Displaying items by tag: democrats
Markets and polls are favoring Joe Biden to win the presidency, and markets think there are increasing odds that a blue sweep could occur. So if Democrats take over, what does the regulatory environment look like in wealth management? According to legal and policy experts there are a number of key changes. One big high-level difference between Trump and Biden is that Trump has always favored a principals-based approach to regulation in an effort to lower the compliance burden on companies. Biden would adopt a more rules-based approach with stricter enforcement. Here are five key items that would likely change under a new administration: restarting the debate on Reg BI (i.e. trying to get rid of it or modify it), move towards a rules-based approach in many areas, revive the CFPB, create a public credit reporting agency within the CFPB, and replace SEC commissioner Jay Clayton.
FINSUM: All of this makes perfect sense with what Democrats are signaling. We have another key item to add to the list—killing the new DOL proposal and replacing it with a more robust fiduciary standard either through the SEC or DOL.
When you think of oil, you don’t normally think of an industry that would gain from a big win by Democrats in an election. But as it happens, oil could very well gain if Democrats sweep the presidency and congress. The reason why is slightly perverse, but that makes it no less relevant. The concept is that Democrats would be bring new regulation around fracking; specifically, regulations that limit new drilling but allow existing projects. What this would mean is a steady rise in prices as inventory becomes constrained as the recovery proceeds. For example, Morgan Stanley is forecasting almost a 100% gain in natural gas prices next year.
FINSUM: Oil and gas are a physical supply and demand market, and if regulations keep supply in the ground, then prices will rise.
Investors are increasingly betting on a blue wave. More interestingly, the market’s calculus for what that blue wave to could mean to stock prices and the economy is changing. For much of this election cycle, a sweep by the Democrats was seen as a negative for the economy versus the status quo. However, in recent weeks investors have been shifting the other way—seeing a blue wave as a win for the economy. The reason why has to do with infrastructure spending and bigger and longer-term stimulus packages. While the possibility for this has been hurting Treasury prices because of the likely increased debt load, it also means that both infrastructure stocks and small caps seem poised to gain as we approach the election and well after it.
FINSUM: Small caps have just recently started to outperform their large cap cousins, a sign of the shift in perspective. Infrastructure stocks seem a good bet because no matter who wins the election there will probably be some deal on that front.
There has been a big change of opinion for investors over the last two weeks or so. For almost all of this year, a Biden victory, and especially a blue sweep were seen as potential negatives for the economy vis-à-vis a Trump reelection. Any gains in the polls for Democrats was seen as a negative for the economic outlook, particularly because of the chance for higher taxes. However, the rising odds for a blue sweep have managed to assuage an even bigger fear for investors—a contested election that could drag on for months. Accordingly, gains in the polls for Democrats have seen rising markets. Goldman Sachs feels strongly enough to say this: “All else equal, a blue wave would likely prompt us to upgrade our [US economic growth] forecasts”.
FINSUM: We think there are two specific reasons perceptions have changed. Firstly, the decreased chances for a contested election (very arguable if that is actually true); and secondly, the odds for bigger stimulus and infrastructure packages, which would be positive for the economy.
The wealth management market is already in shock from Democrats’ tax proposal—think top tax rates of over 65% for high tax states. Remember that a large majority of states charge taxes on residents, including big ones like New York and California, where large numbers of America’s wealthy reside. Now, California, the largest and one of the most influential states in the union, has just put out a proposal for taxing wealth, not income. The plan comes from the state’s legislator. Here are the basics of the plan: “The state would apply a 0.4% rate to all net worth above $30 million for single or joint filers. The tax would apply on wealth above $15 million per spouse for married taxpayers who file separately. Net worth would include all assets and liabilities held globally by a taxpayer”, according to Barron’s.
FINSUM: Two eye-opening things here. Firstly, Democrats have a veto-proof supermajority in the state legislature, so passing this will be much easier than elsewhere. Secondly, how much will this influence other states? It was easy to see how left-leaning states influenced others as it regarded state-level fiduciary rules.