February came and went and brought with it many fiscal shifts. From stimulus plans making their moves through congress to executive orders on climate initiatives and bills being introduced. The market seems to be cooling off and consolidating after what seems like a never-ending bull run.
Printing Money: Stimulus & Climate
Stimulus
Biden’s ‘American Rescue Plan’ — the $1.9 trillion stimulus initiative — found its way through the house and is now en route for the senate floor with Shumer stating yesterday “we have the votes.”
There seems to be little regard for inflation or the accumulation of national debt these days. Best left for another day, another generation, another tax bill.
Paul Singer offered a curmudgeonly response to today’s unruly financial markets, the 76-year-old billionaire said in a letter to clients of his $42 billion Elliott Management Corp. that a “flamboyant line-up” of excesses will come back to haunt investors. To Singer, who has long warned of an ugly end to the Federal Reserve’s easy-money policies (quantitative easing), it’s all just a bit too much.
He added, “‘Trouble ahead’ is signaled by a rare combination of low-quality securities, staggering valuation metrics, overleveraged capital structures, a scarcity of honest profits, a desperate dearth of understanding evinced by the most active traders, and economic macro prospects that are not as thrilling as the mobs braying ‘Buy! Buy!’ seem to think.”
Despite this trend and a reasonably solid opinion from the critical billionaire investor we only have one option: navigate the chaos.
After the Trump administration printed $3.34 trillion in 2020 – increasing the money supply by 21.5% – we are posed to introduce $1.9 trillion in stimulus and an additional $2 trillion of deficit financed climate efforts. A total increase to the money supply of 46.7% in just over 12-months.
Climate
Biden’s $2 trillion Climate Plan looking to take flight. Despite the obvious concerns of inflation and job loss in oil and gas sectors it’s hard for any ‘jobs’ critics to question the tremendous amount of jobs this climate initiative will produce.
“When I think about climate change, the word I think of is ‘jobs,’” Biden said in a July campaign speech announcing his $2 trillion climate plan.
Last Wednesday, Biden signed a set of executive actions meant to begin making this plan a reality. In them, he directed his administration to take a “whole-of-government approach” to combat climate change, which includes — among other initiatives — ordering federal agencies to purchase electricity that is pollution-free, as well as, zero emission vehicles and directing the US Department of Interior to pause entering into new oil and natural gas leases on public lands or offshore.
These new orders come on top of Biden’s day one executive actions to rejoin the Paris climate agreement and directing his agencies to reverse a number of former President Trump’s actions slashing environmental regulations and emissions standards. Biden’s real stamp on climate will come from intertwining ambitious climate goals like getting to 100 percent clean electricity by 2035.
Bank of America economists led by Michelle Meyer said in a note to clients Friday, “The research is clear: Without efforts to slow climate change, GDP growth will fall.” Citing top economists, including Treasury Secretary Janet Yellen, who estimate unmitigated climate change could reduce global gross domestic product by up to 25% this century.
Relative to other regions (especially Europe) the U.S. has some work to do on climate change efforts and reaching Biden’s lofty goal of reaching 100% clean energy by 0235. But as the public and private sector catch up, the net positive impact on the economy will likely boost corporate profits. While long-term losers are likely to be within traditional commodities-driven sectors (oil and gas)… near term, we could see more upside than downside risk to Energy and traditional commodities based on the cyclical recovery that appears underway.
All and all, this $2 trillion deficit financed effort should result in a long-term net/net positive for the planet, jobs, and the economy as a whole.
Technical Perspective – Market Outlook
We would like to reiterate what we said in our February outlook. With price consolidating through time – meaning it staying in a relatively tight range over the past 30 days – we are hopeful that this will aid in cooling off the markets expansive growth so it can poise itself for further growth in the coming months. With the massive stimulus measures and money being injected into the market via climate initiatives we can speculate that systemic growth lies ahead. The question is when? After some explosive growth at the end of 2020 and an extension of one of the longest bull markets in recent history, it’s hard to imagine this train slowing down. But there’s nothing wrong with a little consolidation for the markets to cool off and consider all economic implications prior to any generous move – whether that be higher or lower.
With the S&P 500 currently hovering over the 3800 range we feel confident in our allocations as long as price remains over the 3600 range. Falling below this range would result in our allocations shifting for our Conscious Investing Strategy – decreasing our exposure and retaining higher levels of cash, cash equivalents, and other instruments that may, in fact, experience an inverse relationship to that of the broad market.
As always, we’d love to hear from you. If you have questions, reach out to us directly at info@allonewealth.com
Cheers,
Mark Sauer, CEO
