David R. Kotok, November 3, 2024
(The following was first published on The Kotok Report website and via LISTSERV. For details, visit https://kotokreport.com/.)
“It is the duty of the President to propose and it is the privilege of the Congress to dispose.”
– Franklin D. Roosevelt (https://www.brainyquote.com/quotes/franklin_d_roosevelt_396937)
So, the president proposes and the Congress disposes. That is almost always the case. Not so with tariffs, because the Congress delegated that authority to the president years ago. (“Presidential Authority to Address Tariff Barriers in Trade Agreements,” https://crsreports.congress.gov/product/pdf/IF/IF11400). IMO, there is little likelihood that the Congress will take it back; and zero chance any president would give it up without a fight.
As this is written we don’t know what the new Congress will look like, nor do we know which party will have a majority in either chamber. What we do know is that this will become clearer soon. And any attempt now to make an investment-policy decision based on the outcome of this election is problematic at best and fraught with risky potential outcomes at worst.
We’ve written about various hedging strategies, which are complex. And we’ve discussed the betting markets and the options markets. So, what’s left?
Some folks must be raising their cash reserves. I get some emails telling me that is happening. In this regard, Torsten Slok published some interesting data on Sunday, October 27. He noted that there were 700,000 Treasury Direct accounts held by households when interest rates were near zero. He noted that there are now 4 million such accounts. He pointed out that one can add those accounts to the $6.5 trillion in money market balances. (“A Lot of Money on the Sidelines Coming Out,” https://www.apolloacademy.com/a-lot-of-money-on-the-sidelines-coming-out/)
Is this high cash balance and sixfold increase in Treasury Direct a response to the rise in interest rates, or is it due to households building cash serves as a safety net for election uncertainty? I guess we will find out soon enough.
History says that market agents loathe uncertainty. Good news or bad news can be analyzed and strategies can be determined, but uncertainty is without probability of outcome and therefore is impossible to discount. Guessing is different from employing probabilities.
That’s where we are right before this extraordinary election. Uncertainty reigns.
Wear a helmet. And stay safe. The newest version of American politics will reach its climax very soon. I’m going to watch the Senate and House outcomes very closely. President Harris or Trump will be proposing. But it will be the new Congress that will be disposing.
Note that the old Congress has a fierce “lame duck” session coming soon, and the agenda is jammed. And Biden remains the president during that lame duck session.
We are in for more of this wild election-cycle ride. Our new book website is now up, and readers are invited to take a look and offer a comment. The Fed And The Flu details can be found at http://www.thefedandtheflu.com.