Step 1: Identify Macro Themes
What Will The US Look Like After The 2020 US Elections And The Second Wave of COVID?
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Step 2: Fundamental Economic Framework
Surge In Cases Not Just An Artifact of A Surge In Testing–Hospitalizations Are Rising
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As With The Last Time, Economies Will Suffer From Lockdown Unless There Is A Vaccine
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US Economy Could Be Headed For Another Lockdown Given The Surge In Cases
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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 down
Increase marginal tax rates to pre-Trump levels (39.6%) for incomes over $400,000 Phase out itemized deductions for incomes over $400,000
Apply the 12.4% social security tax on income over $400,000
Tax capital gains and dividends at the same rate for incomes over $1 million
Allow 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 operations
No new federal oil and gas leasing
100% of new car sales including trucks will be zero emissions Carbon pollution from power sector by 2035
Net zero emission by 2050
Rejoin Paris agreement
Reduce carbon footprint of building by 50% by 2035
2.5 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
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At Its Heart, However, The Biden Plan Is A Massive Income Redistribution Plan From The 1%
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Biden Tax Policy Would Push Top Tax Rates To Historical Highs And Reduce National Savings
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Step 3: Identify Potential Repricing Catalysts
Biden Plan Reduce Future US GDP From Higher Tax Rates And Climate Policy
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Any Outcome In Georgia Election Is A Likely A Positive Tailwind For the Economy GDP And Risk Assets
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The Election Tailwind Combined With An Effective Vaccine Could Unleash The US Economy In 2021
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Near Term Expect More QE And Short-Term Rates Being Held Lower-For-Longer
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More QE And Rates Lower-For-Longer Could Mean Another USD Weakening Cycle
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The Rise of The Yen: Abenomics QE Could Be Over And That Could Mean Weaker USD
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Weakening USD Could Drive Up Commodity Prices And Push Up Commodity EM GDP
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Step 4: Identify Asymmetric Trades
Trade 1: Buy US Cyclical Equites Or An Equally Weighted Equity Index
Trade Thesis
– 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  |
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Trade 2: Buy Home Builders, Housing Related And “For-Rent” Equities
Trade Thesis
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Trade 3: Buy GSEs, Mortgage Insurers, And Mortgage Bankers/Selected REITs
Trade Thesis
– Starts need to accelerate to offset the historical underbuilding • Think the 2003-6 housing boom
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Trade 4: Go Long A Basket of Commodity EM FX Vs USD
Trade ThesisShort the USD vs an basket of commodity EM FX
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Biden Part 2 and New Trades