Having won the Presidency at the oldest age ever, Joe Biden comes into the office facing a slew of challenges that would drive younger men to tears. From a failed insurrection to impeachment of his predecessor to GOP obstruction there are no shortage of political problems for Mr. Biden to tackle, but his greatest task is to revive the US economy ravaged by the coronavirus pandemic.
To that end he will be judged by only two things – how fast and effectively he can muster a national vaccination campaign that would create herd immunity and allow the resumption of economic activity and how much stimulus he can pass in the meantime to keep consumer demand afloat. On both fronts the jury is still out but it is clear that vaccination efforts will increase if for no other reason that the supply will come from other producers besides Pfizer and Moderna. As to stimulus it will be a matter of how much not a matter of if, so some demand will certainly trickle through the economy.
Assuming President Biden can establish some sort of return to normalcy the focus will then shift to the broader themes of his Administration which we call the Biden Basket as we try to analyze the businesses that will benefit from the change in the direction of public policy.
Indices
When it comes to economics President Biden ran on the platform of helping the average American. He branded himself as President Main Street rather than President Wall Street and that focus should help smaller cap stocks which have suffered underperformance for the past four years. Assuming the US economy returns to some semblance of normal by H2 of 2021 the Russell 2000 #IVW ETF should respond positively to pick in demand and will attract investor flows with a more optimistic outlook.
Stocks
Although President Biden is so old that he doesn’t even qualify as a boomer his Administration may turn out to be the most progressive ever. Just as he pushed President Obama to support legalzation of gay marraige he will likely be the first President to fully legalize mraijuana on the Federal level.
Weed was one issue that united all Americans in the 2020 election as referendums to legalize the substance passed in both blue and red states. That should be good news for the nascent cannabis industry and the best way to play that would be through #YOLO ETF which holds a broad basket of stocks and eliminates any single company’s idiosyncratic risk.
President Biden will also focus on American Industry and infrastructure which is in a sore state of disrepair and threatens to push the US into a developing state status as speed and logistics become critical competitive factors in the global economy. This bodes well for #CAT is already seeing a turnaround in its machinery business and intends to increase its dividend.
Finally in keeping with our focus on revival of US Manufacturing the #PSCI ETF which focuses on many midcap manufacturers and has outperformed its benchmark by 500 basis points this year stands as a great candidate for the Biden bet.
Forex
The great increase in deficit finance along with yield curve suppression by the Fed is expected to keep the dollar on the backfoot for most of Joe Biden’s term. However, there is a limit to dollar weakness given the poor prospects for growth in the rest of G-7, so perhaps the best anti-dollar trade is right next door. We expect the Canadian economy to recover well from the COVID slowdown with minimal long term damage as the country’s broad social net will mitigate the worst of the economic fallout. In contrast to the Fed, however, the Bank of Canada will not be nearly as accommodative in its monetary policy. BOC officials have already hinted that they would like to normalize policy sooner rather than later, providing some of the most hawkish rhetoric in the G-7 universe. If policy eventually follows commentary then the Loonie should continue to appreciate as interest rate differentials widen. A global recovery that will ramp up demand for commodities should help fuel Canadian growth and a relatively tighter monetary stance should eventually push #USDCAD towards the 1.2000 big figure during the Biden term.
Commodities
We’ve gone this far without mentioning one of President Biden’s signature issues – climate change and a greener economic future. There are many ways to play this theme but perhaps none better than lithium. Lithium is the foundational element in electric car batteries which up to now have been a niche product dominated by Tesla. But as President Biden takes the reigns policy, focus on reducing hydrocarbons will make the electrification of the automobile a key governing goal. All the major automobile manufacturers are already on board with the shift with both Ford and GM rolling out a slew of models including pick up trucks which are especially well suited for an electric engine. This means the EV car production could increase from hundreds of thousands per year to millions perhaps even tens of millions of units by the end of this decade. All of the new electric vehicles will need lithium as a key input which makes the Lithium ETF #LIT an especially attractive long term bet on a much greener future.
