. equities post solid again, with S&P 500 posting best weekly performance since early July. Treasuries were weaker with yield curving steeping. The West Texas Intermediate ended up 9.6% after a 9.8% decline over the last two weeks. Lastly, Gold soars above $1900 as the U.S. dollar plunges.
The collapse in money supply growth continues. The 13-week annualized money supply (M2NSA) growth declined to 15.1% from 17.5% this past week. Taking a look at the 52-week M2NSA money supply growth, it declined from 24.6% to 23.6%. But the most recent money supply numbers show a decline in the absolute supply which is impacting the 52-week number.
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