A Fiscal Stimulus Deal Is Imminent: Here’s What A Hedge Fund CIO Thinks Will Happen Next

Despite the unprecedented polarization in Congress, fiscal stimulus is slowly progressing with Politico reporting this morning that it is quite likely that a Covid relief bill will come together. “It will be small and targeted, including PPP, unemployment, restaurant assistance (deductions) and a bit more.”

Latest headlines confirmed as much, when Nancy Pelosi said she and Senate Republican leader Mitch McConnell hope to combine a coronavirus relief measure with an omnibus spending package. House Majority Leader Steny Hoyer said he plans to talk to McConnell today about a relief package, adding that “If $908 billion over four months is what we agree on then we ought to pass it.”

While more information on the fiscal stimulus is expected to emerge heading into this weekend, where policymakers on both sides will hold stimulus discussions, it is now almost certain that a hypothetical package will be tagged alongside the omnibus spending bill that will set to be voted on December 11.

Incidentally, the base case of several banks is for a roughly $1 trillion fiscal package, which would be the last major tranche of COVID-related fiscal stimulus, while consultancy ACG Analytics believes the final deal will be somewhere in the middle of the bid/ask, or around $750, and that could be it until 2022, as per Larry McDonald’s Bear Traps Report:

Senate Majority leader (Mitch) is at 600bln and Romney (GOP Centrist leader) is 908bln.  750bln might get done and that might be all the fiscal for Biden unless GA turns or 2022 brings a dem majority. The risk is if it’s too big now we might get nothing in Q1 in terms of a larger package. We think the GOP works with Biden until the 2022 midterms, after that the austerity camp takes over into the 2024 election, we defer to ACG in Washington on all Things Fiscal.

And speaking of the latest Bear Traps report, below we republish an interesting take from a “large hedge fund CIO” client of Larry McDonald’s:

“After talking to all the consultants in Washington, here’s my take.

The big political surprise coming is Biden works with the political center to achieve substantial centrist legislation in a variety of ways — to the frustration of the far left.

There will be no Green new deal, confiscatory tax law changes, defunded police, mass forgiveness of student loans or single payor health.  There will NOT be 2 new states, Supreme Court-packing, etc even if the senate goes 50-50.

There will be an infrastructure bill (with Green energy emphasized), changes to taxes on foreign corporate earnings, police reform and other attempts to reduce institutional racism, forbearance on hardship student debt, fixes to Obamacare. Etc.

People who think McConnell can bring the Senate to a halt and reject every proposal are nuts.  If he (McConnell) does that 2022 will be a bloodbath for Republicans (Senate 51-49 now, + the GOP is less than 7 seats away from taking the House, they will NOT risk this momentum).

There are several Republicans like Romney, Murkowski, Collins, Ernst, Purdue, and Tillis that can realize they have a ton of power to support a centrist agenda.”