A few weeks ago, at a congressional testimony, Jay Powell talked of  "upside risks" to the medium-term outlook — meaning the economy could grow faster and inflation could be hotter than expected.

In today’s post-FOMC press conference, he didn't go there.  Even with a large fiscal package coming down the pike (now said to include direct payments to people), he focused on deflationary pressures.  

In line with that dovish message today, Powell has told us many times, throughout the year, that he (the Fed) would want to see sustained inflation above their target, before they consider ending emergency policies.  That is meant to set expectations that the Fed will be providing maximum support for years.  

With that, we can be assured that at some point the Fed will be forced out of their position, and will be chasing inflation. 

And it seems pretty clear, that's what they want. After fighting against the risk of a deflationary spiral for the better part of the past 11 years, they want to see inflation.  Inflation, they can ultimately tame.  Deflation is far more dangerous (potentially untamable). 

For markets, we can see this policy reflected in asset prices.  Global assets have been/ and continue to be repriced against the currencies that the Fed (and other global central banks) are printing.  

With the exception of bonds, as you can see below, there has been virtually no asset left behind.     

Stocks are up big today as it looks like Congress will agree on a stimulus package that strips our state and local government aid (better known as bailouts for the fiscally irresponsible).

If that's a go, the number is said to be around $700 billion.   

That's a fraction of Pelosi's $3+ trillion dollar initial proposal.  For the democrats to agree on a much smaller and very targeted package (to aid small businesses and extend the federal unemployment subsidy) they must be confident they can get another package done early next year (to address the Green New Deal agenda), which would indicate they are confident that Biden will be inaugurated AND they will get the Georgia senate seats. 

Clearly, getting aid into the hands of people and small businesses removes a huge risk to the economic recovery.  What's the state of the recovery?  Despite the ramped up restrictions in certain states, Q4 is running a lot hotter than economists have expected.  

As you can see in the chart below, the Atlanta Fed is projecting 11.2% annualized growth in Q4, with just a couple of weeks left in the quarter. 

State electoral votes are being cast today. 

And the Pfizer vaccine is being distributed.

Yet stocks finish down on the day.  Pfizer, finishes down almost 5%. 

But for Pfizer shareholders, this must just be profit taking, right? 

Not exactly.  If you were a Pfizer shareholder in late January, before it was known that latest coronavirus would become a global pandemic, you have made exactly nothing on your investment by the close of business today, despite having held shares in the first company in the world to inject a vaccine into the arm of a patient. 

On that note, if you bought Gilead at the close on April 29, the day Fauci called Giliead’s new drug Remdesivir the new “standard of care” for treating covid, you  would be down 28% on your investment.  

So, despite winning the race, the shareholders of these giant drugmakers weren’t winners.  The real winners in the vaccine race were the tiny biotech companies that received 10-figure gifts from the federal government to pursue a vaccine. 

This is what happens to a stock when inject $1.6 billion dollars into an $18 million revenue company.  The market cap of NVAX has gone from $700 million to almost $8 billion …

Moderna did $60 million in revenue in 2019.  The government gave them a billion dollars.  The market cap has gone from $6 billion to $61 billion. 
 

The lesson:  When government money is being deployed in stimulus or emergency aid, the big winners are the small early-stage companies.  This was also clear in the Great Financial Crisis (ex. Tesla).  

The media has given little coverage of the election dispute.  And the market has been giving little respect to the associated risk to market stability.  

That said, we enter the weekend with eighteen states supporting a lawsuit brought by Texas, against four swing states, and it sits with the Supreme Court.

Let's take a look at it …

This would be a narrow focus for the Supreme Court.  It would be about interpreting the constitutionality of state officials changing voting procedures, without going through the legally established protocols (without ratification by the state legislature).

Here’s a good summary of that from the Texas/Trump filing…