New Stimulus and Transition
Hanukkah has passed and Christmas is upon us. We are in the final stretch of 2020! The Federal government is highlighted this week in many highs and lows.
The vaccine launch is here! Yet it has not happened without problems. Overall this new vaccine does provide light at the end of a long dark tunnel. It is amazing to watch Americans-front line health care workers and nursing home residents first - made me teary.
Fiscal relief has been passed by both houses of Congress and checks are in the mail. Wait, scratch that timing, let’s not get ahead of ourselves. President Trump is threatening to veto the entire legislation which includes fiscal relief and funding for the Federal government for the fiscal year.
President Trump issued a videotape that I have not seen, in it, he cites foreign aid as a problem. He mixes up the fiscal relief bill with the federal government funding bill-what a surprise, and he’s not alone. He likely read neither with the new stimulus package counting in at 5593 pages long. It’s not a stretch how the misinformation about the two bills could be confused based on the reporting from outlets such as Fox news, objecting to the elements of foreign aid.
28 tenuous days left for Donald Trump and his administration’s tenure. Just as the previous 4 years provided us with constant surprises with one consistency - shock value; not a safe “value” to conduct a government transition. I expect the last 28 days will be no different, and I hope for better.
One of the contentious issues in passing the fiscal rescue package were Republican Senate attempts to limit the ability of the Federal Reserve to continue loan programs initiated by the CARES act. They arrived at a compromise but the bottom line is now that Republicans lost control of the White House and still do not control the house, they are attempting to tie the hands of the Biden administration in the Senate. All of a sudden, they are concerned about fiscal discipline. Failure to pass fiscal relief for states and municipalities is dangerous because they will begin to lay off public safety employees like police, firefighters and other front line workers who are just as important as small businesses in benefiting from the PPP.
Another big update this week is that Trump, uncharacteristically vetoed the Defense Appropriations bill. The vote at the passage of the bill would indicate Congress will override the veto, but who knows? Over 50 pardons were issued by the president including Jared Kushner’s father and Paul Manafort. Additional pardons issued include private security employees convicted of murder in Iraq - continuing the characteristic shock value trend.
In the meantime, markets seem to be tolerating uncertainty as they have continued from the election until now. Expectations were for fiscal relief to be passed as it was-albeit at the last minute and interest rates remain low. New claims for unemployment continue to rise while the fact that the stock market is clearly not the economy is injecting jarring differences both on main street and wall street. America's largest companies are growing and prospering while main street is dying. Restaurants, hotels, airlines, other in person retailers are all closing at record rates. Assuming the fiscal relief passes, it will be too late for many businesses.
Again, markets seem unperturbed by the chaos engulfing the transition. 28 days until inauguration and leading and lagging indicators together don’t definitively give clear insights into the market’s continuing direction. Driving markets during the past 9 months is the risk free rate of return (US T-Bills) of .07% and the assurance from the Federal Reserve that rates will stay low until the economy recovers.
Just a note about an S&P Global study of actively managed mutual funds talking about the reason an actively managed mutual fund outperforming its index could be completely random.
"Statistically speaking, the odds that a random fund could remain in the top half for four consecutive years is 6.25%—meaning an outperforming fund sometimes has a smaller chance of achieving future success than a random one."
This speaks to the value of indexing in the stock market. Next week maybe we can discuss the elements of the fiscal relief package if it is signed into law.