It is exactly a year ago this week that the United States, to its national humiliation and in the full glare of the world’s morbidly fascinated media, suffered its “barbarians at the gate” moment: the lunatic fringe of the unofficial Donald Trump Supporters’ Club was storming Capitol Hill and running amok, egged on from a safe distance by Trump himself; civil cohesion was breaking down, democracy and the democratic process were being openly challenged. President-Elect Biden pledged a new era of peace and unity, a time of national healing. It was a beacon of pious hope in an otherwise bleak period.


Fast forward to today and not even in office for 12 months, already Biden’s administration is mired in political quicksand. A radical left-wing agenda of social and economic reform has largely bogged to the axles under the weight of its own maths; the exhortation from Biden and Treasury Secretary Janet Yellen to “Go Big!” on the Covid recovery plan, infrastructure spending and societal levelling-up has proved too much.


If Republican opposition was a given (despite the previous administration’s significant commitment to infrastructure investment and protecting the economy against the ravages of Covid dislocation), Biden failed in the Senate, notably in not being able to persuade West Virginia Democrat Senator Joe Manchin that the financial risk of adding significantly to already burgeoning US national debt was worth the candle. In a Senate whose membership is split exactly 50:50, the loss of a single home team vote was enough to derail this flagship programme, the cornerstone of Biden’s manifesto; it isn’t completely dead yet but it’s certainly on life support, fluttering in limbo, the priest standing by.


Abroad, as we have discussed in many of these musings, Biden’s foreign policy mistakes have been legion. The flight from Afghanistan was not only an unforced error but a disaster. His inability to grasp fundamental principles, his failure to rebuild alliances in the face of single-minded opponents in the shape of Russia, China, Iran and North Korea cumulatively cast him as weak and ineffective, not at all what a US President is supposed to be.


Sadly, “Sleepy Joe”, as he was dubbed by Trump, is proving a dud. Further, perceived as having been hung out to dry politically by Biden when handed the poisoned chalice of looking after US immigration policy and so far making a fist of it, his Vice President Kamala Harris is in no better position. And now, orchestrated by the hard left, the drums are beating in the Democrat camp to dump both President and VP ahead of the 2024 Presidential election. An in-house challenge to an incumbent first-term President is highly unusual in US politics (not even Trump suffered that indignity), though not unprecedented; the hapless President Carter faced a direct challenge to his leadership in 1980 following the badly botched mission to rescue US hostages captured from its embassy in Tehran and, although successfully fought off, he never recovered his authority and he lost the subsequent Presidential election to Ronald Reagan in a landslide.


Leadership coups are some way off, and it remains to be seen whether Biden decides voluntarily at the end of his first term that he’s had enough (he’ll be 82 at the beginning of his second term, 86 by the time he retires—it’s a punishing enough job for someone half his age), or whether there will be a concerted push to oust him in the event he opts to stand for a second term. Nevertheless, the fact of it being aired publicly so soon is unhelpful. But looming quickly in less than 10 months are the US mid-term elections in which all the seats in the House and a third of those in the Senate will be contested. As the money stands currently, Biden will almost certainly lose the Senate but there is growing concern among Democrats that their slender 9-seat majority (221 to the Republicans’ 212) is also at risk. For Biden, losing one or other House would be unfortunate; losing both would be carelessness, rendering him a lame duck President for the remainder of his administration, relying on Presidential Decree (restricted to policy areas of ‘national interest’ and able to be challenged in the Supreme Court), or for policy areas including the economy and tax requiring the approval of Congress, facing the uphill task of finding policies around which to build a consensus sufficient to pass muster with both parties (e.g. battling inflation) in an otherwise fiercely partisan environment. 

His performance matters to the rest of us too. Quite immediately! 

Usually this would be of peripheral interest to the wider world. However, against an increasingly febrile geopolitical backdrop, one in which the tectonic plates are perceptibly shifting, the perception of diminished US leadership, and lack of confidence in what there is, takes on an immediate relevance. The instant focal point is Ukraine but it could easily at some stage be Taiwan, or the Hindu Kush or the East China Sea.


In Europe, Moscow’s conditions for a full withdrawal from the Ukrainian border include a commitment that neither Ukraine nor Georgia will ever be allowed to become NATO members; further, that what it regards as “provocative” NATO “trigger troops” be withdrawn from the Baltic States (Estonia, Latvia and Lithuania, all three NATO members).


We have described before how EU members of the NATO alliance are increasingly seeking to disintermediate the defence hegemony of the US (the fact that the US not only funds 72% of all NATO’s costs and is the only nation able to field both numbers and across-the-board strategic assets and fighting capability is completely lost on the delusional M. Macron and Mrs von der Leyen).


As President Biden goes in to bat this weekend with President Putin in an effort to deter Russia’s potential invasion of Ukraine, Putin will be reading a panoply of mixed messages: Biden publicly under threat at home, openly criticised in the US press and on the internet as ineffective and useless (the FSB, Russia’s equivalent of MI6, can read Politico as easily as the rest of us), now not even with the full and unequivocal backing of his own party; the personal antipathy between Boris and Macron and the ability to drive a bus sideways between them not only in relation to Brexit but more recently the apparently careless way Biden and Johnson dealt with France when stitching up the new AUKUS defence pact with Australia and the strategic shift in emphasis towards the Indo Pacific region; and now, in a bid to flex Germany’s muscles and breaking away on a completely different tack, its new Chancellor Olaf Scholz, making overtures to Moscow to “reset” relations in a “qualified” way with Berlin. It is hard to not to argue that strong US leadership would have at least presented a more unified, coordinated front to Moscow. (Putin has his own problems too: he’s already had to help prop up his glove-puppet acolyte, Alexander Lukashenko, in Belarus when there was civil unrest there two years ago; now, Kazakhstan is suffering the same problem, that country an ex-member of the USSR and still very close politically to Moscow, being jammed between Russia and China, is one of Beijing’s targets to be a ‘beneficiary’ of the New Silk Road).


It is certainly unfair to lay all the blame on Biden. Ever since the fall of the Berlin Wall and the collapse of the Soviet Union as the global super-power to rival the United Sates with all the concentrated focus that threat had previously absorbed, western European defence has been de-prioritised by successive US administrations, not least as new active threats presented themselves in the Middle East and the War on Terror. In the last decade, however friendly the personal terms were between Obama and various EU heads, it was already clear that a schism was appearing. Obama was strategically preoccupied with the Asian and Pacific theatres while Europe was increasingly tired of its self-perception of being a US vassal and the EU was desperate to carve out a role as an identifiable global power bloc, not just economically but diplomatically. Trump’s bullish head-down-and-charge approach to his allies, particularly the delinquent ones, was brutally honest but utterly corrosive. Biden’s unfortunate and significant shortcomings simply add to the problem but it is not difficult to see how a long-burning fuse has now run dangerously short. Whether we go from flash to bang on his watch remains to be seen. 

Bond markets wake up to New Year with a jolt 

As we have said before, such subjects above are immediately relevant to investors when the bullets start flying, up to which point while certainly not being ignored, the way they manifest themselves tends to be through risk and term premia. But this week, bond markets have been undergoing another period of sharp excitement, largely prompted by the release of the detailed minutes of the US Federal Reserve (Fed) policy meeting from December 15th (this often happens with the Fed, far less so than the Bank of England and the European Central Bank, that the minutes cast the proceedings of the policy meeting in a different light than does the official statement released immediately the meeting has finished, or it could be that a month on, markets choose to interpret them differently). Whatever the reason, in less than a month the yield on the US 10Y government bond has risen from 1.37% to 1.74%, the UK 10Y government bond from 0.7% to 1.15% and the German 10Y government bond from -0.38% to -0.07%, collectively once more suggesting that central bank policy has further to go than the central banks themselves would like us to think (such volatility is not new—similar behaviours were seen last spring and in October). In nautical terms, as white water breaks over the inflationary reefs and shoals ahead, the banks’ helmsmen are muttering, “a little nudge on the tiller there but steady as she goes”, while the markets, grabbing the bullhorn, are yelling, “all hands! Stand by to gybe! Look lively now!”.


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. 

The value of active minds – independent thinking

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

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. 

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