Should President-elect Joe Biden pick Massachusetts Senator Elizabeth Warren for Treasury Secretary, the securities markets will see it as “very provocative,” argues Greg Valliere, AGF Investments’ U.S. policy strategist.
In an interview with ThinkAdvisor, he discusses a more likely choice and forecasts a “thorn in the side of the industry” who could very well oversee financial services regulation in the new administration.
Valliere’s smart, popular blog, “Capitol Insights,” is a must-read for anyone who wants to get a leg up on what’s happening and will happen at the intersection of Washington and Wall Street.
The well-connected Valliere told ThinkAdvisor that a stimulus could be coming sooner than most anticipate: “Over the weekend I talked with some very plugged-in people who think there’s a decent chance that Biden and McConnell could reach an agreement on a modest stimulus bill in December.”
In our conversation, he explores three big developments that, he says, augur a positive second half for 2021. However, the coronavirus pandemic will bring a “very soft” winter.
Meanwhile, he contends that, if President Donald Trump fails to start the presidential transition process by Dec. 14, the date the Electoral College meets, “the Biden camp will sue the White House” to get the intelligence and funding it requires.
Further, he opines on why Vice President-elect Kamala Harris is a major reason that, he believes, Biden will not be excessively tough on the technology sector.
Valliere has analyzed policy and politics for investors for more than three decades. Formerly chief global strategist at Horizon Investments, at AGF he provides insights into how U.S. policies are shaping world markets.
ThinkAdvisor conducted a phone interview with Valliere on Nov. 19 and an email exchange on Nov. 23. Based in Washington, D.C., the analyst has a background in journalism; his first job was at the Washington Post, where he was a copy boy.
Now 71, he has no plans to retire anytime soon. “It’s still fun,” he says. “I can’t wait to get up in the morning to see what happened overnight.”
Here are highlights of our conversation:
THINKADVISOR: What’s your forecast for five key areas of the economy and markets. First, financial services.
GREG VALLIERE: Indications are that there’ll be a strong influence for Elizabeth Warren [Dem. Sen.-MA] from the left but I think her chances of becoming Treasury Secretary are pretty slim.
The Democrats don’t want to give up a [Senate] seat in Massachusetts: If she went to the Treasury, the [Mass.] Republican governor, in all likelihood, would replace her with a Republican. Also, if Biden appointed her Treasury Secretary, the markets would view it as very provocative.
Who do you think Biden might choose for the post, then?
The more likely pick is Lael Brainard, a Federal Reserve Governor with a very, very good reputation.
Do you foresee tougher regulations for the financial services industry?
Yes. And I’d look at Gary Gensler [former chair of Commodity Futures Trading Commission who on Nov. 17 was named to lead Biden’s financial policy transition team].
He’s become pretty much of a thorn in the side of the industry [e.g., he put into effect new regulations for swaps].
One area in the financial world that the Democrats have big issues with is the private equity industry, which goes in and gobbles up companies and lays people off. I can see tougher regulations, certainly, against that sector.
What do you expect to happen in the technology area?
[Vice President-elect] Kamala Harris has excellent contacts in Silicon Valley — friends who’ve helped finance her campaigns. She knows all the key players. Therefore, I don’t see a pressure climate for the tech companies.
There could be a corporate minimum tax that could hurt them, but the antitrust case that was brought [in October] is probably going to last about seven or eight years.
I just don’t see the Biden administration aggressively going after tech, and I think Kamala Harris would be a major reason why.
What about the energy sector?
The oil, coal and natural gas industry won’t get a dime from Washington. Any aid would go to alternative energy.
And the defense sector?
It has to worry because after four years of big, big increases under Trump, Biden’s defense spending will level off. I’m not sure he’d cut defense spending — but I don’t see an increase [coming].
What do you foresee in healthcare?
There’ll be a lot more spending on hospitals, but it won’t be a good climate for the health insurance companies.
Both the left and the right want to curb drug prices. So there are pluses and minuses for the health industry.
The laboratory companies would do very well because under Biden, the NIH [National Institutes of Health] would get a big increase in funding.
Who do you think is the most important person in Washington when it comes to the economy?
It will continue to be Jerome Powell [Federal Reserve chair]. He’s made it quite clear that the Fed will do whatever is necessary to maintain a decent economy and decent markets.
Powell and the Fed are the biggest factors. They’ve made it quite clear that [interest] rates will stay close to zero for, like, three years. That’s pretty extraordinary.
Powell has made it very [plain] that the Fed will do the heavy lifting if they have to. So, I think monetary policy is going to stay extremely accommodative.
Some economists and industry members are saying that the U.S. economy has had a “V”-shaped recovery so far. What do you think?
I don’t agree. It’s more like a “W.” There was a great GDP number for the third quarter, but that just made up for a horrible number in the second quarter.
I worry that the winter — the next four or five months — is going to be very soft. But there’s little question in my mind that we’re headed for a strong spring.
What’s the stock market focused on at this point?
Markets are looking out six months from now, when things should be quite a bit better. I think [investors] feel that’s when the economy will be in good shape.
Why that timeframe?
Look at the three big things the market is going to get, in addition to another stimulus bill out of Congress: exceptionally accommodative policies from the Fed, and the COVID-19 vaccine[s].
Those are three enormous factors that will certainly give us a good second half. The stock market is looking past the first quarter.
Why do you see such a bleak winter?
We’re in for a very weak first quarter.
Even if there aren’t [stay-at-home orders, lock-downs] in certain states, people will self-quarantine; and that, obviously, is a negative for economic growth. There’s a need for more aid.
What will Joe Biden seek to accomplish as soon as he’s sworn in as president?
He can get a stimulus bill. But I’m not sure there’s going to be a lot more that he can do to boost the economy since he’s got such a narrow margin to work with in the Senate.
He’s kind of hemmed in. He can do things with regulations; but in terms of any big legislative agenda, it’s going to be tough for him.
You wrote recently that investors prefer the president and the Senate to be of different political parties. Please elaborate.
The markets like gridlock. The two upcoming Georgia [Senate] runoffs [in January] are huge in terms of where we’re going in policy for the next two years.
The policy differences between the Democrats and Republicans are just enormous.
The markets would be delighted to see no significant tax increases, for example. If [Mitch] McConnell [Senate Majority Leader] and the Republicans control the Senate for another two years, there will be only minimal tax increases — and that would be a very positive story for the markets.
What if the Democrats win both runoffs?
We’d have a 50/50 tie in the Senate, but there are two very moderate Democrats who may not go along with tax hikes.
What are your thoughts about President Trump’s moves to delay the presidential transition?
It’s a naked attempt to appeal to his base, and it’s starting to become outrageous because the Biden administration needs to get up to speed on a wide range of issues.
If [intelligence] isn’t released [to him] by Dec. 14 — when the Electoral College meets to theoretically confirm the Biden election — the Biden camp would sue
The White House demanding to get those intelligence briefings and [other information]. I don’t think we’re there yet [filing suit], but a key date is Dec. 14.
What chance do you think Trump has to be elected in 2024?
He’ll never concede that [Biden won] the election. He’ll always say it was stolen from him, which of course is totally baseless.
But he’s telling his base there’s still a reason to vote for him and that he feels he’ll run in 2024. All he has to say is “fake news,” and his base will believe anything he says; they lap up his flat-out lies.
As improbable as another term for Trump sounds, you can’t rule it out.