Peter Schiff: The Best Election Outcome Is Gridlock
As we get closer to the 2020 election, analysts are starting to look at how various outcomes could affect the markets and the broader economy. Some of them are actually bullish on total Democratic Party control of the government.
In a recent podcast, Peter Schiff broke down what the analysts are saying and explains why he believes that the best possible outcome is gridlock.
Markest are beginning to handicap the presidential race. Oddly, they seem to be viewing a Biden win as a positive for the stock market. Peter said this doesn’t really make sense.
If Donald Trump being president was bullish for stocks because of what Trump was doing – if Biden was threatening to undo all that, and to increase taxes and have more regulation – you would think that Wall Street would think that’s a negative.”
In a recent interview, Peter said he thought at some point, traders would handicap the race, see Biden as the most likely winner, and sell off.
But instead, the traders, I guess, took another look at the race and then decided that, yes, a Trump win is good for the markets, but a Biden win is even better.”
There are basically four scenarios that could play out in November.
- Trump wins and the Senate stays in Republican hands
- Trump wins and the Senate swings to the Democrats
- Biden wins and the Senate stays in Republican hands
- Biden wins and the Senate swings to the Democrats.
Last week, an economist at Bank of America said the best scenario for the stock markets was a Democratic Party clean sweep. Peter said he’s seen this notion bandied about by other Wall Street pundits as well.
Why do they like this scenario?
After all, if we get that outcome, it is a certainty we will see corporate tax increases. If the tax cuts were good for the market, take hikes have to be bad. On top of that, we would likely see more regulatory red tape with Democrats in complete control. None of that bodes well for the economy. But the reason BoA likes this potential outcome the best is because it would likely mean the most fiscal stimulus.
What we want is no gridlock. We want the same party controlling Congress. And since there’s no way the Republicans are going to get the House, the only way to have clear sailing, no gridlock at all, to have the most amount of stimulus go through Congress and get signed by the president is if we have a Democrat sweep. And so even though the Democrats are going to raise taxes, this is still good for the stock market. Because this analyst realizes that the Fed and the stimulus trumps earnings. Earnings are secondary. The main game is stimulus. It’s the Federal Reserve that is playing the music that everybody on Wall Street is dancing to. And so, what this analyst is saying is we just need more of this music. The party is going to rage on if we get more stimulus.”
Peter said this proves that they know the entire stock market boom is artificial. And while he agrees that the Democrat sweep scenario might be good for the stock market, at least in the short-run, it’s the worst possible outcome for America. It’s certainly the worst outcome for the dollar.
The dollar is going to get killed. All that stimulus, all the deficits that are going to be the result of no gridlock – the traffic is going to flow meaning the red ink is going to flow. And so that is definitely the worst outcome for the dollar.”
The worst outcome according to the BoA economist is divided government. But Peter said for the economy, gridlock is the best thing we can hope for.
Anything that slows down what government wants to do is a positive. Because government wants to do harm. Government wants to damage the economy. So, to the extent that a divided government minimizes the damage, that’s a positive.”
Peter said he thinks a Biden win might play out the opposite of what we saw after Trump won in 2016, with a short stock market rally and then a sell-off as the markets digest what a Biden presidency really means and realize maybe hanging our hat on stimulus isn’t the best idea.
But again, the downside is always going to be mitigated by the Fed. But as the Fed mitigates the downside to the stock market, they intensify the downside to the dollar and to the overall US economy.”
In this podcast, Peter goes on to break down some of the economic numbers. He concludes that the economy has never been less great.