This is America’s rare opportunity to undo the economic mistakes of decades, these strategists say.


What doesn’t kill you makes you stronger, it is said, though that’s cold comfort to anyone going through trauma, be it personal or collective, but recent analysis suggests America is about to heal, not just from the horrors. of the coronavirus. pandemic, but also from well-intentioned but ultimately destructive policies that have shaped the last decades of American life and given us the economy we live with now.

“What COVID did was reveal the imbalance in the growth pattern of previous decades,” said Steve Blitz, chief economist at TS Lombard in the United States. The Biden administration has a once-in-a-generation opportunity to undo those decisions and remake the economy, Blitz and others believe, with huge implications for financial markets and the social fabric. “Economic scars,” a term that has recently come back into vogue as COVID-19 tramples on the most vulnerable in the economy, is not new, Blitz noted in a January analysis. Most researchers date the steepest drop in labor’s share of capital to the late 1990s, when automation increased, union membership declined, and China began to compete on the world stage. “Downward mobility and increased ‘deaths from despair’ have been the result,” Blitz wrote. “Trump took advantage of this great concern to build his popularity … It is key for Biden to communicate that he also recognizes this problem of scars and orders his economic priorities accordingly.” Read: Does America Need To Be Great Again? The geopolitics team at BCA Research agrees. “Structural reform is coming to the United States in the wake of the wild 2020 election cycle,” they wrote in January. “Extreme levels of political polarization will decrease, although they will remain relatively high. This will pave the way for a more proactive fiscal policy that ensures economic recovery. The Biden administration has enough political capital to pass a big fiscal stimulus, an expansion of Obamacare and an increase in taxes, regulations and the minimum wage. ”

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Of course, in any country, much less one as divided as the United States, the big government agenda will not appeal to everyone. But the BCA team believes it can face less opposition than in the past. “Populist Republicans are increasingly willing to accept big spending to ease the burden on their voter base. Trump was spending a lot and Republicans passed big spending bills during his tenure, ”they wrote. “Of course, desperate times call for desperate measures: Republican fiscal aggressiveness will return now that the party is in opposition. But there is little doubt that Republican fiscal discipline has eroded. “However, Blitz believes that COVID relief is just the beginning.” Infrastructure “was a running joke from the Trump administration, but it could be the key to it. What Blitz calls “rebalancing” the economy in favor of the middle class. (Biden) “cannot be sold as a stimulus and the need for a green economy,” Blitz said in an interview. “But if you sell it as part of a A broader effort that started with some of Trump’s fiscal changes and trade policies to rebalance US consumption and capital spending could work. We need a rebalancing that is going to rehire that middle-income educated worker average and average wages “. If a 21st century New Deal, green or not, seems implausible, it is not without reason. COVID-19 is still in charge, even as vaccine distribution increases and some high-frequency indicators suggest that the economy may be more resilient than initially feared. But these analysts believe that Biden has the will and the political capital to take steps in that direction. As such, there are some market implications to be aware of, and perhaps even some ways to position yourself for this long game. First, Blitz hopes that the Biden administration will maintain a hard-line stance towards China and that companies will begin relocating jobs, to the extent possible. That may spell a boost for 3-D printing, semiconductors, and other 21st-century manufacturing games. He also hopes that Treasury Secretary Janet Yellen will let the dollar weaken and frown upon countries trying to keep their own currencies artificially deflated. And to finance the growing fiscal deficit, the Treasury will likely explore 50-year bond issuance more seriously. “Why not set interest expense at negative real rates and wait 50 years to roll over to current face values?” Blitz asked. Regarding sector stakes, BCA Research considered the “reflationary” nature of these policy changes: as the deficit grows and the yield curve steepens, cyclical and value stocks, in sectors such as energy and financials , Will benefit. Consumer discretionary stocks XLY, + 0.96% will get a boost from additional stimulus spending and a stronger safety net, they suggest. The BCA team also focused on a longer-term issue: Over time, this paradigm shift will erode corporate margins. “There will be an impact on earnings from the simultaneous increase in taxes, regulations and the doubling of the minimum wage to $ 15 per hour. Furthermore, investors must value more than Biden’s agenda. They need to price a broader shift in American policy to redistribute wealth from capital to labor. “Read next: Individual Investors Are Back – Here’s What It Means For The Stock Market In The Short Term, Investors You can see next week the corporate results of Twitter Inc., TWTR, + 0.48% Cisco Systems, CSCO, +1.76%, Coca-Cola Co. KO, + 1.31%, Walt Disney Co. DIS, + 0.52% and more The economic calendar presents the consumer price index and an advance reading on consumer confidence for February. On Friday, stocks closed at or near records, with the Dow Jones Industrial Average DJIA, + 0.30% rising 0.3% at 31,148.24, the S&P 500 SPX, + 0.39% gaining 0.4% to hit a new high of 3,886.83, and the Nasdaq COMP composite, + 0.57% at a new record of 13,856.3. The 10-year Treasury note TMUBMUSD10Y , 1,168% continued to gain as investors anti They were taking more inflation.