Libby Cantrill: Vice President Joe Biden had a fantastic night on Super Tuesday. He really needed a fantastic night. If he can continue with this type of momentum, he absolutely could be the nominee.
But a lot can change over the next month. If this momentum carries through to the contests in the middle of March, especially Florida and Georgia – Florida’s on March 17th, Georgia’s on March 24th – then he could be, you know, the frontrunner and the clear nominee by the end of March. However, if Bernie Sanders ends up reviving and doing better in those contests than is expected, we may actually get a brokered convention, a dynamic where we get to the convention in July and there is no clear nominee, if no one candidate has a simple majority of delegates, then it becomes to the sort of brokered convention context where all of the delegates then become released from the candidates that they were previously supporting and then they become kind of free agents.
This hasn’t happened since 1952 in our primary process. So, really unprecedented, but would likely be bad for democratic unity, bad for the Democratic party just in general and probably good for President Trump.
The composition of Congress will really matter. This is something that I really emphasize when we talk to our investment committee, because while understandably the focus is on the race for the White House, actually the composition of Congress may be just as important. Whomever is in the White House will need a cooperative Congress to advance their legislative agenda.
435 members in the House of Representatives are up for reelection in 2020 and a third of the 100 Senators are also up for reelection. Democrats now control the House; Republicans control the Senate.
If there’s a Democratic nominee like Joe Biden and if he were to win the White House, then probably the Senate flips to Democratic control and that would help him in terms of passing his legislative agenda. But, there’s also a scenario where a Democrat wins the White House and you still have a Republican Senate and then you basically get more gridlock.
So, from a markets and investor perspective, we’re just encouraging folks to pay attention to those congressional races, especially in the Senate. Three in particular, Colorado, Maine, and Arizona are going to be very important.
The subject of market volatility is very relevant right now and many people are wondering what can President Trump actually do to stimulate the economy? And the reality is without Congress not very much.
Congress is the entity that authorizes new spending. They would be the entity that would authorize tax cuts and that just doesn’t look very likely as of now.
Now, if we get into sort of a recessionary type scenario, which is not necessarily PIMCO’s base case, then never say never. But as of now, what I think we’ll continue to see is sort of, you know, $10 billion here, $10 billion there, but nothing really that fulsome in terms of stimulating the economy, which will probably frustrate President Trump, but it’s just the realities of balanced government.
As it relates to China and the phase one trade deal, obviously we now have a truce between the United States and China, but it’s predicated on China buying quite a lot of US agricultural and other goods.
Now, because of the weakness in their own economy, it looks very unlikely that they’re going to be able to honor those commitments. And then, it’s a question of whether President Trump thinks it’s in his own political interest to increase the China kind of hawkish rhetoric going into the election or not.
I think you could see a scenario if he’s running against Joe Biden and he really wants to carve out this issue in terms of being sort of a China hawk and holding China account, that you could once again hear that jawboning of President Trump against China and you could even see escalation again. So, that’s something, a risk that we’re certainly monitoring over the cyclical timeframe.
Recorded 4 March 2020
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