20 Jan INAUGURATION DAY IS TODAY
Today is Inauguration Day. I think most will agree the vitriol is intense. Will the rhetoric subside? Will President Biden be able to enact his “restorationist agenda?” Will the Democratic Party splinter as some of the more progressive demands may not be met? Will mega sized tech be the focus of both party’s ire? Will the illusion that government can borrow without impunity be shattered? Are the Republicans as damaged as the media suggests?
No one knows the answers to the above questions. Perhaps the two most answerable questions are big technology will be under an intense microscope, not only domestically but also internationally. Perhaps the easiest issue that this sector will have to navigate is taxation. As noted several times, 72% of global production has enacted or is about to enact legislation that will increase taxes on these behemoths.
And then there is federal borrowing. Treasury Secretary nominee Yellen reiterated the incoming Administration’s view that there is a need for a huge stimulus, restating known talking points that interest rates are around historical lows and now is the time to increase debt levels. Yellen supports funding the deficit with 50-year bonds, a proposal I think is appropriate given today’s near record low levels.
The question at hand is will a market develop for such an offering? To date the response to such a proposal is tepid at best.
JP Morgan raised its projected 2021 yield for the 10-year Treasury to 2.0%, the result of the unending demand for monies amplified by greater than expected economic activity that rises inflationary pressure.
What was widely missed the Bank also suggested that if rates rose to this level, “the valuations of the largest growth companies will be challenged, perhaps ushering in a 25%-35% decline.
As noted to date, many believe the government can borrow without impunity. This belief is in direct contradiction to economic theory that is supported by history.
Some have opined the highwater mark of the Biden Administration will be Inauguration Day. I hope that those who share this view will be disappointed for if the country does well the odds of all doing well rises substantially.
Will the vitriol subside? I hope so for the first time in my 35 years in the financial industry I believe the anger and rancor is at a degree that can vastly impact tomorrow’s outcome.
Do the times define the leaders or do the leaders define the times? Many have debated this issue. President Biden, how do you answer this question and what actions will you take to support your answer.
Commenting on yesterday’s market activity, energy, technology and small caps rose on stimulus optimism. The 10-year was nominally lower in price. The dollar slipped and oil rose.
Last night the foreign markets were mixed. London was down 0.03%, Paris up 0.29% and Frankfurt up 0.53%. China was up 0.47%, Japan down 0.38% and Hang Seng up 1.08%.
The Dow should open flat, NASDAQ nominally higher on stronger than expected earnings for NTFLX. The 10-year is off 4/32 to yield 1.11%. The dollar is lower and oil us up another 2%, partially the result of a weaker dollar and the belief that the Biden Administration will enact proposed legislation to make it difficult or more expensive to lend to oil companies, perhaps forcing banks to create reserves to pay for climate damage.