by Greg Valliere, AGF Management Ltd.
HOW’S THIS FOR A REALLY BAD DAY? Donald Trump may not get to run against his preferred opponent; he’s been forcefully told by scientists that a coronavirus vaccine is at least a year away; American companies are cancelling conferences; and a Federal Reserve rate cut had no impact on the panicked markets.
THE NEWS IS SO UNIFORMLY GRIM for the president that his aides are scrambling to find new fiscal policies to avoid not only a recession — but a much tighter election this November than they were expecting just a couple of months ago.
FOUR STUNNING DEVELOPMENTS have rocked the White House:
1. Joe Biden’s resurrection: It was clear for the past few days that he had momentum, but we were surprised by the magnitude of his victories last night. Bernie Sanders’ solid showing in California will get him close to Biden’s delegate total, but we thought — incorrectly — that Sanders would have a comfortable delegate lead by this morning.
Biden, of course, is one bad debate performance away from plunging again (the next debate is on March 15), and Sanders could surprise in next Tuesday’s primaries in Michigan and Missouri, where he did well four years ago. But both of those states have lots of African-American voters, who overwhelmingly support Barack Obama’s vice president. Mississippi and Washington also vote next week.
This fight could drag on for several weeks or longer; the next big development will
be the withdrawal of Mike Bloomberg, perhaps as early as today. Elizabeth Warren also appears to have no path to the presidency.
What a shock for Trump, who clearly was relishing a presidential race against the socialist Sanders. The president will peddle a narrative to Sanders’ supporters that the Democrats’ establishment has rigged the process, but Trump has already begun to shift his focus, mocking Biden’s energy and mental acuity.
To reiterate our bottom line: Trump would be the overwhelming favorite against Sanders, but only a modest favorite against Biden because the Electoral College map would not be a slam dunk for the president. And the prospect of Democrats losing the House would greatly diminish if Biden, not Sanders, heads the party’s ticket.
2. Bad news from the scientists: Trump kept trying to put a happy face on the coronavirus narrative this week but Dr. Anthony Fauci and others forcefully told him that there’s no scenario for producing a speedy virus; it’s at least a year away. First things first — there still aren’t enough kits to test for the disease.
3. Some of America’s biggest companies have cancelled spring conferences, which will cripple economies in cities where they were scheduled. Anecdotal reports are streaming into Washington that key sectors, especially tourism, are already in a deep recession.
4. A Fed rate cut, which Trump has demanded, did nothing to ease the recession fears. Trump’s call for even more easing will fall on deaf ears; a refinancing boom is imminent, thanks to the fixed income markets, which already drove rates to ultra-low levels — so why should the Fed waste its remaining bullets if the markets can do the heavy lifting?
THESE FOUR DEVELOPMENTS have prompted a frantic scramble at the White House to come up with new fiscal policies. Money will be no object (it hasn’t been for the past few years). We expect trial balloons on a business tax credit, paid sick leave, individual tax cuts, a temporary lifting of trade tariffs, spending for new medical facilities — you name it.
BUT THIS VIRUS SIMPLY MAY HAVE TO BURN ITSELF OUT, as the country adopts dramatic changes in how we work and travel and interact with others. Throwing huge amounts of money at a problem isn’t always the answer — just ask Mike Bloomberg.
