MARKETS ARE SUGGESTING MASSIVE STIMULUS SPENDING HAS NO DOWN SIDE…THIRD QUARTER EARNINGS SEASON COMMENCES TODAY

Many are convinced a Biden presidency will create an economic boom via increased fiscal spending.  While it is correct equities typically perform best under a Democratic Administration given the propensity to spend, I rhetorically ask how much is too much?

It is not a question whether or not another stimulus will be passed, the question is how much.  Depending upon the proposals, the federal deficit would increase from around $21 trillion to over $29 -$30 trillion in about 15 months.  If elected, a Biden Administration is promising another $4-$5 trillion in quick order.

Where will the sand pile topple?   Unfortunately, the answer to this question will not be known until it has occurred.  All must remember all crisis are never predicted.

I also caution about emulating European socialist democracies.  If the economic policies are deemed superior to that of the US, why has European growth lagged that of the US for at least two decades.

Speaking of government, according to the Financial Times the European Union has twenty social media and technology on a “hit list.”   There is duplication with the four mega sized technology companies that are now under intense scrutiny by the House Judiciary Committee.   How will this unfold, a pivotal question given the massive influence these companies have upon the indices.

Cynically writing, will Silicon Valley change its political views?  I will argue this is the beginning of an epic battle for power.  Who will prevail…government or mega sized business?   It is not a temporary issue, but one that could potentially domineer business and society for several years to come, especially if there is the proverbial “Blue Sweep.”

Continuing with a similar theme, TV ratings for professional sports are declining considerably with some stating it is partially the result of intense politicization.  For example, TV viewership of the final NBA games was down 48% as compared to last year.

How will such a plunge impact ad rates?  What happens if football follows a similar path?   If a reason for the decline is the result of intense politicization, is it fair to ask have the activists pushed too far?

Four years ago, I opined the changes can potentially be tectonic.  Today I will use the word “galactical”.

Radically changing topics, a Bloomberg columnist wrote in October 2016 “I polled every professional trader I know and all believed Clinton would win.  I asked what would a Clinton loss mean and the overwhelming consensus was a bullish move in bullion—the likes of which have never been seen before–and a plunge in equity prices.”

The columnist further wrote “guessing who may win and the market reaction is a fool’s errand.  Markets are right now pricing massive stimulus in the event of a Biden win.  Whether or not he wins and whether or not such will equate to a rally is a different question.”

Commenting on yesterday’s market action, led by an extremely strong rally in the giant technology companies, with the largest companies surging an incredible 5% to 6%, equities advanced.   Bloomberg suggests the surge is directly related to “extremely large call option buying.”

The bond market was closed for Columbus Day.

Last night the foreign markets were mixed.  London was up 0.11%, Paris up 0.24% and Frankfurt up 0.43%.  China was up 0.04%, Japan up 0.18% and Hang Sang up 2.20%.

The Dow should open moderately lower.  JP Morgan surprised on the upside.  More significantly the Bank reversed part of its large loan loss provision made in the second quarter in anticipation of an increase in defaults as charge offs were lower than anticipated.

Oil is up about 2% as Chinese imports increased considerably in August.  The 10-year is up 4/32 to yield 0.76%.

 

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