XLU the proxy?
Macro Perspectives: Thu 8 Oct 2020
Stocks took a hit Tuesday afternoon after Trump instructed his team to walk from negotiations on a big stimulus package. Yesterday, the losses in the markets were fully recovered on another tweet - this time stating he is ready to sign a bill using unused funds from the Cares Act; $25 Billion for Airline Payroll Support and $125 Billion for Paycheck Protection Program for Small Business.
Just like that, Trump has put the ball back in the court of the democrats.
It seems unimaginable that Pelosi and company would comply with this suggestion/demand. They lose all leverage to get what they want out of a stimulus package (what they want is not in Trump’s tweet). Now Trump gets to tell the American people, he's ready to sign, to get money in their hands, to keep business afloat, but the democrats refuse - this could bring about the Executive Order option we've discussed.
Remember, less than two weeks ago, in his testimony to the Senate Banking Committee, Mnuchin said there was $200 billion of unspent money from Cares Act 1.0, and $130 billion of unspent money from the Payroll Protection Program. That's $330 billion.
The airline and additional PPP money in his tweet totals $160 billion, leaving $170 billion in the kitty for stimulus checks. In the last round, the government sent 160 million payments. On a flat $1,200, for those that qualify, that would amount to $192 million.
As for markets, with the level of turmoil, most would expect to see the “flight to safety trade” working - with the dollar, treasuries and gold serving as a hiding place. None are working.
Rather, what seems to be at work in markets, is the positioning for a Biden Climate Change Plan. The big loser in that, is the fossil fuel industry, with Biden having vowed to end fossil fuels. His plan targets net zero carbon dioxide by 2035, and a $2 trillion outlay.
On the other hand, the big winner, in the week and month, has been Utilities (XLU). Biden’s plan would be a big payoff on the renewable energy investments that many U.S. utility companies have already made.
