Displaying items by tag: democrats
Last week Democrats published a wide-ranging agenda for the potential Biden presidency. One section of it—which received much publicity in our niche wealth management world—was about the party’s intent to get rid of the SEC’s new Reg BI. However, another part of that plan was much less covered, but no less important: the party also wants to bring back a true fiduciary rule, potentially very similar to the failed DOL rule 1.0. Interestingly, Barbara Roper, head of investor protection at the Consumer Federation of America, says that the approach the Democrats would likely take is not to create an entirely new rule, but edit and “reign in” conflicts in the existing rule.
FINSUM: So this is quite unsurprising, but very important. What was interesting to us is Roper’s comment about the way Democrats would likely go about this. In our view, modifying an existing rule would be much faster than crafting a new one, which means a new version might come into force a whole lot faster than expected.
Here is an eye-opener for you: odds are that 7 months from today the SEC’s Reg BI and the new fiduciary rule will be no more. The Democrats—who are currently leading in the polls—have published an action plan for a potential Biden presidency. Included in it was a clear plan to reverse the current version of Reg BI, all according to a section of the report entitled “Guaranteeing a Secure and Dignified Retirement”. On page 24 of the document, Democrats say “Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first. We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing”.
FINSUM: Because of how polls are trending, these kind of manifestos are becoming very relevant for advisors to consider.
There are just under 100 days left until the election and there is a lot on the line for markets. The economic approaches of the Trump administration and the potential incoming Democrats could not be more different, which means there are huge implications for stocks. Here is the good news—over the last 40 years, markets have historically risen leading up to the election, and volatility has usually decreased. Now the big possible twist is the COVID pandemic, a major factor that has not occurred during an election cycle. The most comparable election cycle seems to be 1968, when the US was going through similar levels of social unrest. The S&P 500 gained more than 3% in the run up to that election.
FINSUM: As we see it, the two big risks are COVID (and its economic consequences), and a leftward move by Biden. The Fed will certainly soften the blow of the former, while the latter remains.
Republicans are supposed to debut their new stimulus package today—after a long wait that neither side was happy about—but the details are still unclear. Some prominent party members hinted at details of the proposal on CNN yesterday. So far, it looks like enhanced unemployment benefits will be continued, but at a lower amount, an eviction moratorium would be extended, and direct $1,200 payments may continue for a subset of Americans. Republicans say they want to negotiate a stop-gap deal while a larger package is hashed out. House speaker Pelosi wants the full package negotiated now.
FINSUM: Given the length of time it may take to hash out a complete new deal, millions of Americans would probably be happy if a basic short-term package was agreed ASAP.
If Biden wins the presidency and Democrats take the House and Senate, tax hikes look inevitable. Biden is already publicly planning for them, and the way the polls are going, advisors would be wise to give the eventuality some thought. Even if Democrats don’t win the Senate, there may still be a tax overhaul. With that in mind, these are the stocks likely to be the hardest hit by a Democrat-led tax package. Based on Biden’s plan, it looks like a 10% rise in overall corporate taxes. Zion Research is leading the charge into the analysis, and here is an overview (quote from Barron’s): “Zion notes that 117 companies [in the] S&P 500 have over $100 million in net income that had cash tax rates less than 15%. Biden’s plan for a 15% minimum tax on book income would mean that group combined pays another $37 billion in taxes. According to Zion, nearly half of that would come from five companies: Berkshire Hathaway (ticker: BRK.B), Intel (INTC), AT&T (T), Duke Energy (DUK) and Amazon.com (AMZN). Biden called out Amazon specifically during his speech, when he said, ‘The days of Amazon paying nothing in federal income tax will be over’”.
FINSUM: This is quite astute analysis as these are stocks that are benefiting in a very significant way from the current tax regime. Amazon seems to have a big risk here that is not properly understood by the market.