Let’s get this rolling downhill fast and clear out some debris along the way.
1. GSA has formally approved Biden as victor to allow for $6 million, office space and go-aheads for security briefings to finally begin. This does not eliminate the need to clean up state election processes for 2022 and 2024. SCOTUS should rule on the changes made in PA by non-legislative means to clarify what’s acceptable under the constitution even during a pandemic. Trump’s endgame of having a constitutionally “election-day failure” and then invoking the 12th amendment appears to have fizzled out with states certifying results without issue. WSJ has a nice overview on sequence here
2. Three great announcements on “Vaccine Quest” by Pfizer, Moderna and AstraZeneca. Raise your hand if you had effectiveness over 90% for all three out of the gate vaccines? Now, it’s a question of getting past the FDA’s panel for approval and then on to distribution. Each has idiosyncrasies that will provide challenges for distribution. This hope for a vaccine has been partially embedded in the stock market since April with Operation Warp Speed. The fact we’ve seen a rally pause here tells you this is true. But what the heck, getting this effectiveness and a possible December distribution is simply ASTOUNDING.
3. Watched/listened to the Dallas & KC Fed Energy conference last week. Most of the presentations demonstrated the anticipated coming lack of supply with an economic recovery as drivers for why prices are maintaining their levels and will move up. Dallas Fed estimates oil production for 2020 to be 10.5 mbpd from 12.5 mbpd and to remain flat through 2021. Yet counter to a positive oil price outlook, I asked Dallas Fed President Robert Kaplan doesn’t this assume that WFH will not be a permanent change to transportation demand? Kaplan said WFH will be a permanent component going forward and will likely be a hybrid (2 days a week) situation. As well, he said there will be a drop in demand from shoppers being comfortable ordering online instead of going to the retail store.
Now, let’s get to a few of the key personnel picks I’ve heard/seen/leaked out from the Biden team. Actually, let’s just focus on one: former Federal Reserve Chairwoman/Chair Janet Yellen for US Treasury Secretary. As I LI/Tweeted this AM, I love this pick as she is immensely qualified for the spectrum of US Treasury policy issues. She has incredible respect in the US financial sector as well as with international financial leaders. The financial markets are enamored and rallied on the news. Yet, I see two issues that will test her mettle as she takes this leadership role.
First, this is not the Fed. The US Treasury is a political post. And we all know this ain’t beanbag. She’ll have to negotiate with both Speaker Pelosi (with AOC) and Senate Majority Leader McConnell (with Toomey) to drive compromise and legislation for stimulus. With a recovering economy, Republicans are unlikely to budge off of their $500B plan. With a recovery not including sectors with P2P contact like transportation and tourism, Democrats are unlikely to reduce their $2T plan. Trying threading that needle on your first day in office Madam Secretary.
Second, the mess at the Fed that wasn’t cleaned up during her time and worsened under Powell. I’m referring to the Fed’s decision to remain the “enabler-in-chief” for poor legislative management of the economy and deficits. We are now highly dependent on the central bank for unprecedented economic stimulus in the form of monetary policy, market intervention and managing $27 trillion in debt. Most importantly, there is now a clear blending of the roles of the Federal Reserve and the US Treasury. Naming Yellen cements Treasury’s hegemony and usurpation of Federal Reserve monetary policy. How ironic that Yellen was replaced by Powell and now will essentially control Powell’s choices?
If you don’t believe this, you haven’t really been paying attention to what the Fed has been buying and the size of the Federal debt load. Even the Fed’s own members state they can’t stop buying or it will disrupt the orderly functioning of the bond market. (Quarles) What happens to this when a US Treasury Secretary advocates more stimulus spending with larger deficits and gets it? The Fed will be forced to buy more…just like Japan. 230% debt-to-GDP here we come!
To recap for Biden, I actually love this pick as she’ll have the gravitas to move Treasury forward on the new president’s key initiatives. Just don’t expect her to score three points on every toss.
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