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As we enter the home stretch in what could prove to be a monumentally important election, I doubt that any honest observer has strong convictions regarding the election's outcome. The implications for the economy are potentially huge: a second term for Trump arguably could put the economy back on a stronger growth track, while a Biden presidency coupled with a Democratic Senate majority would likely give rise to significant obstacles to growth such as much higher tax rates, more regulatory burdens (e.g., an end to fracking and eventually the entire petroleum industry), enormous compliance costs for green energy initiatives, expanded income redistribution efforts, and a more activist industrial policy. If the market expected a Biden/Democrat sweep, I have to believe that stock prices would have been trending lower in recent months, instead of higher. Yet the polls appear to overwhelmingly support a Biden win, as do the betting markets. In any event, never in my lifetime have we had so personally polarizing a president as Trump, and never before have we seen the mainstream media so vociferously, overwhelmingly, and blatantly in support of the challenger—and so antagonistic to the incumbent.
The personalities of Trump and Biden could not be more opposite. Trump is a hardscrabble billionaire businessman devoid of social graces, while Biden is the epitome of a career politician, albeit one with a checkered past and few if any significant accomplishments. It's not surprising that both have skeletons in their closets, but the Democrats and the press spent most of the last 4 years trying in vain to dig up evidence of Trump's malfeasances while ignoring Biden's. The Democrats went on to impeach Trump over a supposed quid pro quo phone call, but now evidence is surfacing of the Biden family's ties to Chinese business interests and apparent influence peddling. Trump is bursting with energy, while Biden is suffering from old age and the beginnings of dementia. Trump has shaken off the Covid virus while maintaining an active schedule, while Biden has been hunkered down in his basement for months in fear of that same virus. Trump's rallies are many and massive, while Biden's are few and subdued. The "enthusiasm gap" hugely favors Trump, while the polls and the pundits hugely favor Biden. Trump chose a competent and successful person to be his Vice President, while Biden gave the nod to an unliked and unimpressive woman because she ticked the politically correct race and gender boxes. In the end, Biden's strongest selling point is that he is not Trump.
To make matters worse, it's possible that we won't know the results of the election for an unbearably long time. Potential risks cloud the horizon in almost every direction, but the market is not ignoring this. Risk aversion is still abundant and visible, especially in the levels of the Vix index and Treasury yields. And yet the economic statistics of late paint a very promising picture of a V-shaped recovery. I'm cautiously optimistic, as I explain below.
Chart #1
Chart #1 shows how rising fears have accompanied market declines. The Vix index, currently just over 33, is significantly higher than what we have observed during times of relatively tranquility (i.e., 10-15), but substantially less than the panic levels we saw at the outset of the Covid crisis. The market is worried, but not in a panicked sense. 10-yr Treasury yields, however, are very near their lowest level in all of history, as are real yields on TIPS. Inflation expectations, in the meantime, are "normal," averaging about 1.7% for the foreseeable future. Low nominal and real yields are therefore not indicative of deflation fears—they are rather clear signs of a lack of confidence in future growth. I hasten to add that yields are low not because the Fed has made them so; they are low because the demand for Treasuries and safe cash equivalents is intense, and that demand, in turn, can only be driven by the market's strong preference for risk aversion.
Chart #2
Chart #2 shows that new orders for capital goods—the seed corn of future productivity gains and a good barometer of business' confidence in the future—have rebounded strongly in recent months. This proxy for business investment is still relatively weak when viewed from an historical perspective (capex was much strong in previous economic expansions), but on the margin it has increased at an impressive pace of late.
Chart #3
Chart #3 highlights the very strong increases in existing home sales in recent months. The housing market is on fire!
Chart #4
Chart #4 shows impressive strength as well in new home construction. Moreover, home builders have never been so optimistic about the future of residential construction. This foreshadows further impressive gains in housing starts and home sales in the months to come.
Chart #5
I don't normally pay much attention to the regional Fed manufacturing surveys, but as Chart #5 shows, conditions in the Richmond area are rather spectacular. Surely a V-shaped recovery of sorts.
Chart #6
Chart #6 shows a similar pattern—though not quite as strong—in the Dallas Fed manufacturing survey. Both Charts #5 and #6 contain data released yesterday and today.
Chart #7
Chart #7 shows an index of non-energy industrial commodity prices. This also reflects a V-shaped recovery of impressive proportions, and it is driven not just by improving conditions in the U.S., but also in global economic activity. If nothing else, this is a good sign that there is no shortage of money in the world these days.
Chart #8
Third quarter GDP numbers will be released on Thursday, and the market is currently expecting a 32% annualized increase in real GDP. I've plotted that result in Chart #8. Even an impressive gain such as this is not enough, however, to erase the losses of the first half of the year. And compared to the long-term trend growth of real GDP (blue line), today's economy is about $4.5 trillion smaller than it otherwise might have been had we not had the slow-growth Obama recovery and the devastating Covid crisis. That translates into a "shortfall" of about 20%. Given our recent history of over a dozen years of sub-par growth mixed with two recessions, it's no wonder the market is having trouble getting optimistic about the future.
I have not yet succumbed to pessimism, however. My hopes for the future are sustained by 1) the numerous and growing signs of a V-shaped recovery, 2) impressive progress in developing therapeutics and vaccines for Covid, 3) infection and case fatality rates for Covid that are coming in much lower than feared, 3) my enduring belief that the American public will invariably choose growth over redistributionist policies, and 4) the obvious signs of enthusiasm among Trump voters.
35 comments:
This article is another grotesque tapestry woven of lies and fantasy.
"Both have skeletons in their closets." Hilarious! There is precisely zero evidence that Joe Biden had anything to do with his son's business ventures in China. These were not illegal either. It's true that Hunter Biden did try to profit off his family name, but he's not running for President.
Trump on the other hand routinely solicits and accepts bribes. In the Zelensky case, he solicited a political favor in exchange for directing government aid to Ukraine. Special interests gain government favors by spending money at Trump properties.
https://www.nytimes.com/interactive/2020/10/10/us/trump-properties-swamp.html
It's odd that you call Trump a "hardscrabble billionaire businessman." "A crook backed by enormous inherited wealth" would be more accurate. No one really knows what Trump's financial situation is, as he does everything he can to conceal it. Now that the NY Times finally got ahold of his tax returns, it's plain that he's in deep financial trouble, with $421 million in debt coming due that he's going to have to sell off assets to pay. Trump needs to hang on to the presidency in order to protect himself from prosecution and enrich himself through corruption. He's even said that he is thinking of fleeing the country if he loses. That sounds like something that would happen in a banana republic, which is what Trump is turning this country into with your help.
Interesting that you ignore the latest spike in Covid 19 worldwide ESPECIALLY in he US. We'll know the outcome by midnight election night. Trump will lose in a landslide and his ignominious "reign" will come to an end. The once great Republican party will pay years if not decades of comeuppance for embracing this jackass. And NO the US economy will not self destruct without DT at the wheel. It is far too resilient for that but it will suffer unnecessarily until we get a true "Reaganesque" conservative to unite us again.
Ian - I am no fan of Trump and will not vote for him. There is nothing in particular about your description of him that I would argue with. My reason for rejecting him is more due to his toxic influence. Most importantly his bad behavior gives the left and the press an excuse to outright lie, hide the truth and embrace awful ideas opposed to common interest liberalism that for all it's many faults has lifted billions from extreme poverty.
But the left leaning public (and the NYT particularly) that ignores (and fuels!) how far left the Democrats have gone; dismisses Biden corruption that if it were Trump would be more impeachment grounds; ignores the truth that US Covid results are not much different than the rest of the world; embraces nihilistic Critical Theory; embraces the movement to tear everything down, with just pipe dreams for replacing the best system that has ever existed - is probably more frightening for the long term. Left leaders should acknowledge it's not enough to be "not Trump".
A Bill Clinton agenda would probably be Republican now. I'm skeptical the news leaders (NYT, WAPO, NPR, etc) will ever be reliable again. Yes Fox news is a mess, but were never held out to be beacons of great journalism.
No vote for President; thankful for SCOTUS, and praying for the Senate to hold.
I agree with Steve - The Republicans need to find leadership more in the mold of Reagan. One that elevates with optimism With the caveat that they have to recognize that unbridled income inequality is destroying our unity. The leverage of technology companies, lower capital investment needs, globalism, technical advances etc are favoring too few and leaving too many behind. Republicans should recognize the need to seriously reduce the excesses. A good start would be dramatically reducing the health care risks and costs. I don't know what that is but it's a cornerstone of a better life for the bottom 90%.
Thanks Scott, for an accurate and strong explanation of the election and economic numbers and covid.
Interesting that the first comments are so vicious. They must feel that they are losing to be so angry.
Larry
I loved Reagan too, but its not 1985 folks. Wake up.
"Trump is bursting with energy, while Biden is suffering from old age and the beginnings of dementia."
Once again, Joe Biden does not have dementia. Those expecting him to quit or die somewhere mid-term are going to be disappointed over the next 4 years. He suffers from a stutter, which many republicans like to use as an excuse to accuse him of having dementia. A speech impediment is not dementia.
Donald Trump, on the other hand, almost certainly has dementia. There is overwhelming evidence for this:
-- We Are Entitled to Ask President Trump for His Brain Scan
-- Trump's cognitive deficits seem worse. We need to know if he has dementia: Psychologist
And I'm going to repeat my prediction from the other blog entry: Joe Biden will win at least 350 electoral votes, maybe over 400. The democrats will gain 5-15 seats in the house and wind up with 52-55 seats in the senate.
1. "...entitled to ask President Trump for His Brain Scan". Um, no, "we" the public are not entitled to very much (by law), and certainly not another citizen's private medical information.
2. "No vote for SCOTUS". This is a short-sighted view of what happens in elections and has been a subject of serious academic study. It is variously called "veto" voting or "anti-candidate" voting. People who announce they are not voting for somebody do not understand this feature of elections, and are generally virtue signalling. If you think Trump would be better than the only viable alternative, you should vote consistent with that set of circumstances. It's not a utopia which exists only in one's mind. It's reality.
John A: We've all heard/read more goofy crap this year than we ever thought possible. But you have got to be the only guy in America who thinks that Biden doesn't suffer from dementia and that Trump does. Biden only suffers from a stutter and "psychologist" is cited as overwhelming evidence that Trump has dementia. Sheesh.
I need a dose of Johnny Bee Dawg.
Elite coast-dweller with imported wife should stick to the markets.
@Grechster,
No I am sorry to disappoint you, but there are plenty of people besides me who do not think Biden has dementia.
No, Joe Biden Does Not Have Dementia
You obviously didn't read my first link above, which was written by a neurologist, not a psychiatrist.
Here's another one from a brain specialist:
I’m a brain specialist. I think Trump should be tested for a degenerative brain disease
Scott and similar thoughtful individuals only,
First of all thank you once again for the courage and altruism to share your expertise with those of us less skilled.
Some questions-
1. Assuming 538 and the polls themselves are correct and Trump loses the Presidency, are you still cautiously optimistic on the stock market given that your other three reasons are intact please?
2. I continue to be puzzled by the poor performance of closed end muni bond funds that borrow short and invest long in munis. Today BAB goes up and they go down anyway. Any ideas as to why would be much appreciated.
3. Is the Fed Put still a viable option for the muni bond market if Trump wins and allows a wave of muni bankruptcies in states he calls "blue" like our beloved California? Are there risks to California Munis that we older folks need to know about?
Thank you again for your patriotism and courage.
From a good friend who is an accomplished psychiatrist: Trump is a narcissistic sociopath but fully capable of performing his job. Biden shows signs of early dementia but has enough executive function to do the job too. I don't think a reasonable person could watch Trump at his rallies and conclude he has dementia. I do worry more about Biden failing to complete his term and then getting Harris. She would be an awful President in my opinion.
Regarding the question on muni bankruptcies, I don't think Trump will let the cities fail anymore than we were going to allow the big banks to fail in 2008-09. The ripple effects would be catastrophic.
Markets seem upset about a closer election and the possibility of divided government leading to weaker growth.
Thank you Scott, another great assessment. Hang tight for tomorrow's GDP and the upcoming election!
Here's an excellent video explaining Trump's dementia.
EXCLUSIVE CLIP "TRUMP'S COGNITIVE DECLINE"
Trump did not used to be a crude, ranting maniac. Those are not intrinsic aspects of his personality, not even of his narcissism. If they were, they would have been evident 20+ years ago. Rather, they are one of his dementia symptoms.
John: You can link anything you like. But if your own eyes and ears tell you that Biden doesn't have dementia and Trump does, well, there's nothing one can say. You've drank the Kool-Aid. (Btw, I'm not a Trump fan.)
Grechster: You can claim anything you want. I've linked multiple psychiatrists and neurologists to back my claim. If your own eyes and ears tell you that Trump doesn't have dementia and Biden does, well, there's nothing one can say. You've drunk the Kool-Aid.
This man shows no signs of dementia
Does Donald Trump even know how to drive? Golf carts don't count.
Another great post by Scott Grannis. You can agree or disagree with Scott, but this is still a great post, packed with great economic charts and analysis.
I am deeply ashamed of US media. There used to be an attitude of "reporting the truth and let the chips fall where they may."
Major elements in US media have become part of disinformation campaigns against Trump and for Biden.
It is curious that major media, Wall Street, Silicon Valley, and Hollywood are all aligned against Trump. My guess is the multinationals want Trump's tariffs on CCP/China stricken down. They have gotten into bed with the identity-politics crowd to form the modern Donk party.
The 'Phants are hardly a pretty picture either, and Trump could use some personal counseling.
Hope for the best. Maybe Grannis is optimistic. Well, sometimes you need optimism.
Scott, have a read.
https://theeconomicstandard.com/dr-brian-tysons-first-person-account-of-treating-covid-19-with-hydroxychloroquine/?fbclid=IwAR27W-RdB_JkK__raFdVDnJJn4qrReIzHS8-PPOUSf87Kv_4YSaoPe9i_7Q
"I have not yet succumbed to pessimism, however. My hopes for the future are sustained ... "
There's hope:
I voted for a republican for the first time in 40 years -- I had been a libertarian since voting for Reagan in 1980 -- his administration did not control government spending and debt tripled in his eight years. That's not what I voted for.... and now spending and debt are worse than ever under Trump, but would be even worse under Biden. I had to vote against the Biden is hidin' cause his mind is slidin' crime family -- he's the most corrupt presidential candidate in American history.
The Tony Bobulinski interview on the Tucker Carlson show last night was amazing television. Even more amazing is no other network will report anything he said. I usually watch only the first half hour, but could not stop watching Tucker for an hour last night.
Michigan is being inundated with TV ads for Biden and Trump. They are all platitudes and gross exaggerations of how bad the opponent would be in the next four years. Can you imagine the riots after Trump wins ... I mean after the lawsuits and fraudulent mail in votes are settled ... and he still wins?
I know someone in New Jersey who had an absentee ballot sent to his parents home, where he used to live over 15 years ago -- he first voted at that address when he was 18 -- he's in his late 30's now. ! That really concerns me. He left New Jersey for college and never voted there again. He's lived in several states -- maybe he got absentee ballots sent to every prior address?
Scott - Reading your post tonight was the best part of the day. Thanks for the wise perspective and analysis. It’s been an exhausting 2020, but I know we’ve all got to rest up and get ready for next Tuesday and beyond. I will say that some of these commenters seem to be extremely obnoxious given that you post this free of charge even though many of use would pay good money to get access to your insights. Tonight I believe there are a few posters that cross the line and are “truly grotesque.” Maybe more importantly, I detect Scott’s salient points hit too close to home prompting an ugly but predictable hostile reaction.
Ditto what Benjamin says! This is a great Grannis post.
More than personal counseling, I think Trump could use some personnel counseling.
Get rid of Pompeo for starters. Drain the swamp; not our bank accounts.
I thought it was great when Pres. Trump said of Fauci, "....a bigger bomb goes off if I fire him."
Don, Jr has hinted that he's focusing on combatting the censorship purge.
I think this is a time when we should let everyone, including lunatics, high and low dig and dig. We (the people) can sort it out. The people have to see it before he can just root out swamp creatures.
Normally, the comments here are very useful. In this case, they're unreadable. Request: Please delete the dementia / psycho analysis comments. They're destructive and pointless.
As for the economy, my concern is with the future of major cities. I don't see how you can chase business away from Chicago, NY, Seattle, Portland, Minneapolis and now Philly and not see dramatic impacts to the economy. My wife is from Chicago and she still has close friends there. They report that the place is a mess. I have close friends with relatives in NYC and most of them are leaving.
I spoke with a friend who is an investment banker with a major bank last weekend. He talked about vacancy rates in NYC and SF being beyond what anyone has seen for decades. Then there's this graph of houses for sale in SF: https://www.bubbleinfo.com/wp-content/uploads/2020/10/glut.jpg. That one is mind-blowing.
I get the feeling that we're in the middle of an upheaval much larger than the election or the Wuhan Flu and it's being caused by our current racial mania. I live in California and I've got plenty of friends and acquaintances who are leaving. It's a regional convulsion that isn't getting much coverage.
Scott, thank you. I look forward to reading your wisdom and check my "Favorites" on a daily basis for your nuggets. I respect your intelligence, opinion, and have never once seen anything that smacks of a "tapestry woven with lies and fantasy". Keep your opinions and factual data coming--you provide a great service to those who value your thoughts. Those of us who take your data, and then form our own opinions, are the reason you write, I believe. I'm deeply appreciative to be able to glean wisdom from your thoughts and facts.
Scott, Have deeply appreciated your work for years.
Please don't let the unhappy, angry, sick posters impact the sharing of all of your economic and political perspectives. Do not let them cow you into silence.
Thank you, Scott.
Bottom line -- without a healthy economy, the divisiveness will only magnify from here.
I don't see how we begin to get out of this economic quagmire until people are done thinking about the virus. Whether the fear has merit or not -- the continued response to the virus is leaving normal life farther behind in the rear-view mirror...
Stocks selling off and 10 yr selling off. de-risk ahead of the election etc... I'm not paying much attention but the media is trying to blow covid out of proportion again.
Your insightful charts and data are well worth the time to read and mull over. Thank you, as always.
As to those conclusions:
No argument on point 1. The US economy has redundant strengths that make it unlikely to falter for long. Point 2 is a pretty big maybe. Fingers crossed for successful trials as we move forward, but also it appears antibodies may not last more than half a year. I question point 3, new US cases are over 85K/day, the highest ever. A huge amount of that growth is in areas that previously had very minimal virus activity. Luckily, fatality rates continue to drop as we improve medical protocols, keep our vitamin D up, our masks on, our hands washed, our socializing distanced, etc - but with many medical facilities close to being overwhelmed, deaths could spike. Hope I'm wrong. Point 4: I'm always on both sides of this fence. Redistribution is always bad policy, but doing nothing is frequently worse, imho. One's stance on this often depends upon the yardstick. 5. Trump voters are bigger fans of their candidate than Biden fans... but Biden voters hate Trump a lot more than Trump voters hate Biden. It's the latter that more often turns elections. I do think there are uncounted 'shy Trump voters' out there, but early Democratic voter turnout has been ferocious, and the poll margins are big.
Thanks for all the positive and encouraging comments. This helps sustain me. As several have noted, this is a free blog that I offer to the world in the hopes that my experience and knowledge—which have served me well over the years—can be of help to others. I have no agenda, but I do have a deep appreciation for supply-side economics, free markets, limited government, and sound money. I have learned and benefited so much over the years thanks to the internet that I feel duty-bound to offer this blog in return.
Thank You again Scott. You will never know how much you have helped me over the years. I am sure there are many of us who are silent when it comes to the blog but we need your advice and I for one follow you always!
Larry, long time reader of your blog.
Another very happy 10+ year follower here. Your work is highly appreciated.
Thanks to Scott for one of the best resources on the entire internet.
Seriously.
And to you NeverTrump FREAKs...LOL. Unreal comments section always amazes.
Joe Biden is a decades-long Irish mobster criminal liar POS. TENS of millions of graft and bribes from China, Russia, Luxembourg, Ukraine, Iraq.
Every single negotiation job he was sent to represent, he FAILED. Yet, then a few months later millions of dollars would make their way into Biden checking accounts.
Laptop has it ALL.
Under Trump we had LESS taxes for the middle class & those earning under $400K. RECORD high profits, paychecks, wages, tax revenues, GDP, REAL Median household income, 401-Ks,
Record LOW unemployment rates for the most marginalized citizens. 50 year lows in regular unemployment.
For the first time in history we had the lowest earning 20% strata get the greatest increase in income.
Fastest economic recovery in US history w/best GDP quarter ever. Near record low inflation, with record high lower & middle class net worth. No new wars! Trump destroyed the formerly US-backed ISIS. (Barack is gone, and McCain is dead.)
You freaks not voting for more of that are disturbed.
Clutch your pearls. Vote for your enemies.
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