The Finance 202: Biden is likely weeks away from filling out his economic team, despite fevered speculation

President-elect Joe Biden signaled Tuesday he wants to set some markers, naming “at least a couple” Cabinet nominees before Thanksgiving.

Those probably will be heads of top departments — Defense, Justice, State or Treasury — or possibly Health and Human Services, given the incoming administration’s interest in focusing on the pandemic. And until those slots are filled, Biden’s transition likely won’t proceed to announce lower-level appointees, including those re-tightening the screws on the financial industry after the deregulation of the Trump era.

First, Trump’s refusal to acknowledge Biden’s win — and the General Service Administration following suit by declining to authorize official resources for the transition — is blocking the president-elect’s team from some aspects of its mission. GSA’s move is preventing transition officials from getting government email addresses and office space at every federal agency. And it means the Office of Government Ethics can’t begin processing financial disclosure and conflict-of-interest forms for nominees.

The incoming administration  also has a puzzle to solve as it fills out an executive branch Biden has pledged will “look like America.” It needs to ensure senior appointees check boxes for diversity of gender and racial identity while also striking a balance between more progressive and moderate picks. Who gets which gigs at the top will inform how Biden fills out the rest of the administration.

And, lastly, history suggests the president-elect starts penciling in names at the top of his organizational chart and works his way down. The Obama team’s process in 2008 serves as a model — and also suggests Biden won’t name key appointees (think: the chair of the Securities and Exchange Commission) until at least December.

Then-President-elect Obama was under intense pressure to fill out his economic team first, considering he was taking office in the teeth of a full-blown financial crisis. Yet he didn’t name Tim Geithner as his pick for treasury secretary until Nov. 23, the equivalent this year of a week from this Sunday.

That same day, Obama tapped Larry Summers to lead the National Economic Council and Christina Romer for the Council of Economic Advisers. But it wasn’t until Dec. 18 that he announced Mary Schapiro as his pick to lead the SEC and Gary Gensler for the Commodity Futures Trading Commission.

The speed of the Geithner pick back then surprised some observers. But Cowen Washington Research Group’s Jaret Seiberg says in “the midst of a terrible financial crisis, Obama was trying to signal he was going to bring in a technocrat who knew what he was doing. And it worked: The market responded.” Now, he says it’s now an open question whether Biden will announce a more fully-formed economic team in the next month.

The Biden team offered reform advocates some reassurance Tuesday by releasing agency review teams that included a number of outspoken Wall Street critics.

“Many of these new advisers, who are expected to serve in their roles during the transition in November, December and January, are veterans of the Obama administration or have played vocal roles in the past pushing for much tougher oversight of Wall Street as well as stricter consumer protection rules,” Rachel Siegel and Yeganeh Torbati report.

The list includes Michael Barr, a top Obama official during the forging of Dodd-Frank Act, and Leandra English, a top official at the Consumer Financial Protection Bureau who Trump ousted.

But the “sheer volume of names makes it difficult to determine how much sway any particular person might have,” Rachel and Yeganeh write. “The list is broken into subgroups, with advisers looking at government operations at the Federal Reserve, the Consumer Financial Protection Bureau, the Treasury Department, the Commerce Department and the Council of Economic Advisers, as well as a host of other government agencies.”

Gensler — a Goldman Sachs alum who surprised Wall Street critics during the Obama era by proving a dogged advocate of stricter rules for the industry — is back to lead the team reviewing financial regulatory agencies. Observers expect Gensler could get a top job on the White House economic team.

In contrast to Gensler, KeyBank executive Don Graves is leading the review process for Treasury, for example. And regulation advocates anticipate someone friendlier to markets will get the nod for secretary.

The short list for that job has centered on Federal Reserve governor Lael Brainard, a figure broadly acceptable across the Democratic ideological spectrum, and TIAA CEO Roger Ferguson. It also includes Ariel Investments co-CEO Mellody Hobson; Atlanta Fed president Raphael Bostic; former Fed chair Janet Yellen; and former Fed governor and deputy Treasury secretary Sarah Bloom Raskin.

But liberals expect candidates more squarely from their ranks to end up at other rule-making agencies, including the CFPB and the Office of the Comptroller of Currency, which among other things has a key role to play in housing finance regulation.

Tempering hopes for a more activist administration is the fact that Republicans will continue to control the Senate unless Democrats can sweep a pair of special elections in Georgia on Jan. 5. “You campaign in poetry and govern in votes,” former Biden advisor Scott Mulhauser says. “The administration wants to do big things, but it could be facing a red wall of Republican obstruction” that will make it difficult to get liberal nominees approved.

The biggest winners so far this year are being cast aside: “The 30-stock average jumped 262.95 points, or 0.9 percent, to close at 29,420.92. However, the S&P 500 and Nasdaq Composite struggled amid a sharp decline in major tech names. The S&P 500 closed 0.1 percent lower at 3,545.53 and the Nasdaq slid 1.4 percent to 11,553.86,” CNBC’s Fred Imbert and Yun Li report.

• Biggest losers: “Amazon shares fell 3.5 percent after falling 5 percent on Monday. Zoom Video dropped 9 percent, adding to its 17 percent decline from Monday. Alphabet and Microsoft lost 1.4 percent and 3.4 percent, respectively.” (Amazon CEO Jeff Bezos also owns The Washington Post)
• Some of the biggest gainers: “Chevron and Exxon Mobil climbed 4.6 percent and 2.2 percent, respectively. Boeing closed 5.2 percent higher.”

Some traders say the market is nearing overbought territory: “On the bullish side, the technical guys are all enthusiastic. Even before Monday’s promising vaccine news, Lowry Research, the oldest technical analysis service in the United States, opined that because of last week’s breakout, ‘the latest buying opportunity of the advance from the late March bottom is now present,’” CNBC’s Bob Pisani reports.

“However, the extent of the rally in cyclical/value sectors is being hotly debated. Banks are up 15 percent, energy is up 15 percent and industrials are up 12 percent in the last six trading sessions. Many are now trading at valuations that have not been seen in years. Part of the problem — and the source of the disagreement — is that ‘value/cyclical’ is a diverse group. Citigroup’s Tobias Levkovich notes that there are three ‘buckets’ of value stocks: financials, industrials and the ‘covid-impaired groups’ like travel and leisure.” 

The low hanging fruit for the recovery is gone: “While the economic recovery tops Biden’s agenda, the torrid job gains of the past few months will inevitably slow, as they already have. There’s little chance the loss in momentum will be the fault of the new president. Deeper economic trends are afoot,” Andrew Van Dam reports this morning.

“Job growth has decelerated every month since June, and there are some signs from the hard-hit travel and restaurant industries that the fast-spreading novel coronavirus could put economic growth into reverse.”

• Behind the rapid employment gains: “In April, as the U.S. shutdown deepened, 18.1 million laid-off workers said they expected to be called back to their employers, Labor Department data shows. As of October, there were only about 3.2 million of them left — the rest were either rehired or, in some cases, laid off permanently.”

Biden still could do better than Trump though: “It won’t happen at anything like the average pace of a million-plus jobs a month we’ve seen so far during the early months of the recovery, but if all that slack in the economy permits faster-than-usual job growth, it’s likely Biden will top both President Bill Clinton’s terms (11.6 million and 11.3 million) and Obama’s second term (10.4 million), which have set the gold standard for recent decades.”

There’s new evidence the jobs recovery is stalling. “U.S. job openings increased less than expected in September while hiring fell, suggesting the labor market recovery was petering out even before a resurgence in new COVID-19 cases which is expected to slow momentum,” Lucia Mutikani reports. 

“Though the Labor Department’s monthly Job Openings and Labor Turnover Survey, or JOLTS report on Tuesday showed layoffs decreasing to their lowest level in nearly 20 years, there was more than one person competing for a single vacancy. The drop is at odds with significantly high weekly unemployment claims.”

From RSM chief economist Joseph Brusuelas:

• White House tells federal agencies to proceed with Trump budget plans: “The decision to proceed with Trump’s budget for the 2022 fiscal year has rankled and surprised several career staffers given Biden’s victory, as well as the fact that the incoming Biden administration is expected to submit its budget plan to Congress early next year,” Jeff Stein, Erica Werner and Josh Dawsey report.
• But Trump advisers are privately skeptical of his challenges to the election outcome. “Even some of the president’s most publicly pugilistic aides, including White House Chief of Staff Mark Meadows, Republican National Committee Chairwoman Ronna McDaniel and informal adviser Corey Lewandowski, have said privately that they are concerned about the lawsuits’ chances for success unless more evidence surfaces,” Amy Gardner, Tom Hamburger, Jon Swaine and Josh Dawsey report. 
• Biden may face pressure to reshape the Fed: “Among the considerations the incoming Democratic president will have to weigh are likely calls from progressives for more extensive change at the Fed, given that the party’s platform included reforms to make the Fed more attentive to issues like racial wealth inequality, and whether Chair Jay Powell is the right figure to pursue that,” Reuters’s Howard Schneider reports.
• A political battle is already looming there over extending emergency relief programs. “Divisions over their future are being amplified by partisan gridlock in Congress over whether to provide more economic stimulus,” WSJ’s Nick Timiraos reports. “Democrats, looking ahead to President-elect Joe Biden’s inauguration in January, see the programs as a potential tool to deliver more aid if Congress doesn’t act, while some Republicans are worried about relying on central bank lending powers as a substitute for congressional spending decisions.”
• Energy policy will face a potential backlash: “Biden has proposed a $2 trillion overhaul for energy and transportation infrastructure as a way to address both climate change and the pandemic’s economic downturn. That would need support from Congress, and lobbyists and analysts expect Republicans will block many of his requests if they maintain Senate control,” the WSJ’s Timothy Puko reports.

Executives and Wall Street firms could find themselves in the crosshairs. “Fines and prosecutions of white-collar crimes fell during the Donald Trump administration, but lawyers are anticipating a ramp up that would return the government to its past practice of scrutinizing corporate wrongdoing. Robert Anello, a defense lawyer in New York, said his white-collar practice like many others in Manhattan, ground to a halt during the Trump administration,” Bloomberg’s Patricia Hurtado and Christopher Yasiejko report. 

“High on the agenda for federal prosecutors are likely to be tax cheats and foreign-bribery cases, Anello and other lawyers said. In addition, there will be lots of potential charges to come out of the rush of government funding disbursed to offset effects of the pandemic, including the Paycheck Protection Program, which grew to $525 billion and used thousands of banks, lawyers said.”

• At least 10,221,000 cases have been reported; at least 239,000 have died. 

From the COVID Tracking Project, hospitalizations just set a new record:

• The U.S. is in a terrible spot: “In multiple states, hospital leaders warned that the current spike is straining resources and sidelining the very staffers needed to face growing numbers of sick people. From Maryland to Iowa, local officials have pleaded for tighter restrictions that might help slow the virus’s accelerating spread,” Brady Dennis, Jacqueline Dupree and Marisa Iati report.
• Norwegian Cruise Line CEO says bookings have picked up: “Frank Del Rio told analysts on the company’s third-quarter earnings call that the vaccine news drove higher-than-usual bookings on Monday. Norwegian’s shares were trading down by more than 5 percent on Tuesday after reporting mixed earnings results and continued uncertainty about when sailing might resume,” CNBC’s Will Feuer reports. On Monday, shares surged by almost 30 percent.
• Theater chains hold out hope: “Shares of the three largest U.S. chains rocketed to life Monday following the big news of a breakthrough on a covid-19 vaccine. Cinemark Holdings and U.K.-listed Cineworld Group each jumped more than 40 percent, while AMC Entertainment surged 51 percent by the closing bell,” the WSJ’s Dan Gallagher reports. AMC gave back some of its gains on Tuesday.

Russell Horwitz has seen the investment bank through a number of crises: “A key adviser to the investment bank’s top leaders, Horwitz was once described by former CEO Lloyd Blankfein as the most important person at the firm whose role nobody knows,” Bloomberg News’s Sridhar Natarajan reports.

“The 49-year-old is making his way to the exit after 16 years helping grapple with crises big and small — from recriminations after the 2008 meltdown to the multibillion-dollar scandal at Malaysia’s 1MDB investment fund.”

Boeing loses more 737 Max orders: “The company lost another 12 orders for its grounded 737 Max jetliner in October, and delivered 13 aircraft to customers, down from the 20 jets delivered in the same month a year ago, company data showed,” Reuters’s Eric M. Johnson reports.

“For the second straight month, the closely watched monthly snapshot revealed 787 Dreamliner quality flaws and the pandemic kept hampering Boeing’s efforts to develop an alternative cash cow to the 737 Max.”  

• The Labor Department reports the latest weekly jobless claims
• Quarles and Brooks are set to testify before the House Financial Services Committee
• Disney, Cisco Systems and Palantir Technologies are among the notable companies expected to report their earnings