An Obama WhiteHouse - Again?

Macro Perspectives - 11 August 2020

With the holiday season drawing to a close, at least here in Sweden, I have a few observations from inland and abroad through friends.

Observation 1: Tourism is Hot. Cabin rentals were booked - and booked out for some time.

This is consistent with what the CEO/Founder of Airbnb, Brian Chesky, has said in recent weeks. After his $40 billion-dollar IPO was shelved by COVID in March, Airbnb proceeded to lose 80% of its business over the next two months. It looked like the death spiral. By June, the year-over-year comps had recovered!

According to Chesky, after months of lockdown, people are looking to get away, to change scenery. They have been looking to do so in areas within driving distance of about 300 miles.

Surprisingly, in a world derailed by a widespread infectious disease, it hasn't been enough to kill the "sharing economy." That's probably a good leading indicator to a recovery in Uber's ride sharing business (which was down 73% in Q2), and in air travel.

Observation 2: With over 20 million people unemployed in the US, there are help wanted signs everywhere. Some restaurants were shuttered due to lack of staff. Others, as mentioned by friends, were running on skeleton crews on modified hours, and yet (in their words) were still making more money than they had ever made.

Bottom line: The demand is strong, but the supply is suffering in a number of ways (including a labor shortfall in services and fulfillment). Employers can't compete with the government for low wage workers.

This brings us back to the point of my note in week 31, while the federal unemployment subsidy (the extra $600/week) has been a disincentive for getting people back to work, if left with the choice of taking it away or continuing it (even into the end of the year), we have no choice but to continue it. If not, the economy implodes and takes with it trillions of dollars of intervention bullets that have already been fired.

With that in mind, I expected the Democrats to use that Federal unemployment subsidy as ransom in new stimulus negotiations, in an effort to force the Republicans to agree to their wish list - including voting reforms, which would all but seal the election for them.

Consequently, I expect the above to result in Trump's use of an Executive Order to extend the federal unemployment checks.

Indeed, that's precisely what we got on Saturday.

Trump used Executive Action to keep the unemployment checks going, but reduced them $400, only if states contribute $100 of the $400. With this, the tables have turned quickly on the Democrats. They lose their bargaining chip in stimulus negotiations and with it no voting reform. If they choose to fight the Executive Action, they become the clear obstructor in getting money in people's hands. Moreover, key Democrat-led states (with large fiscal issues) are most likely to balk at contributing to the Federal subsidy - a bad look.

With this, I suspect the next political card played by the Democrats will be a big one - a bombshell VP announcement of Michelle Obama. The bookmakers have this at 22-1 odds, putting her behind five more likely candidates.

My view: This would be the most challenging set-up for Trump (for re-election), as it would bring about the potential for an Obama White House again, in the case of a Biden resignation.

She launched a heavily promoted podcast two weeks ago, and the early episodes sound like campaigning, rather than podcast hosting.