How politics will rule the markets... and hurt the economy
Abraham George Macro View
There are three types of analysis that you can apply to markets in an objective way. Something to hang your hat on. They are fundamental, technical and sentiment analysis. But if you add political analysis, it can get very confusing and murky. As you don’t have much of a clue on how politics will play out. But politics do effect markets in a big way. So, we have to always keep that at the back of our mind.
Very soon, a lot of politics will be played out at Capitol Hill. This can even lead to a gridlock and much pain for the economy. The federal unemployment subsidy expires on Jul 31. That’s the $600 weekly payment almost 25 million were receiving. Add to that, the federal moratorium on evictions expires on July 25. If that is not renewed many tenants can be forced out on the streets. So, the government is under mounting pressure to pass a fifth stimulus bill before the end of the month before all this runs out.
All the previous stimulus packages passed unanimously in the House and Senate, as both parties came together in a time of crisis. Now that “time of crisis” has become the new normal. So, it’s business as usual. With elections in almost a little over 100 days the Democrats have a lot to lose by just giving into Republican ideas.
The Democrats want to extend the $600 a week payment through January. With many of the unemployed making more on unemployment benefits than they were working, this could keep more than 60% of the unemployed at home through January. This is not really good for the economy. To counter the Democratic proposal Republicans are thinking of “back to work bonuses” that would expire around the election.
But whatever the situation the Democrats will want to tie mail-in voting into legislation. If that happens President Trump can clearly forget about a second term. So, the Republicans will clearly reject the idea and most likely the Democrats will hold the economy hostage to it.
The White House and some senate Republicans are busy trying to keep the unemployment subsidy alive through a short-term extension plan as the expiry date is looming, the Democrats are busy trying to capitalize through a new stimulus negotiation.
If nothing is done before 1st August, there could be serious implications for the markets. While the above denotes the domestic situation on US politics, the geopolitical scenario is getting more ugly by the minute. As US authorities asked Beijing to close their consulate in Houston, US prosecutors have claimed that their San Francisco consulate is harboring a Chinese military researcher wanted by the FBI. This can create unbelievable tensions and suspicions between the two major countries.
Compounding to that, comments from Secretary of State Pompeo is becoming more clearer that a larger scale confrontation with China is on the cards. And all this is happening at a perfect time just ahead of the US elections. Out of the six times in history no incumbent President has lost a second term in a war time situation. In the last 40 years China has grown 37-fold while US has grown only 3-fold. While president Trump can be accused on many fronts, he has taken unprecedented moves against China what past presidents have hesitated to take.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.