3/4 of a Shit Sandwich is Still a Shit Sandwich. Stimulus (Still) Looks Unlikely.   

Markets are a-twitter about the fact that Pelosi is back to talking to Mnuchin about a stimulus plan.  I’d still be it ends with no deal.  So why are we seeing this latest and probably final round of drama?  It is most plausibly explained as masterful political theater from Pelosi.

Pelosi waited for McConnel to pass his $500b headline, $300b actual size plan in September.  Ensuring she gets the last word legislatively before the calendar runs out.  Meaning gets she credit for “trying to compromise” with a headline $2.4T bill.  Leaving the blame gets divvied up between McConnell and the White House.  If she really gets lucky, Trump tries to bully Senate Republicans into passing something and it becomes a circular firing squad.  But that’s bonus points on a game she’s already won.

One way or another, no checks are likely to go out.  Why?

  • Pelosi has actually conceded nothing in her latest offer.  It is still a shit sandwich (from a Republican perspective).
  • Pelosi and Mnuchin are still miles apart.
  • Mnuchin probably can’t “deliver” Trump
  • None of the above really matters anyway because neither Mnuchin or Trump can “deliver” the Republican Senate, which means this is all just kabuki theater.    Mitch McConnell doesn’t have the votes for much beyond the $300B price tag of his September PR exercise stimulus bill.  Pelosi knows that and Mnuchin does too.  Nor will he get his “line in the sand” liability protections for business.   I also don’t believe a wounded Trump can whip Rand Paul, Ted Cruz, Tom Cotton, and Josh Hawley et al in line no matter how much he tweets.

Pelosi Hasn’t Offered Any Real Concessions.  Mnuchin has nothing new to offer.  Mnuchin Cant Deliver Trump.

  • 3/4 of a shit sandwich is still a shit sandwich.  Pelosi’s did put forth a $2.4 trillion “compromise” versus her prior $3.4 trillion plan.  But from the few details I’ve seen, she offered no compromise in the specifics or spending priorities.  She is offering the same (high) spending levels for fewer months (until shortly after the seating of the next Congress).  So she is just cutting off a $1 trillion slice of the same shit sandwich.
  • Mnuchin has nothing new to offer:  Per CNBC, he is still talking about the same $1.5 billion “compromise” number that he floated in August.  Pelosi rejected it then.  Why would she take that same deal now?  Especially in light of the above – she hasn’t climbed down on any of her priorities.
  • Pelosi believes (probably correctly) that Mnuchin can’t deliver Trump.  After last night’s debate, you would have thought the market would have figured out that no-one can “deliver” Trump.  Even Trump can’t deliver Trump.  He’s a puppet of his own raging id.

If it Can’t Pass the Senate, There is No Deal.  $1.5T Looks Extremely Unlikely.  $2.4T is Pure Fanstasy.  Pelosi Knows This.  that is Why SHe’s Going to Pass a $2.4T Bill.

  • McConnell doesn’t have Republican votes for much more than $500b-$1T.  The best he could get done in his September PR exercise was a headline $500b that lets Senators claim (later) it was only $300b (by re-appropriating $200b of un-spent Fed lending support funds from the last stimulus).  Rand Paul wouldn’t even vote for that number.  So how do you expect him to get to $1.5T much less $2.4T?  You don’t.  Instead you logically conclude a stimulus bill probably doesn’t pass.
  • McConnell isn’t going to pass a bill with a majority of Democratic votes a month before his re-election vote.  He probably wouldn’t do that if this was 2018.  But he’s definitely not doing that in October of 2020.
  • McConnell isn’t going to get his business legal liability protections.  He drew a line in the sand on that issue back in July.  Pelosi wouldn’t add that as a sweetener to the shit sandwich then and she still isn’t doing it now.  So either McConnel does a a humiliating climb-down (a month before the election) or he doesn’t pass a bill.  Which is more likely.
  • Trump can’t deliver the Senate.  He’s a wounded animal fighting for his life.  Senators don’t trust him to not throw them under the bus the day after the bill gets signed.  And Trump is too much of a coward to stick his neck out on a deal that doesn’t look certain.  He probably never really tries to push a deal and likely fails if he does.  Although Pelosi would be thrilled to see him try.

I could always end up surprised.  We’ll know by the end of the week.  Pelosi probably just serves up her $2.4 T shit-sandwich-on-smaller-slices-of bread to be tossed back and forth between Mnuchin and McConnell and Trump.  Or maybe she spins out the drama by taking one more slice off the shit sandwich, but adding no sweetener.  It will remain a shit sandwich and that seems unlikely to get eaten.

FWIW, I think the above will end up being worth it if we get Biden AND (more important) a Democratic Senate.  Even if the market and the economy tank.  Why?  Because that probably means we get sustained, massive stimulus aimed at the bottom of the income pyramid in 2021.  And, as I learned to my investing pain in 2020, bottom-of-the-pyramid stimulus is extremely effective in goosing the economy during or after a crisis.

If we get Biden and a Republican Senate, McConnell will go back to his Obama era playbook.  Playing to win in 2024 by slow-walking anything that might help the economy over the next 4 years.  that will be a disaster for investors.

If we get Trump and a Republican Senate, we’ll get more stimulus aimed at the top of the income pyramid.  As we have all learned, the bang for the buck there is tiny.  The money gets saved rather than spent.  That isn’t disaster for investors.  It might blow another nifty bubble.  But that isn’t great either.

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