FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
November 10, 2020

IN THIS ISSUE:

1. Overview – The Election, Jobs, the Fed & More

2. The Election – Senate Hangs in the Balance

3. October Jobs Report Stronger Than Expected

4. Fed Leaves Rates Unchanged, Vows To Do More

Overview – The Election, Jobs, the Fed & More

Today I’ll share some thoughts on the election, but I’ll keep it brief. What is most important now is the fact the Senate is up for grabs. Unless something changes, the two Georgia Senate races are headed for a runoff on January 5^th. In Georgia, Senate candidates must receive at least 50% of the vote to win and none did.

The problem is, if the Democrats win those two Georgia runoffs, the Senate makeup would then be 50-50, in which case VP-elect Kamala Harris would break any ties, effectively giving control of the Senate to the Democrats. In that case, the Dems would have control of all three branches of government. Thus, what happens in Georgia is critical, as I will discuss below.

Following that discussion, we’ll look at last Friday’s stronger than expected jobs report for October. The number of new jobs created was much higher than forecasters expected, and the headline unemployment rate fell considerably more than anticipated.

Next, I’ll recap last Thursday’s Fed announcement that it will leave its short-term interest rate at zero bound indefinitely. While the decision was widely expected, Fed Chairman Jerome Powell had some interesting comments in his post-meeting press conference. Let’s jump in.

The Election – Senate Hangs in the Balance

As we all learned on Saturday, Joe Biden was declared the winner in the presidential election but not nearly by the margins the mainstream media had predicted. And it took several days of vote counting for Mr. Biden to reach the minimum of 270 Electoral College votes to secure the victory – assuming it stands. He delivered his victory speech on Saturday night.

Although President Trump is challenging the election result in several states, most of the attention will now be focused on the two Senate races in Georgia which are headed for a runoff in January. Georgia state law requires that a Senate candidate must receive at least 50% of the popular vote to win, and none of the candidates reached that mark when the voting ended. So, runoffs are scheduled for January 5.

One Georgia Senate race designated as a runoff will feature sitting GOP Senator Kelly Loeffler, who was appointed to her current Senate seat earlier this year, against the Democratic challenger, Raphael Warnock, an African American pastor from Atlanta. The two are vying in a Special Election to fill the rest of the term for a seat vacated by retired Republican Senator Johnny Isakson.

In the second race, Republican incumbent Senator David Perdue will face Democratic challenger Jon Ossoff, a documentary filmmaker. Perdue initially secured more than 50% of ballots in earlier counts, only to see that margin shrink below the required level as the counting continued.

Here’s why these two Senate races are absolutely critical for the nation. In the wake of last week’s elections, the balance in the Senate stands at 50 GOP – 48 DEM, assuming Republicans Thom Tillis of North Carolina and Dan Sullivan of Alaska are declared the winners in their states.

If both Kelly Loeffler and David Perdue win their races, the Republicans will hold a 52-48 majority in the Senate. If only one wins the runoff, and the other loses, then the Republicans will still hold a 51-49 majority.

However, if both Democrat challengers win, the Senate would be split at 50-50. In that case Vice President Kamala Harris would cast the tie-breaking vote – effectively giving control of the Senate to the Democrats – in addition to the House of Representatives and the White House.

And investors hear this: If the Senate falls to Democrat control, along with the House and the presidency, we could well see the END OF THE BULL MARKET in stocks and to a lesser extent in bonds. Higher taxes, especially on corporations, are bearish. Ditto for doubling the capital gains rate as Biden proposes. Let that sink in.

So, as you can see, the two Georgia Senate races are HUGE! The Republicans will be desperate to win at least one of these races, while Democrats will be desperate to win them both. That means enormous amounts of money are going to gush into both races. I predict these two Georgia Senate races will be by far the most expensive and most watched congressional races in recent history! These candidates will become household names between now and January 5.

The bottom line is if the Senate is split 50-50, thus giving control to the Democrats, President Biden will have the leverage he needs to implement the MOST LIBERAL elements of the left’s policy agenda: sharply higher taxes, increased regulation, a packed Supreme Court, the Green New Deal, etc., etc.

With literally EVERYTHING on the line in these two Georgia Senate races, we are about to see a political spectacle as never before. George Soros and other big Democrat donors may be willing to write blank checks to their Senate candidates. I just hope big GOP donors realize what they’re facing and will be ready to pony-up as well. We’ll see what happens.

It ain’t over til it’s over!

October Jobs Report Stronger Than Expected

Employment growth was better than expected in October and the unemployment rate fell sharply, even as the US faces the challenge of surging COVID-19 cases and the impact they could have on this fragile economic recovery.

Nonfarm payrolls increased by 638,000 in October and the unemployment rate fell to 6.9%, down from 7.9% in September. Economists surveyed by Dow Jones ahead of the report had forecast 530,000 new jobs and a jobless rate of 7.7%. So, the report was much stronger than expected and is yet another sign the economic recovery is strengthening.

The jobless rate decline was positive and it came with a Labor Force Participation Rate that rose 0.3 percentage points to 61.7%, a good sign. An alternative measure, which includes discouraged workers and those holding part-time jobs because they can’t find full-time work, also fell to 12.1% from 12.8% a month ago.

The Labor Department’s survey of households showed an even stronger level of job growth, with the total employment level rising by 2.24 million and the employment-to-population ratio increasing by 0.8 percentage points to 57.4%. The household survey also showed a decline of 1.52 million in the total unemployed level. That’s also encouraging.

Hospitality and professional and business services showed the biggest gains. The hospitality and leisure sector gained 271,000 new jobs, with restaurants and bars making up 192,000 of the total. The number of new jobs would have been even stronger had it not been for the loss of 147,000 Census workers who were let go as their work finished. Government job losses also subtracted from the total. All in all, though, the report was much stronger than expected.

Fed Leaves Rates Unchanged, But Vows To Do More

The Federal Reserve held short-term borrowing rates near zero in a decision last Thursday, which characterized the economy as growing but not near where it was before the coronavirus pandemic hit.

As markets widely expected, the Fed kept its benchmark interest rate anchored in a range between 0%-0.25%, where it has been since an emergency cut seven months ago in the early days of the coronavirus pandemic.

Fed Chairman Jerome Powell noted, however, in his post-meeting press conference, that he thinks the Fed still has plenty it can do to help the recovery. He responded to a question by saying: “Is [Fed] monetary policy out of power or out of ammunition? The answer to that is no, I don’t think that.”

Powell added: “I think that we’re strongly committed to using these powerful tools that we have to support the economy during this difficult time for as long as needed and no one should have any doubt about that.”

The Fed tweaked the language slightly in its policy statement following last week’s meeting, stating: “Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year.” That was slightly less optimistic than a similar description in its September policy statement – and almost certainly is a reflection of the latest jump in COVID-19 cases.

The main thing to keep in mind about the Fed is its decision in September that it would allow inflation to run above its 2% target. If you recall, the Fed decided since inflation has consistently run below 2% the last few years, it would tolerate inflation above its 2% target going forward. That announcement raised some eyebrows initially, but it remains to be seen if inflation gets to that level.

I don’t expect it anytime soon. However, that could change if the Dems take control of the Senate. In that case, spending will likely explode and all bets on inflation are off.

All the best,

Gary D. Halbert

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