by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
May 20, 2020
STORES ARE RE-OPENING AND VACCINES LOOK PROMISING but amid this good news there are fresh signs that Washington is totally gridlocked, unable to provide more stimulus for an economy that clearly needs help as unemployment surges toward 20%.
NOT ONLY ARE BOTH PARTIES BITTERLY OPPOSED ON ISSUES, the key players have reverted to childish taunts. House Speaker Nancy Pelosi declared yesterday that President Trump is “morbidly obese,” and he responded by calling her a “sick woman” who has “a lot of mental problems.” Hello — we’re still in a pandemic !!
MORE IMPORTANT THAN THE INSULTS, there’s a growing sense among lawmakers that the next relief package is many weeks away, as lawmakers now leave for the Memorial Day break, with no serious negotiations likely until mid-June.
PERHAPS CONGRESS will be more inclined to act if the jobless rate is close to 20% when May data is released on June 5, but any desire to move quickly will be hindered by disagreements on key provisions.
IT’S INCREASINGLY CLEAR that the White House will not support a extension of $600 weekly unemployment benefits, which most Republicans believe has been a disincentive for some people to seek work. The desire for litigation reform is still strong among Republicans, and the White House still wants a payroll tax cut.
DEMOCRATS ARE STILL INSISTING on vastly more spending, perhaps $1 trillion for state and local government assistance, the cornerstone of their $3 trillion proposal — which has no chance of enactment.
THE ADULT IN THE ROOM is Fed Chairman Jerome Powell, who fully appreciates the enormous downside risks in this environment; a V-shaped recovery is unlikely, he believes. State governments cannot declare bankruptcy, but cities can (and will), amid sharply higher layoffs. If Powell can’t cajole Congress to move quickly, he will have to lend directly to state and local governments.
WE THINK POWELL is prepared to throw everything but the kitchen sink at the economy — except negative rates or the direct purchase of equities, two options that currently are off the table at the Fed. Powell finally has Trump’s respect, and his ear, so we think the president will be persuaded to embrace fresh stimulus by mid-summer.
MOST AMERICANS ARE SKITTISH about going back to the malls; they see infections and deaths simply slowing, not ending. Americans need to have confidence that Washington has a plan, but what they get is Trump and Pelosi trading cheap shots and Congress stalling on any new relief. Thank the Lord for Jerome Powell, he’s the star in this sorry group.
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This post was first published at the AGF Perspectives Blog.
