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Wall St strategists divided over how to trade a Biden win



Every four years, Wall Street pundits butt heads on how to trade the biggest political risk on the planet.

This time around, there’s more consensus than usual over the likely winner – Joe Biden. After that, there’s plenty of disagreement on strategies to wager on an election that’s been flashing warnings of chaos ahead in volatility markets.

After fretting over a President Biden raising taxes and tightening regulations, some stock pundits are now cheering the stimulus and political certainty his administration could usher in.

Foreign-exchange strategists are similarly divided on whether a second term for Donald Trump or a new Biden-led White House would boost the dollar.

All told, market prognosticators are notoriously bad at this stuff. Yet even as the pandemic dominates market moves, the sell-side is full of conviction on how the November vote will spur regime shifts in cross-asset trading.

Here’s how strategists are embarking on the high-wire act of predicting the post-election aftermath.

Biden Will Sink Stocks. No, He’ll Lift Them.

Barclays Plc and Saxo Bank say a Democratic win could be bad for stocks because of higher taxes. The former estimates Biden’s proposed tax hike amounts to rolling back half of Trump’s 2017 cuts and would shave 5% off equities. JPMorgan Chase & Co. and Evercore ISI meanwhile reckon a stimulus-friendly “blue wave” might lead to a risk-on rotation across sectors.

Goldman Sachs Group Inc., for its part, offers two separate forecasts depending on whether the market focuses on economic optimism or taxes. In one scenario, the market homes in on faster growth from more fiscal spending, lifting the S&P 500 roughly 4% to 3,633. In the other scenario, investors fretting over higher taxes drag down the benchmark.

The buy-side is similarly divided.

The S&P 500 has gained around 4% this month despite uncertainty over the next stimulus package. To Brian O’Reilly, that’s a sign more fiscal support is probably priced in, but Biden’s tax policies aren’t.

“Markets are expecting a pretty strong V-shaped rebound in earnings next year but obviously, taxes could be one thing that could derail that,” said the head of market strategy at Mediolanum Asset Management. “A Biden victory would be initially viewed as risk-off.”

Yet in the estimation of Brian Jacobsen, a strategist at Wells Fargo Asset Management, the former vice president is still likely to prioritize stimulus before any tax increases, so his victory would still prove positive for the equity market.

At Least We Can Agree a Blue Wave Will be Green

While predicting how the broader index will react is hard, analysts are more united on how the election will sway sectors. The Biden baskets compiled by Goldman and a partnership between Nomura Holdings Inc. and Wolfe Research, for instance, move roughly in the same direction. Both have rallied along with the Democrat’s chances.

The consensus is that his policies would boost renewable energy, infrastructure and the health-care companies benefiting from Obamacare. Conversely, he is seen as negative for oil and gas, banks, for-profit education and technology.

Whether markets have essentially priced in a Democratic presidential win is another question. The Invesco Solar ETF, which buys shares expected to gain from policy support for green energy, has already climbed 17% since the last presidential debate.

Another Dollar Bull Run For Trump?

When Trump was elected in 2016, the Bloomberg Dollar Spot Index surged 5% in two months.

Four years on, many analysts are expecting history to repeat itself, but have different rationales. UBS Wealth Management says a “red wave” could boost the greenback because of faster economic growth. Barclays says that will be due to haven demand from policy uncertainty.

Goldman projects that a Biden victory would weaken the dollar to 1.20-1.21 versus the euro whereas Trump would keep it at 1.18, roughly similar to the level now.

Not everyone agrees. At Wells Fargo, Jacobsen says the firm’s analysis found that higher Biden odds are actually associated with a stronger dollar, probably because of a larger spending package.

Still, exchange rates move for all sorts of macro reasons, including the U.S. yield gap with the rest of the developed world, which has been narrowing lately.

“You read all kinds of predictions being made, but what is clearly the most important driver of exchange rates is real interest rate differentials,” said Dirk Thiels, head of investment management at KBC Asset Management.

Global Shockwaves

U.S. policies will naturally spur profound consequences for the rest of the world.

Barclays’s dollar-neutral Biden basket bets on exchange rates linked to China and Europe and against the Russian ruble, Turkish lira, Canadian dollar and Mexican peso. That’s based on a mix of correlations and predictions around greater trade certainty and stronger political sanctions against countries like Russia. So far, the basket appears to be tracking the Democrat’s chances.


Whoever It Is, Reflation All the Way

Still, whoever wins, the U.S. is expected to loosen the fiscal taps to revive an economy battered by Covid-19. That’s why Alasdair McKinnon, lead manager of the Scottish Investment Trust, has made gold miners his biggest wager.

“At the very highest level they’re very similar: they both believe in increased spending and they both believe in the status quo,” he said from Edinburgh. “In that regard, they are both committed to a highly inflationary road map.”

–With assistance from Yakob Peterseil.


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Muted microphones for Thursday’s final US presidential debate



Organisers say the move will avoid the chaos of last month’s first encounter, when Trump repeatedly interrupted Biden.

US President Donald Trump and Democratic challenger Joe Biden will have their microphones muted for parts of their final debate on Thursday to allow each candidate a block of uninterrupted time to speak and avoid the rancour of the two candidates’ first encounter.

The Commission on Presidential Debates, the sponsor of the televised debate in Nashville, said changes were necessary after the bad-tempered first debate.

Trump repeatedly interrupted Biden during the encounter in Cleveland on September 29, and the discussion ended up in name-calling and insults.

“We realize, after discussions with both campaigns, that neither campaign may be totally satisfied with the measures announced today,” the commission said in a statement. “We are comfortable that these actions strike the right balance and that they are in the interest of the American people, for whom these debates are held.”

For this week’s 90-minute debate, the organisers will give each candidate two minutes of uninterrupted time at the beginning of each 15-minute segment of the debate. NBC News correspondent Kristen Welker will moderate.

“The only candidate whose microphone will be open during these two-minute periods is the candidate who has the floor under the rules,” the commission said.

US President Donald Trump frequently interrupted rival Joe Biden in the first debate on September 29 [File: Brian Snyder/Reuters]

Trump’s campaign objected to the change, but said he would still take part.

“President Trump is committed to debating Joe Biden regardless of last-minute rule changes from the biased commission in their latest attempt to provide advantage to their favoured candidate,” campaign manager Bill Stepien said.

The commission is a non-partisan body.

The Biden campaign did not immediately respond to a Reuters’ request for comment on the latest developments.

Uninterrupted time

Trump’s camp is also unhappy with Thursday’s proposed topics, which include families, climate change and race, arguing that the discussion should focus more on foreign policy.

Biden’s campaign said both sides has previously agreed to let the moderators choose the subjects. It said Trump wanted to avoid discussing his stewardship of the coronavirus pandemic, which surveys show is the top issue for voters.

“As usual, the president is more concerned with the rules of a debate than he is getting a nation in crisis the help it needs,” Biden spokesman TJ Ducklo said.

Trump, who was admitted to hospital with COVID-19 in early October, backed out of the second scheduled debate, which was supposed to take place last Thursday, because it would have been in a virtual format. Instead, the two men broadcast rival town-hall sessions.

With just two weeks before the presidential election on November 3, Biden has a strong lead nationwide, although the race is closer in some key states.

More than 30 million people have already cast their ballot through early voting.


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More than 220,000 people have died from Covid-19 in the US



President Donald Trump speaks to reporters at Phoenix Sky Harbor International Airport on Monday, October 19 in Phoenix, Arizona.
President Donald Trump speaks to reporters at Phoenix Sky Harbor International Airport on Monday, October 19 in Phoenix, Arizona. Alex Brandon/AP

President Trump’s attacks on Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, won’t help the United States battle the coronavirus pandemic, said Dr. Ashish Jha, the dean of Brown University School of Public Health.

It’s “disturbing and “upsetting” to hear the President say such things, Jha told CNN’s Jake Tapper.

“We’re in the middle of the worst pandemic in a century and Dr. Fauci is America’s most respected infectious disease expert for good reason,” Jha said. 

“He is the best there is and to attack him personally is very unfortunate and it is not going to help the country out,” Jha added. 

“I mean, right now we’re heading into a difficult fall and winter. Attacking your best experts is not what you want to be doing if you’re President of the United States.”

It could also have dire health consequences, Jha said.

“Dr. Fauci isn’t just somebody that the public respects. All of us in the medical field who study these things look up to him as the best there is,” Jha noted.

“And so undermining him and undermining his message really makes it so much harder to control this virus, so much harder to control this pandemic. I think the President’s doing a great disservice to Dr. Fauci, but really to the country.”

Trump called Fauci a “disaster” and referred to him and other health experts as “idiots” in a campaign phone call on Monday.

Dr. Richard Besser, the former acting director of the Centers for Disease Control and Prevention, told CNN’s Anderson Cooper on “Full Circle” if political leaders aren’t working with scientists to pull the nation together in their coronavirus response, they’re likely going to fail.

“The only way response works is when you have a unity of message between the political leaders and the science leaders because the science leaders are never going to be asking people to do things that are easy. They’re asking people to change their lifestyle, to take action, to reduce the spread of an infectious agent and that requires sacrifice and when you don’t have your political leaders pulling the nation together and making it a national effort, you’re going to fail,” he said.

“Infectious agents don’t care what political party you support. They don’t care where you live. They will infect everybody and anybody,” he said.



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Democrats are cheering a Supreme Court ruling on mail-in ballots. Here’s why it’s worse than it looks.



The Supreme Court handed down a brief, unsigned order on Monday, which effectively rejected radical arguments by the Republican Party of Pennsylvania that sought to make it harder to vote in that state. This order, in other words, is a victory for voting rights — but that victory may only last a matter of days.

Republican Party of Pennsylvania v. Boockvar involves a state Supreme Court order holding that many ballots received up to three days after Election Day must be counted. Monday’s order means that this state Supreme Court decision will stand, for now.

The Court’s decision not to grant relief to the GOP in Republican Party is not especially surprising. What is surprising is the vote breakdown in this case. The Court voted 4-4, with Chief Justice John Roberts crossing over to vote with the three liberal justices.

So in the almost certain event that Trump Supreme Court nominee Amy Coney Barrett is confirmed to join the Supreme Court, there could be five votes on the Supreme Court who support the GOP’s effort to toss out many ballots in the state of Pennsylvania. Indeed, it is possible that Republicans will attempt to raise the same issue before the justices after Barrett is confirmed.

The dissenting justices did not explain why they dissented

The Supreme Court’s order in Republican Party is only two sentences long. The first sentence states that the GOP’s request to stay the state Supreme Court decision is denied. The second merely states that “Justice Thomas, Justice Alito, Justice Gorsuch, and Justice Kavanaugh would grant the application.” None of the four justices in dissent explained why they dissented.

In its brief asking the Supreme Court to block the state court’s decision, however, the GOP advanced two legally dubious theories.

The first is that a federal law providing that the election shall take place “on the Tuesday next after the first Monday in November.” Republicans argue that federal law requires “the 2020 general election to be consummated on Election Day (November 3, 2020).” So any ballots that may have been mailed after this date must be tossed.

One serious problem with this argument, however, is that the provisions of federal law setting an election date should not be enforceable in federal court. As I’ve previously explained, private parties are only allowed to bring a lawsuit seeking to enforce a federal statute if that statute contains particular language. And the federal law setting the date of the election does not contain such language.

The GOP’s other argument is potentially breathtaking in its implications. The Constitution provides that “each State shall appoint, in such Manner as the Legislature thereof may direct,” members of the Electoral College. In their brief, the GOP hones in on the word “Legislature,” arguing that only the Pennsylvania state legislature may set the state’s rules for choosing presidential electors — not the state Supreme Court.

But there’s a glaring problem with this argument. As the Supreme Court held in Marbury v. Madison (1803), “it is emphatically the province and duty of the Judicial Department to say what the law is.” In Republican Party, two parties had a disagreement about what Pennsylvania law says about how ballots should be counted. Ultimately, the state supreme court resolved that disagreement in a manner that the GOP disagrees with.

The GOP argues in its brief that the state Supreme Court’s decision relied on reasoning that is “tortured at best.” But so what? There was a disagreement between two parties. Someone had to resolve that dispute. And, in questions of state law, the state Supreme Court is supposed to be the final word on such disputes.

One of the most basic principles of American law is that the Supreme Court of the United States has the final word on questions of federal law, but state supreme courts have the final word on how to interpret the law of their own state.

Indeed, if state supreme courts cannot interpret their state’s own election law, it’s unclear how that law is supposed to function. There will inevitably be legal disagreements between candidates, parties, and election officials during an election. Perhaps the Democratic Party believes that a particular ballot should be counted, and the Republican Party disagrees.

But someone has to have the power to resolve such disagreements, and, in this country, disputes about the proper meaning of an existing law are resolved by the judiciary. If the judiciary cannot perform this function, we have no way of knowing what the law is — and we may have no way of knowing who won a disputed election.

In any event, because the four dissenting justices did not explain their reasoning, we do not know whether they voted with the GOP because they were moved by one or both of the GOP’s arguments — or maybe because they came up with their own reason to back their own political party in this case.

What we do know is that four plus one equals five. Thus, in the likely event that Judge Barrett becomes Justice Barrett, there will probably be a majority on the Supreme Court to hand a victory to the GOP in cases like this one.

Indeed, the GOP may be able to raise this issue again after Barrett is confirmed, potentially securing a Court order requiring states like Pennsylvania to toss out an unknown number of ballots that arrive after Election Day. If the election is close, that could be enough to change the result.

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