July 27, 2020

In my Friday note, we talked about the set up for a breakout in gold and the vulnerability of stocks, as we head into a very important week that will determine the path of the government-sponsored economic recovery. 

After plans were reported over the weekend that the White House and Republicans in Congress agreed on more handouts, gold broke to new record highs, and stocks were bid for the day, as we opened the trading week. 

Let’s talk about the Republican package.  First, as we’ve discussed, Congress is very unlikely to come to an agreement on a new stimulus package (not next week, not before the election).  With that, the Republican proposal is probably just an exercise.  But as we’ve also discussed, they must figure out a way to extend the federal unemployment subsidy (I’ve seen reports that it expired over the weekend… the bill, itself, says it expires on July 31). 

With the above in mind, Mnuchin said over the weekend that they may piecemeal (or “phase”) the next stimulus package.  I suspect what he’s really saying is “we need to get the unemployment benefit extended (in some form), and fast, and we can’t let the Democrats hold the economy hostage, by negotiating mail-in voting against it.” 

This is setting up to hit a crescendo by the end of the week.  And it may require Trump using Executive Order (if possible) on the unemployment subsidy.