The US After Trump And COVID

Step 1: Identify Macro Themes What Will The US Look Like After The 2020 US Elections And The Second Wave of COVID? Step 2: Fundamental Economic Framework Surge In Cases Not Just An Artifact of A Surge In Testing--Hospitalizations Are Rising As With The Last Time, Economies Will Suffer From Lockdown Unless There Is A Vaccine US Economy Could Be Headed For Another Lockdown Given The Surge In Cases On The Surface The Biden Agenda Looks Relatively Benign Even If The Dems Control The Senate Biden Polices Tax Policies Increase corporate tax rate to 28% from 21%Allow Trump bonus depreciation to phase downIncrease marginal tax rates to pre-Trump levels (39.6%) for incomes over $400,000 Phase out itemized deductions for incomes over $400,000Apply the 12.4% social security tax on income over $400,000Tax capital gains and dividends at the same rate for incomes over $1 millionAllow other Trump tax changes to expire in 2026 Regulatory and Spending Polices 3+ trillion stimulus package focused on helping state and local governments Green New Deal Restore limits for oil and gas operationsNo new federal oil and gas leasing100% of new car sales including trucks will be zero emissions Carbon pollution from power sector by 2035Net zero emission by 2050Rejoin Paris agreementReduce carbon footprint of building by 50% by 20352.5 trillion of climate focused infrastructure spending next two years Health Care Extend and improve Obama Care 2+ trillion of spending Tax Changes Pushes Revenue Back To Normal After Trump Rising Deficits Under Biden Could Put Pressure On The Dollar And Crowd Out Capital Growth At Its Heart, However, The Biden Plan Is A Massive Income Redistribution Plan From The 1% Biden Tax Policy Would Push Top Tax Rates To Historical Highs And Reduce National Savings Step 3: Identify Potential Repricing Catalysts Biden Plan Reduce Future US GDP From Higher Tax Rates And Climate Policy Any Outcome In Georgia Election Is A Likely A Positive Tailwind For the Economy GDP And Risk Assets The Election Tailwind Combined With An Effective Vaccine Could Unleash The US Economy In 2021 Near Term Expect More QE And Short-Term Rates Being Held Lower-For-Longer More QE And Rates Lower-For-Longer Could Mean Another USD Weakening Cycle The Rise of The Yen: Abenomics QE Could Be Over And That Could Mean Weaker USD Weakening USD Could Drive Up Commodity Prices And Push Up Commodity EM GDP Step 4: Identify Asymmetric Trades Trade 1: Buy US Cyclical Equites Or An Equally Weighted Equity Index Trade Thesis Tailwinds from 2020 election and an effective vaccine could return the US economy to it’s pre-COVID growth trajectory Accelerating economic growth would drive up US equities particularly in those sectors exposed to cyclical growth – Person-to-person contact related equities have the most beta to this scenario, e.g. airlines Risk is vaccine is delayed or the election outcome becomes uncertain Trade 2: Buy Home Builders, Housing Related And “For-Rent” Equities Trade Thesis Housing prices will continue to rise driving higher home asset values and rent rates from building and existing portfolios Prices and rental rates will continue to rise even in a stress economy reflecting the rising demographic driven demand and ten years of underbuilding Value of land banks of home builders will rise with higher housing prices, while “For Rent” companies underlying home assets will rise along with rental income Risk is economy does not recover Trade 3: Buy GSEs, Mortgage Insurers, And Mortgage Bankers/Selected REITs Trade Thesis Dodd-Frank reform unleashes another home ownership surge Reform could be driven by many factors – Support low income housing and minority access to homeownership – Response to the barriers for first time ownership of a sizable cohort of the US population – Reduce the pressure from rising housing prices on affordability from too little building Housing starts rise to historical levels as mortgage financing relaxes – Starts need to accelerate to offset the historical underbuilding • Think the 2003-6 housing boomRisk is nothing gets done to loosen lending standards Trade 4: Go Long A Basket of Commodity EM FX Vs USD Trade Thesis Short the USD vs an basket of commodity EM FX EM commodity country FX should appreciate vs the USD US QE will weaken the USD vs commodity EM FX – QE will drive capital flows to EM – Weaker USD will drive up commodity pries helping commodity EM Countries Commodity country EMs have the capacity for fiscal stimulus that should support their economies and reduce risk EM countries have used even stricter containment strategies vs the US to bend the COVID curve Risk is a general risk-off environment and a flight to the USD

November 25, 2020

State Of the Markets

The US After Trump And COVID

BY Alan Brazil

Report Contents

More by Alan Brazil

Part 3: The Building Of A Nationwide Renewable Electric Grid

Update On My Recommended Trades

Normalization Means A “New Normal” Of Higher Rates

Part 2: Three Observations From The Texas Blackout

Key Opportunities On The Path To Net-Zero GHG

The Biden Agenda Unleashed

The Year Of COVID: Retrospective of My 2020 Trades

Macro Commentary: Biden’s China Policy Will Be More Hawkish Than Trump’s

State Of the Markets

November 25, 2020

State Of the Markets

The US After Trump And COVID

BY Alan Brazil

Report Contents

Registration

More by Alan Brazil

Part 3: The Building Of A Nationwide Renewable Electric Grid

Update On My Recommended Trades

Normalization Means A “New Normal” Of Higher Rates

Part 2: Three Observations From The Texas Blackout

Key Opportunities On The Path To Net-Zero GHG

The Biden Agenda Unleashed

The Year Of COVID: Retrospective of My 2020 Trades

Macro Commentary: Biden’s China Policy Will Be More Hawkish Than Trump’s

State Of the Markets