The Stimulus Reloaded (blue pill edition)
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Tomorrow, Joe Biden will be inaugurated as POTUS in DC, where unprecedented security measures have been taken in response to the Capitol riot and ensuing threats. In our special Inauguration Edition, we’re breaking down Biden's stimulus proposal — and what a Dem-controlled government could mean for markets and the economy.
If stimulus packages were superheroes... Enter: “The American Rescue Plan" — Biden's $1.9T proposal to save the US economy. It’s nearly as big as the first stimulus we got when Covid/lockdowns hit in March and the US lost 22M jobs. It's more than twice as big as the 2009 financial crisis recovery package, and the $900B stimulus that Congress passed last month. Some of what's included:
Part I... This is the first of two big spending initiatives Biden plans to seek during his early days as prez. These proposals align with Democrats’ “bottom-up” economic policy. A quick refresher:
Channeling Schoolhouse Rock... Biden’s proposals still have to be turned into bills and passed by Congress to actually happen. Democrats' slimmest possible majority in the Senate could mean compromises — most legislation needs 60 Senate votes to pass.
This could happen... but the package might be much smaller. Both Dems and Republicans believe more aid is needed: 10M+ Americans are still unemployed, and the US started losing jobs again in December. But some GOP lawmakers are uncomfortable with the $4T+ already spent in response to the pandemic. The national debt increased by almost $7.8T under President Trump, clocking in at $27.8T — larger than the size of the US economy. The Fed has been increasing the money supply to keep interest rates low so that America can keep borrowing $$$. But with interest rates ticking up again, some are concerned about inflation + higher taxes down the line.
The TLDR: Biden's "Build Back Better" plan is aggressively focused on clean energy and infrastructure. With a slim Congressional majority, Biden might not be able to push through all the spending. Buuuut: some initiatives might actually fly with Republicans, while others could be pushed through exec orders.
Green energy... Three words: "clean energy future." Biden has pledged $2T to clean energy innovation, partly through sustainable infrastructure and subsidies for green tech. Think: more EV charging stations, tax credits for buying electric, and incentives for wind and solar. Subsidies could encourage more delivery companies to buy e-trucks from companies like Workhorse, GM, and Rivian. On the wind and solar side, companies like NextEra Energy, Tesla, and First Solar could benefit from Biden's goal of a carbon-free power sector by 2035.
Infrastructure... could see some serious cash flowing in. Biden's plan pledges to "mobilize American manufacturing" to build a modern infrastructure — think: roads, bridges, buildings. Construction icons like Caterpillar and John Deere, and concrete-makers like Martin Marietta Materials and Vulcan Materials, could benefit from the building frenzy.
The TLDR: A Dem-controlled government doesn't mean everything will be a piece of blue cake — especially with a 50/50 Senate where VP-elect Harris holds the tiebreak. But it does mean legislation will be easier to pass than it is now (with a Dem-controlled House and a GOP-controlled Senate). Soo...
Big Tech... could see bigger regulation efforts. Think: legislation targeting consumer-data privacy, halting Big Tech takeovers, and potential breakups of tech "monopolies," like Facebook, Amazon, and Google. Also: reform to Section 230, which protects social media companies from being liable for users' posts. A year ago, Biden even called for 230 to be repealed. Losing 230 immunity would be brutal for Facebook and Twitter — they could get sued every time someone shared something harmful or false (aka: often).
Big Banks... could get hit by hands-on, progressive regulation. Gary Gensler, Biden's expected pick to lead the SEC, will likely move to reign in Wall Street. And incoming Senate Banking Chairman Sherrod Brown wants government-administered bank accounts — and tight financial regulation. Meanwhile: Biden wants to raise the corporate tax rate to 28% from 21% (Trump cut it from 35% to 21%). America's 10 largest banks could see their combined yearly profits slashed by $7B+. And investment banking sales could fall for bigshots like JPMorgan Chase, Morgan Stanley, and Citi if capital gains taxes are raised for rich clients. One bright spot: Biden's stimulus could help banks avoid loan losses by helping borrowers.
Authors of this Snacks own shares of: JPMorgan Chase and Tesla
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