All Eyes on California Tonight; Coronavirus Stimulus Options
Author: Greg Valliere
March 3, 2020
WE’RE HEARING THAT BARACK OBAMA was on the phone all day yesterday, urging Democrats to close ranks around Joe Biden — but was it too little, too late? Biden’s prospects may have improved, but he faces two major obstacles:
First is the likelihood that Bernie Sanders will win a massive delegate haul tonight in
California, where Biden’s ground operation has been shockingly lame. Biden may have won some momentum and enthusiasm yesterday, but Sanders has vastly more momentum and enthusiasm in California.
Biden’s second obstacle is Mike Bloomberg, who could drop out after a weak showing tonight, or could stay in the race through the big March 17 primaries, hoping his TV ads are gradually winning him some traction. Our guess is that Bloomberg will drop out tonight or tomorrow.
THE PANIC AMONG THE DEMOCRATS’ ESTABLISHMENT cannot be exaggerated; from Obama on down, they see a Sanders nomination as a disaster — even though, in private, many party leaders express surprisingly strong reservations about Biden’s energy and mental acuity. His running mate, possibly Amy Klobuchar, will be critical.
BUT FIRST BIDEN HAS TO WIN THE NOMINATION, and we’ll wake up tomorrow with Sanders in a clear delegate lead. The party’s establishment desperately wants him out — and they may succeed by July — but the voters may have other ideas, as we’ll see tonight.
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TALK IS CHEAP — LET’S SEE THE STIMULUS: Stocks rallied yesterday, reinforcing our view that massive stimulus will make a difference. It’s not as important as a coronavirus vaccine or a peak in new cases — both of which aren’t imminent — but a major jump in stock market psychology will help calm jitters.
SO WHAT’S ON THE TABLE? A Fed rate cut — hopefully coordinated with other countries — is increasingly likely. A 50 basis point move, not 25, is necessary — along with an easing of Fed lending standards. Whether the Fed can afford to wait until the next FOMC meeting, on March 17-18, depends on how the markets perform in the next two weeks.
BEYOND THAT, a massive fiscal response, which is coming in China, will be required virtually everywhere. Washington already is spending money like there’s no tomorrow, so what’s another hundred billion or so?
FIRST, CONGRESS WILL PASS A MODEST BILL, perhaps by the end of this week, for purchases of protective gear, masks, and testing. Passing a bill within a week is remarkable by congressional standards, but the estimated pricetag — $7.5 billion — is far too little. There will have to be more aid to businesses and individuals.
SOME TYPE OF BUSINESS TAX BREAK, maybe emergency aid like tax credits or bridge loans, may be necessary; Italy is already moving in that direction. Individual tax cuts in the U.S. may be on the table, with a chance of passage if they’re temporary. And there’s growing support for a temporary suspension of all tariffs, which would help China as its economy nears a severe recession.
MAYBE STOCKS actually hit bottom last Friday, and the promise of massive stimulus will put a floor under the market. But that’s far from a certain bet because thousands of new infections and deaths loom; the epicenter of this virus will shift from China to Iran, where transparency is nonexistent.
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