Sleepy Joe? Wrong! Whatever disparaging moniker Donald Trump decided to attach to Joe Biden, ‘Sleepy’ is proving wide of the mark. His quiet, slow, somniferous presentation style might be the new antidote to insomnia but make no mistake about the message and his administration’s dynamism. President Biden is a man on a mission. As he passes 100 days in office, his domestic agenda is in full swing. Already passed into law is his $1.9 trillion Covid-recovery package, embedded within which was Treasury Secretary Janet Yellen’s $325bn direct injection to the money supply by way of every adult receiving a $1400 stimulus cheque, dropping on household doormats like leaves falling from the magic money tree. Earlier this month, it was the announcement of $2.3 trillion expenditure on rebuilding crumbling US infrastructure: roads, rail, bridges, hospitals, fibre-optics and the green economy. This week was the core of his social reform agenda, the great levelling up of US society, and the announcement of another $1.8 trillion on raising and strengthening the US national benefits, education and healthcare safety-net, accompanied by the substantial unwinding of Trump’s tax reforms: if the less fortunate are the beneficiaries, the well-off and big business are helping foot the bill.
A running total of $6 trillion of federal expenditure (on top of the $3 trillion pumped in last year by Trump), all of which is to be deployed within eight years. And why eight years? Because notwithstanding that he is already 78, that is Biden’s statement of intent that he is no stopgap, lame-duck president, he will see this through in his maximum two-term stretch in office; it is his political and social legacy after half a century in Congress. It has been interesting watching the commentary in the media as the pundits react with fascination, surprise and awe, many having to eat their words. The numbers are indeed awesome: fiscal plans priced in billions are child’s play; grown-ups deal in trillions and here are trillions in multiples. But a surprise? To anyone paying attention to the shifting sands of Democrat ideology over the past couple of years and the rise of the Left, there should be no surprise that this is the most radical US administration since Roosevelt’s New Deal in the 1930s. Everything Biden is pursuing was laid out in his manifesto, his “39 Bold Ideas”.
The pace of execution should certainly not be a surprise. Shooting at an open goal, the Democrats underperformed at the November election. Until the final counts were in for the controversial Senate race in Georgia in January, talk was of the equivalent of a hung parliament; gaining the Senate at the last minute, even with only the benefit of Vice President Harris’s casting vote to carry Democrat policy to the statute books, presented Biden with the sudden ‘clean sweep’ of the White House and Congress that for two months looked like stalemate. But the US electoral cycle pedals on inexorably. The mid-terms are next November, only 18 months away, the administration needs to crack on while it has numbers on its side. Cast your mind back to Trump’s administration: virtually every major successful policy enacted in his single term was in the first two years before the Democrats won back the House of Representatives at the mid-terms (the second half might have been lively for many reasons but little to do with substantive policy initiatives).
But even with the current balance of power in the two Houses favouring the Democrats, and a reasonable number of Republicans having shifted ground on their attitudes towards climate change, Biden’s policies are no shoo-in. Politically most are still anathema to Republicans, whether from the perspective of soaking the rich and business with taxes or the whole concept of the “Big State” taking over at the expense of the individual (America faces its first real prospect of European-style socialism; historically, America has not ‘done’ socialism), but a small but increasing number of moderate Democrats are uneasy about the sums involved. The word “ruinous” is sometimes whispered in Washington’s dark corners and the corridors of power, not helped by the frequent declarations by the likes of Biden and Yellen in the context of fiscal policy to “GO BIG!” giving the impression of unlimited dollars on tap. The situation is compounded by the inferred complicity (rather than explicit neutrality) of Jerome Powell at the Federal Reserve that the rapidly rising level of US borrowing to fund such projects bothers him not one jot; he is on record as saying he does not “lose a minute of sleep worrying about it”.
As to the potential inflationary pressure, Biden has expressly and unapologetically linked his policies to the biggest state-sponsored job creation scheme since the War. The Fed has also broadened its mandate beyond simple inflation management to include employment as both a target and a trigger. US unemployment is currently 6% and falling, it is still nearly double its pre-pandemic low but a fraction of the pandemic peak of 15% last summer. It is suggested that the Fed no longer accepts the received economic wisdom that a 4% jobless rate represents ‘full’ employment (the remainder not seeking work, being incapable of work, or unemployable): the hawks are shooting for as near 100% employment and 0% unemployment as is possible. The ramifications are obvious: were Biden’s schemes to produce above-trend growth beyond the recovery phase and the employment buffer is soaked up to create a shortage of labour, wages will inevitably rise. Much has to happen between now and that becoming reality but the possibility is there.
Will Biden succeed? His ambition is not in doubt. If the Democrats hold a solid line in Congress, he may be successful. If there are gaps in the line, particularly in the evenly balanced Senate, he has work to do. Then, time is his biggest enemy, particularly if it involves long and laborious negotiations to bring sufficient cross-party support in Congressional voting lobbies, and no doubt there will be difficult compromises along the way. Converting the $1.9 trillion Covid recovery package was arguably relatively easy: all Democrats were behind it and they were dealing with an immediate national threat. Despite it now being difficult to find a western government of any political persuasion which is not actively pursuing a Keynesian economic agenda of significant state expenditure and intervention, and that most of the world has signed the Paris Climate Accord, nevertheless Biden’s infrastructure, social and green programmes are much more politically charged than dealing with the virus; sensitive because the consequences are tending to the revolutionary rather than evolutionary in terms of economic, financial, social and cultural mores. It remains to be seen whether, when push comes to shove, America is ready for it. Time will tell.
The EU: Project, Process, People
In that order, every time. This weekend sees the beginning of May. Member states’ spending plans are due for approval by July. That will be exactly 12 months since the “New Dawn of Cooperation” agreement was signed in July last year heralding the EU’s centralised €750bn loans-and-grants recovery package. Disbursement from the pool is conditional on those spending plans passing muster. It will have taken a whole year (fifteen months if you include the political jousting culminating in an almighty bust-up at the July 2020 summit) before a single euro cent will have been distributed by Brussels for the benefit of the EU electorate. Process is important (as Boris is finding his lack of it much to his discomfiture) but Brussels is unbending, the processes so convoluted that they sap all energy and urgency. The Project is supreme, process is the oxygen; the people are bottom of the heap. And then Brussels is baffled how populism comes about. QED.
The Jupiter Merlin Portfolios are long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each. With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions.
Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances.
Fund specific risks
The NURS Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. The Jupiter Merlin Conservative Portfolio can invest more than 35% of its value in securities issued or guaranteed by an EEA state. The Jupiter Merlin Income, Jupiter Merlin Balanced and Jupiter Merlin Conservative Portfolios’ expenses are charged to capital, which can reduce the potential for capital growth.
This document is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This document is for informational purposes only and is not investment advice. Past performance is no guide to the future. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Holding examples are not a recommendation to buy or sell. Quoted yields are not guaranteed and may change in the future. Issued by Jupiter Unit Trust Managers Limited (JUTM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ which is authorised and regulated by the Financial Conduct Authority. No part of this document may be reproduced in any manner without the prior permission of JUTM. 27476