Overview assuming a Biden Administration

For Trump: Neutral. Losing in a manner that is extremely questionable in people’s eyes will only make him a martyr. He will use this to grow a new media and political organisation for the future.

For Dems: Absolute disaster. Trading Trump for the next 2 maybe 3 election cycles will without a doubt cause significant changes within the party. A blue wave never materialized & it cost Senate & House seats, as we expected. 

For GOP: Could not have worked out better. They seemingly push Trump out in a manner that benefited the Congressional makeup.

For Europe: Short term victory. 2021 will be rough economically and will likely find no support from a Biden presidency with Russia & China looking to advance their geopolitical positions, which had been held in check by Trump for the past 4 years. 

For China: Glorious result. Xi likely now has breathing room to stabilize the Chinese economy. With Trump, he would have had only 2 years. This is a de facto presidential pardon with Biden elected.

Geopolitical Winners and Losers of a Biden presidency:

Germany: Win, short lived 

France: Win, short lived 

Italy: Always loser 

Turkey: Winner 

China: Winner

Russia: Loves the chaos 

India: Big loss 

UK: Truly an island now 

Israel: Serious blow 

Saudi Arabia: loser 

Iran: Winner

Potential Biden cabinet

There is a lot of speculation about a future Biden cabinet. If it eventuates, then we have to look at who has been Biden’s go-to-man for the majority of his time in politics – that would be Ted Kaufman. Kaufman was appointed to the Senate to fill the Biden’s term, when he was elected Vice President of the United States in 2008. Prior to becoming a Senator, Kaufman had served as an adviser to Biden for much of his political career. Now, bear in mind that he is 81 years old. Nonetheless, if up to it, he will manage Biden’s administration day to day, although not take a cabinet role himself.

University Library receives Sen. Ted Kaufman oral history interview

It should be noted that Kaufman is independent of vested interests and whilst Senator, he focused much of his time on the finance sector, taking a very tough stance on the Wall Street banks. Just look at some of his speeches from that time. A good index thereto can be found here, which is a collection of his speeches on video whilst Senator:

Now, to understand his role in the transition, I would refer you to an article written just before the election in Politico.

Kaufman is the heavy hand that moves everything and someone that Biden trusts completely, according to Harald Malmgren, We in the financial markets are most interested in who will be likely Treasury Secretary. Bloomberg speculates, as do many others, that Lael Brainard will move from the Federal Reserve to take over this position. However, there is another person, for whom we should keep our eyes open to – Roger Ferguson, ex-Fed Governor and currently CEO of TIAA. Simply put, forget Larry Fink and Jamie Dimon, as Kaufman will not likely put forward Wall Street alumni.

Fed's Brainard warns US economy may slow, urges more support - ABC News
Bloomberg Big Decisions: TIAA CEO Roger Ferguson - Bloomberg

Political calculations in the next 30 days



A look-back at our predictions

From our perspective, we did publish on October 23rd (see here on our Intellegencequarterly.com website) and get right the following:

·         Senate not flipping, and we still believe that to be the case;

·         House majority diminishing significantly and Pelosi’s leadership is now in question, and

·         No Blue Wave

Here was our prediction on October 23rd:

A graphical analysis of the election


What about a stimulus deal now?

Since the election, in a significant new development, Senate Majority Leader McConnell indicated late last week that he would like to see a deal this year.  McConnell’s engagement materially increases the probability of enactment of fiscal stimulus by the end of this year, though political and substantive hurdles remain.  It is also too early to assess the impact of a potential vaccine on the political will to provide government support for Covid-damaged industries and individuals 

Baseline government funding must be resolved by 11 December, which provides somewhat of a process catalyst for the two sides to negotiate over Covid-related stimulus.   Both the House and Senate are scheduled to reconvene this week, and stimulus negotiations are likely to commence at a leadership level.  There are hopes that there could be progress in the negotiations through the next two weeks, and after a pause during the week of Thanksgiving, a final deal reached the first or second week of December.

Despite McConnell’s inclination to strike a deal, there are a variety of risks that could still prevent it from coming together, including opposition from President Trump, who might prefer to see a negative market reaction, concerns from Senate Republicans (particularly conservatives), and limited willingness to compromise on key issues on the part of Speaker Pelosi.  In order to determine whether a deal has momentum, look for evidence that Leader McConnell and Speaker Pelosi are engaged in direct discussions, and then whether the White House is supportive, or at least passive, as well as whether there is an interest in a deal from within the Senate Republican and House Democratic membership.  McConnell and Pelosi have a long history together and, while not always productive, their engagement would signal a far greater likelihood of a deal being agreed than previously.

Especially given the uncertainty around Trump’s reaction and the undecided Georgia Senate races that will determine the majority of the Senate, it is too early to assess the various probabilities of different potential deals, though a big deal of over $1.5tn is the least likely scenario at this point and a no deal outcome remains possible as well.

Assuming a fiscal stimulus bill is enacted this year, if the Republicans retain the Senate, McConnell’s incentive to strike another deal with a new Biden Administration in 2021 will be limited.  The pressure to act again will only rise when various provisions/funding begins to expire, and in the event that concern about the virus and its effect on the economy persist.  We assume that the latter will gradually diminish through 2021. 

To summarize:

·         Leader McConnell likely feels he is in a better position to get a deal in the coming weeks that is closer to what Senate Republicans prefer, given that he will be negotiating with President Trump as part of the equation, rather than in the first quarter of next year, with a Democratic President that is more closely aligned with Speaker Pelosi.  In addition, by striking a bipartisan deal this year, he will minimize the ability for Democrats to criticize Republicans as holding up Covid-stimulus as part of the dialog surrounding the all-important run-offs that are taking place for the two Georgia Senate seats.

·         It appears that the Administration is more inclined to defer to McConnell on the stimulus negotiations going forward, in contrast to their effort to take the lead in recent months.  However, the President’s support for a deal remains very important to its success.  So, any evidence of the President’s posture regarding a deal will be a key indicator of whether it will be successful.  There is some potential for President Trump to oppose a deal with Speaker Pelosi, given that he now has a greater incentive to cater more exclusively to his core supporters than he did prior to the election.

·         Our expectation is that Speaker Pelosi will be inclined to strike a deal.  With House Democrats unexpectedly losing seats in the election, Pelosi has come under criticism from moderates in her caucus.  These moderates have been pushing for a deal over the last month, and in the wake of the election will presumably put more pressure on Speaker Pelosi to work with Republicans to get to a successful outcome.  Now that McConnell has made clear he is inclined to strike a deal, Republicans are in a better position to characterize opposition from Pelosi as the primary hurdle.  However, there is some potential that, despite this pressure, Pelosi resists striking a deal and makes the case to her caucus that they are better off waiting to strike a deal on their own terms with a Democratic President in Q1.

·         It remains possible that enough Senate Republicans resist striking a deal with Pelosi, that McConnell is not able to move far enough in the negotiations to be successful.   McConnell is very strategic and very careful in his comments, and he is unlikely to have begun setting expectations for a deal unless he felt at least somewhat confident that members of his conference would support it.  In addition, there have been numerous indications over the last month that Senate Republicans are willing to agree to a deal, (as long as it is on terms they can accept).  There will inevitably be resistance from conservatives, but if President Trump supports the deal, their resistance is likely to be overcome.  And while McConnell would prefer unanimous support from his members, he does not need to achieve that and at minimum, only needs support from a majority of them.

·         Our expectation is that a deal will be  around $1tn. in size.  This is in the range of the difference between the $500b bill Senate Republicans supported last month, and Speaker Pelosi’s $2.2tn. bill.  Our estimate is premised on Senate Republicans having more leverage in the negotiation as they work with President Trump.

·         There are numerous provisions for which there is evidence of bipartisan support in Congress, including the following.  Note that we have included estimated total budget impacts from these various provisions below, which together equal more than what we expect the total size of the deal to be, so we are implying that various provisions will have to be narrower than what is outlined below in order to meet our top-line estimate.

Ø  Payments to individuals… ~$280b ($1,200 one time, $500/child)

Ø  Enhanced UI payments… $120b (~$400/week, with some limits for ~four months)

Ø  PPP funding/reform… ~$100b incremental funding, of which some amount could be dedicated to certain sectors, including live events, restaurants, lodging

Ø  State/local funding… ~$250-500b

Ø  Tax credits… $50b for employee retention tax credit (ERTC), and possible Work Opportunity Tax Credit (WOTC), Payroll tax credit, meals and entertainment tax credits

Ø  Public health funding… $15-$75b for Covid testing/tracing, ~$25-$50b for vaccines

Ø  Hospitals/other health care… $50-$75b

Ø  Education/child care funding… ~$100-$175b (e.g. K-12, student loans), $15-25b for child care

Ø  Other… $10-25b for USPS, $10b for SNAP, $20b for airlines, $15b for broadband, $25-$60b for rental assistance, student federal loan forbearance, Mainstreet Lending Program reforms

Ø Liability protection (a difficult issue for Pelosi/Democrats to accept, but a must-have for McConnell, so language will need to be carefully crafted).