No Deal In Sight

It's funny that Congresspeople said they are willing to stay in Washington until after Christmas to get a deal done, but they adjourned on Thursday (until next week). They could easily have worked on Friday if they really cared about getting something done by December 26^th which is when pandemic unemployment insurance benefits expire. 

There is an intense amount of bluster, but there still won’t be a deal soon. This is while NYC shut down indoor dining starting on Monday. It would be great if Congress could give grants to small businesses, but that won’t happen soon.

We have already stated the battle lines. There is debate over funding for state and local governments, liability limits for businesses, and unemployment benefits. The main parts both sides agree on are giving out checks to people and funding for vaccine distribution. It would make sense to pass what they agree on and then work on what they don’t agree on later, but what they agree on makes what they don’t agree on possible to pass, so we are at an impasse.   

(Click on image to enlarge)

As you can see from the charts above, benefits are grinding to a halt. It’s as if the government doesn’t know about the 3^rd wave. We are about 2 months from the beginning of a return to normalcy, but people are in trouble in the meantime. This is the perfect time for a stimulus because it would keep the economy in good shape for a recovery when the reopening starts.

The latest data on COVID-19 was bad again. The 7-day average of news cases hit a record high of 206,679. There are 108,044 people in the hospital which is a record high. The rate of increase has slowed, but not enough to call for a peak. The 7 day average of deaths is 2,379 which is scaring people away from dining. Restaurants would be taking a hit even if the restrictions weren’t in place.

Vaccine Timing

Some vaccines have started going out globally, but we are very far from this having an effect on U.S. cases. When cases and hospitalizations start falling because of the vaccines, people will be more confident in leaving the house regularly for social gatherings. The chart below lays out the timeline. 

As you can see, by April more than half of the country will be vaccinated in the optimistic case. We don’t need the entire country to get vaccinated to reach herd immunity. That’s good because it will be quicker to end this and because some people don’t want to get the vaccine.

(Click on image to enlarge)

The FDA approved Pfizer’s vaccine on Friday allowing for 2.9 million doses of vaccines to be sent to the U.S. this coming week. Reopening stocks will gradually move higher, but face volatility if any bad news comes out such as delays. The vaccine rollout is definitely more important to stocks than the stimulus talks.

Consumer Sentiment Surprisingly Increases

Given the backdrop of the increase in jobless claims, economic restrictions, and rising COVID-19 deaths per day, we all thought consumer sentiment would get worse in December, but it got better. This supports the encouraging BAC card spending data from the holiday shopping season.

As you can see from the chart below, the University of Michigan consumer sentiment index rose from 76.9 to 81.4 which beat estimates for 76 and the highest estimate which was 78. The current conditions index rose from 87 to 91.8 which is amazing because most indicators are getting worse besides manufacturing. Expectations rose from 70.5 to 74.7 which is much more understandable because stocks are rising and vaccines are coming.  

(Click on image to enlarge)

There has been a huge political shift in the survey as Democrats became more confident and Republicans became less confident. Soon, these surveys won’t be as political because the election effect will be over. As for now, we can admire the massive shift. 

From August to December, the expectations index from Democrats rose 39.5 points and it fell 34.9 points for Republicans. Since the January 5^th election determines the balance of the Senate, it will impact this survey next month. Thinking as to why the election mattered more than COVID-19 is this data is from the expectations category. The Dems probably think their party will do a better job at handling the crisis.

2021 Risks

The chart below shows Deutsche Bank’s survey of the biggest risks to global financial markets in 2021. It’s no surprise COVID-19 mutating, making the vaccine ineffective is the top risk because the market is starting to assume the rollout will be smooth sailing. The 2^nd greatest risk is that the vaccine has side effects. We’ll be looking to official news sources on that because there will undoubtedly be theories on the vaccine causing health issues.

The 3^rd biggest risk is if enough people refuse to take vaccines that it slows reopening. The Elderly will be willing to take the vaccines. Since the virus appears to be killing them the most, them being vaccinated should lower deaths per day significantly. If a business requires its employees to get vaccinated before they can return to work, people will have no choice but to get it. This isn't likely a big risk.

(Click on image to enlarge)

The 4^th biggest risk is the fallout of the tech bubble bursting. This is the biggest risk which is why some investors only own one tech stock and one high multiple growth stocks. Avoid all SPACs, IPOs, and growth stocks up triple digits in 2020.

The 5^th biggest risk is central banks and governments pulling back stimulus too early. On Thursday, the ECB added 500 billion euros to its pandemic bond-buying program. You can see zero chance central banks pull the plug in 2021. They might do so in 2022. 

On the other hand, there is a risk America doesn’t pass another fiscal stimulus. We wouldn’t call that the biggest risk. A vaccine rollout going wrong is a bigger risk. There have been no polls on the Georgia Senate elections in the past week. That will quickly tell us how fiscal policy will shape up in the next 2 years.