Electile Dysfunction

Back at the start of the year, we imagined that at some point last year’s fiscal monetary stimuli would run out this would trigger a correction (it did in February) and this would cause a monetary policy response, rate cuts to zero and possibly beyond and when this failed, we’d get an additional fiscal response (which all happened by April) and this would take us to new highs until this ran out…

Are we there yet?

This seems to be largely what’s happened and where we are now…. But with a big question mark as to what happens next.

So, what does happen now?

Back in January, we imagined that if the new peak and subsequent dip happened before the US elections in November, we’d likely see a ‘mother of all stimuli’ response albeit possibly with a greater focus on voters’ pockets bank accounts rather than just on ‘Wall St ..’’(where supposedly 97 6 of ‘ has ended up so far this year) but time is running out…

We see some chance of this case but with the caveat that as we get closer to the election, so many political variables come into play that the timing of outcomes is pretty much impossible for the rest of 2020 but we do see less chance of policy makers actively engaging in the weeks prior to the election”

• And less chance that politicians will open the liquidity taps again so soon before the election;
• The Treasury might circumvent the political system somehow to support risk assets but a sell off would likely need to be severe for this to happen;
• Many policymakers might feel politically desperate enough to just let the US economy fall over the cliff and markets will implode during the election period;
• Anything can happen in the next 2 months and beyond…

What could possibly go wrong?

If the election outcome is in any way contested or unclear or challenged between November 3rd and December 14th or January 6th or even beyond, that could trigger a market downward spiral that might have gained too much momentum to reverse by the time that the pilots try to ‘regain control’ or at the very least could provide a major buying opportunity if they do.

(Note: 1st Presidential Debate is on 29th September).

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