• GB Davis

Jobs are the Key to this Election - 10/2/20

Another week, and more risk-off.

Well Trump has the virus, WuFlu, COVD19, and is taking a two week vacation with Melania - where they are sure to renew their vows. Apparently, for those forced to 14d quarantine you are supposed to stay isolated - but at the hotels, there has been some adult activities - if you are stranded for 14 days, with someone else, this is bound to happen given a large enough sample size.

I am temporarily in the Biden camp for the VERY FIRST time - why? Mark Zandi of Moody's on 10/1/20 has indicated that Biden's policies are more pro-business - oddly enough - IF that situation reverses, then I reverse - I care VERY LITTLE about who is president - I do care about sound thinking / policy. So it's up to Trump and his Team what policies they put forth - I remain locked to the best policies and not to any one person or party even. (Congress, delay, and bipartisanship are the problems - no one person holding head office, whether Obama, Trump or Bush)

Where are we at on COVID, generally?

My favorite model, by an MIT scientist / statistician, has been discontinued - due yourself a favor and read his blog posting on why, general comments and COVID model references --> https://youyanggu.com/blog/six-months-later

Look, this is lethal, and it is problematic for the elderly and autoimmune compromised - but it is more problematic to lockdown countries, states and/or municipalities over this - we are all going to get COVID - and COVID will continue mutating. Is it man-made, the aforementioned doesn't care - but let's just say it is, as I believe - a form of population control - agreed upon by global heads. Unemployment is simply unbearable at these levels - the candidate that focuses on job creation is GOING TO WIN THIS ELECTION and rightfully so - actions and policy will speak louder than words (pardon the cliche).

Our Sector Dashboard. for the week ending October 2, 2020

--> https://twitter.com/hfincap/status/1312122549887668224

I am super excited to square off against one of the fastest 40+ year old's in the WORLD tomorrow, Ecron Thompson (47) in a 400m showdown in Marble Falls, Texas - and guess what, I have a fighting chance to beat him and a better current '20 time and better '20 compared to his '19 time - but can't touch him at 100m (top10 in the world) or 200m (top10 US) - he's in Lane 6, on a staggered start, so I will be racing to catch him the entire race. Hopefully somewhere between 250-300m we are shoulder to shoulder. I'm about 5-7 lbs heavier than I would like to be and feel prepared at 400m coming into the '20/'21 Indoor Season - and look to add an All-American title to my resume at 800m (having achieved this at 400m in '20, my first year running since 1996).

and... here's what Moody's (Mark Zandi, 10/1/20) has to say:

It feels increasingly as if the other shoe is set to drop on the economy. The economy has been moving more or less sideways since mid-summer. Some parts of the economy have continued a strong recovery from the pandemic’s initial blow; retailing and housing are good examples. Other parts such as spending on consumer services and commercial real estate continue to struggle. The net of these crosscurrents is a diminished economy unable to kick into top gear—only about half the GDP and jobs lost early in the pandemic have been recovered. However, with fiscal support fading away and COVID-19 infections seemingly on the rise again, this stunted economy appears at significant risk of backsliding. The economy’s fragility is evident in the travails of small businesses. According to business information company Cortera, business-to-business spending by companies with fewer than 500 employees remained down more than 5% in August from a year earlier, while over the same period B2B spending by big companies with more than 500 employees has almost made its way back. In contrast, prior to the pandemic, B2B spending at small companies was meaningfully stronger than at large ones. This reversal of fortune reflects in significant part the devastating impact the pandemic has had on mom-and-pop retailers to the benefit of the nationwide brands, and the damage President Trump’s trade war did to large multinational corporations prior to the truce he called with China about this time last year. The economy’s vulnerability is also evident in that its revival hinges largely on spending by people in quarantine and working from home. B2B spending by companies that benefit from WFH—online retailers, electronics and appliance stores, building material stores, and food and beverage retailers, for example—was up nearly 15% on a year-ago basis through August. Also, spending by truck and courier companies, which deliver many of the groceries and goods to those working from home, has just turned positive on a year-ago basis. However, B2B spending in the rest of the economy, including at manufacturers and companies in industries such as restaurants and airlines that remain at least partially shut down or disrupted by the pandemic, is still down by double digits. With WFH spending likely to moderate—since everyone now has the computer equipment and patio furniture they need—and the pandemic continuing to stymie the reopening of many businesses, the recovery seems stuck in place, at best Indeed, odds that the recovery will come undone are rising as the odds fade for Congress and the Trump administration to come to terms soon on another fiscal rescue package. We have been assuming in our baseline outlook that lawmakers would agree at the 11th hour to a $1.5 trillion package of additional unemployment insurance, another round of stimulus checks, aid to state and local governments, more funds for the Paycheck Protection Program, and a range of other spending. Now, the 11th hour is at hand, but there is little movement in DC. Perhaps a political fire would be lit under lawmakers if the stock market had a terrible week or two to generate a TARP moment—a reference to the collapse in stock prices during the financial crisis that convinced lawmakers to agree to bail out the banks and auto companies. Stock prices have turned soft in the past few weeks, perhaps in part because investors realize that Washington will not come to the rescue again, at least not until after the next president is inaugurated in January. September job numbers, due Friday from the Bureau of Labor Statistics, are another potential catalyst to get lawmakers moving on new fiscal support. However, those numbers would have to be much worse than we expect, which is for employment to increase by 700,000 jobs and unemployment to hold near its current 8.4%. Initial claims for unemployment insurance remain extraordinarily high—suggesting businesses continue to lay off lots of workers—but continuing claims continue to decline—suggesting reopening businesses continue their strong hiring. Interpreting what the claims data say about the job market is increasingly difficult given numerous reporting issues, changes made to the system since the pandemic hit, and even fraud, but the data do not indicate the job market is backtracking. It is somewhat surprising that there has not been more negative fallout from the fading fiscal support. Much of the government help provided through the massive $2.2 trillion CARES Act expired at the end of July. It could be that President Trump’s executive order to provide additional funds for supplemental unemployment insurance benefits (an extra $300 per week) has cushioned the impact. However, this money is limited and will run out in the next few weeks. At that point, those receiving UI will only receive what their states provide in benefits. Also, an increasing number of those receiving UI are exhausting their 26 weeks of regular state benefits and will receive extended emergency benefits (courtesy of the CARES Act), which will last until the end of the year. Here is where the shoe could drop. Based on simulations of our model of the U.S. and global economies, without any additional fiscal support, real GDP is expected to increase by close to just 1% in the coming year, employment will be effectively unchanged, and the unemployment rate will rise back into the double digits. For context, under our baseline assumption of a $1.5 trillion package of support, real GDP increases by 3.5%, some 2 million jobs are created, and unemployment remains roughly unchanged. For still more context, if the $3.4 trillion HEROES Act legislation passed by the Democratically controlled House became law, then real GDP would increase by 6% in the coming year, more than 4 million jobs would be created, and unemployment would decline to almost 6%, with the economy well on its way back to full employment. Outlook under Different Fiscal Policy Assumptions Real GDP Growth % (3Q20 – 3Q21) None: 1.1 $1.5T: 3.5 $3.4T: 6.0 Change in Employment (millions) None: 0.0 $1.5T: 2.0 $3.4T: 4.1 U3 % (3Q20 / 3Q21) None: 8.9 / 10.2 $1.5T: 8.9 / 8.2 $3.4T: 8.9 / 6.1 We will wait until the end of this week and the release of the September jobs numbers to decide what to assume regarding additional fiscal support in our October baseline forecast. If we do adopt the assumption that there will be no more help from Congress and the Trump administration this year, then our baseline forecast may include a decline in real GDP in the fourth quarter and even in the first quarter of 2021. This highlights how critical fiscal policy is to the outlook as well as how important the next president and Congress are to the outlook. There will be only modest differences in enacted policy and the economic outlook with a split Congress, regardless of who is president, but the differences are likely to be meaningful if Trump or Biden win the presidency with both houses of Congress under their party’s control. To be sure, there is no prospect that all of their proposals would get through the legislative process and into law fully intact, and their policies could quickly change on the other side of the election depending on economic and political circumstances. However, the proposals they have made during the campaign are a statement on their philosophies and priorities and it is instructive to consider the economic outlook if adopted in their totality. Based on our analysis of the candidates' proposals using simulations of our macroeconomic model, we conclude that Vice President Biden’s economic proposals would result in a stronger economy than Trump’s. This is even after allowing for some variability in the accuracy of the economic modeling and underlying assumptions that drive our analysis. This is because of Biden’s substantially more expansive fiscal policies. They bring the economy back to full employment more quickly coming out of the pandemic—the second half of 2022 under Biden’s proposed policies compared with the first half of 2024 under Trump’s. Biden’s reversal of Trump’s policies on foreign trade and immigration would also contribute to stronger economic growth, so that by the end of their terms in 2024 real GDP would be larger by $960 billion, or 4.5%, under Biden than Trump. This translates into 7.4 million more jobs under Biden than Trump Longer-run growth also receives more of a boost under Biden’s policies, as they lift both labor force participation and productivity growth, though the effect is modest over the 10-year horizon of the analysis. It takes longer for Biden’s focus on educational attainment, clean energy and other infrastructure, elder care, and paid family leave to have a significant impact on the economy’s longrun growth potential. And Biden’s increase in corporate tax rates dents business investment and productivity growth. Biden’s policies will result in substantially larger federal budget deficits than Trump’s, particularly during their terms as president. Biden’s policies cost $2.5 trillion during his time as president on a static basis, while Trump’s add only a few hundred billion dollars. Their policies add a similar amount to the nation’s deficits in the out-years—after their presidencies—of the 10-year budget horizon, with a total static cost of less than $1 trillion. Biden’s spending proposals are front-loaded, particularly on infrastructure, and they wind down soon after the economy returns to full employment. Negative economic fallout from Biden’s larger near-term deficits is mitigated by the fact that the economy will be far from full employment and inflation moribund when he takes office. That is because the Federal Reserve has vowed to keep interest rates low for much of the coming presidential term. Higher interest rates are the principal channel through which deficits weigh on economic growth. Moreover, the stronger economic growth supported by Biden’s policies generates more tax revenue and less government spending, resulting in dynamic budget costs of closer to $2 trillion during his term. The stronger growth and increase in GDP also mean that by the end of the decade, Biden and Trump’s policies result in a similar 130% publicly traded federal government debt-to-GDP ratio. This compares to 108% when either of them takes office. Voters have a clear choice in deciding their next president. Trump and Biden could not have more different governing approaches and policies, and this is especially true when it comes to economic policy.


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