Fiscal is the New Monetary

 Monetary policy was really the only game in town from 2000 to 2016.  Fiscal policy was tame, small, and lacked the eff-you factor that the Fed has had since 1987.  

The Fed could care less about precedent, about sticking to conservative views of monetary policy.  The lack of bubble fighting in the late 1990s and the turtle like pace of rate hikes under Greenspan in the mid 2000s.  The ridiculous and continuous amounts of QE under Bernanke.   The turtle like pace of QE purchase tapering under Yellen.  And the $75 billion per DAY of QE (that's a $1.6 trillion per month pace!) under Powell during the beginnings of QE infinity in 2020.  

The Trump tax cuts paid for by nothing in 2017, along with a big increase in the government budget was the beginning of the end of conservative fiscal policy.  Now the Republicans are spending almost as much as the Democrats but without the tax increases (rather, its tax cuts) to pay for it.  And now the fiscal response to Covid with $5 trillion in spending financed by the Fed's QE over 6 months is straight out of the Bazooka Ben playbook.  Moar.  

Yesterday's tweet bomb from Trump is not going to matter in the long run, because it does mean less fuel for the economy till at least January.  With Biden building up an even bigger lead in the polls after the first debate, it looks like the election is pretty much a wrap.  All that is left is to see how Trump reacts to being told he lost.  Will he rant about election fraud and try to persuade his governor buddies in the swing states to take the case to court and pay off some judges to get a favorable verdict?  Will he try to take it to the Supreme Court and hope that the conservative judges will rule in his favor?  That is about the extent of the uncertainty for now.  

One thing is for sure, he won't sign off on a stimulus package that the Democrats will want if he loses the election during his lame duck period.  That means there likely won't be a stimulus package passed for at least another 4 months.  And the virus hasn't gone away, so that could spell short term trouble for the markets. 

Election uncertainty is still there.  If there is no Dem sweep, with Biden winning and Republicans holding the Senate, that fiscal stimulus package that Biden wants to pass is going to have to get much smaller in order to pick up Republican votes in the Senate.  So that would be a negative for the market, which is jumping the gun here and thinking that the election is already over and that Democrats will dominate.  A lot of independent voters may hate Trump, but it doesn't mean they hate Republicans or like Democrats.  It is possible that Biden wins but Republicans hold their own in the Senate races to form gridlock on Washington, something the market absolutely doesn't want.  

We have a what me worry? gap up in the SPX after the big drop in closing hour yesterday.  I am half in right now on the short side in SPX.  Depending on the price action, I may add 1/4 more later this week and then the last 1/4 next week.  Market is quite complacent now so its going to take a bit more shaking before the bulls retreat.  No rush to add here, but do have plans on adding more under the right conditions.