US and World Economy and Markets after confirmation of Democrat controlled congress

[TheMotorcycleBoy]

Hi folks,

So now it seems that the Democratic Party of the US, will have control of both the White House and Congress:

Raphael Warnock, a Baptist preacher from Martin Luther King Jr.’s former church, beat Republican incumbent Kelly Loeffler to become the first Black senator in the deep South state’s history while Democrat Jon Ossoff, a documentary filmaker who at 33 will be the Senate’s youngest member, beat Republican David Perdue.

The Georgia results are a last-minute repudiation of outgoing President Donald Trump, who stands to be the first U.S. president since 1932 to lose the White House and both chambers of Congress in a single term.

Democrats now have narrow control of both chambers of Congress, making it easier to appoint liberal-leaning judges and advance legislative priorities from coronavirus relief to climate change when Biden takes office on Jan. 20.

“Georgia’s voters delivered a resounding message yesterday: they want action on the crises we face and they want it right now,” Biden said in a statement. He said he would work with both parties to confirm key administration officials quickly.

https://uk.reuters.com/article/uk-usa-e ... KKBN29B17K

So I'm wondering what opinions people have on the effect this will have on both economies and the markets going forward. At a rough guess, we may see higher corporate taxes, but more stimulus both monetary and fiscal.

The dollar may continue to weaken as more are printed, US equities may shrug off corporate taxes hikes, if there are any, since bank rates will remain very low. Presumably trade war uncertainty will wither away.

What firms will benefit and which will suffer? I guess green energy will be boosted, fossil fuels restricted, tech and pharma will be largely ignored. But these are all guesses, what do others think?

thanks Matt

[tikunetih]

IMO it will cement a regime change from monetary policy dominance to fiscal policy dominance, with implications therefore for a secular change to be ushered in w.r.t longer dated bond yields (rates) and inflation expectations.

Changing (rising) expectations for longer term rates and inflation would impact the pricing/valuation of everything, in time.

[odysseus2000]

TheMotorCycleBoy
So I'm wondering what opinions people have on the effect this will have on both economies and the markets going forward. At a rough guess, we may see higher corporate taxes, but more stimulus both monetary and fiscal.

The dollar may continue to weaken as more are printed, US equities may shrug off corporate taxes hikes, if there are any, since bank rates will remain very low. Presumably trade war uncertainty will wither away.

What firms will benefit and which will suffer? I guess green energy will be boosted, fossil fuels restricted, tech and pharma will be largely ignored. But these are all guesses, what do others think?

thanks Matt

In general the US does well under democrats, assuming there are no more left field events such as the storming of the government and the Republicans accept Biden.

Yes, the fossil fuel industry is right in the cross hairs. They voted for Trump so the Prez can make their business untenable and likely will kill fracking.

Pharma was heavily targeted by Clinton, but he failed to follow through and so nothing happened. There are interesting cross currents regarding Amazon and Walmart and how they want to get into the Pharma business. This could be a dagger at the heart of high Pharma margins that gets plunged in.

Meanwhile if the mRNA vaccines work they open up a whole new range of very low cost medication that will also hurt big pharma.

Yes, likely longer and more generous tax breaks for renewables which will be good for Tesla.

Probably plenty of defence spending although down from what Trump spent and potential tension between the US and North Korea. China may now move more aggressively towards Taiwan. We are seeing Japan greatly increase defence spending, so that might lead to more defence spend than expected.

For the financial sector there is huge uncertainty over crypto. Now that the Fed are thinking of being more permissive with crypto and are devaluing the $ one might see bitcoin et al go mainstream. That could hurt all manner of banks, savings and loans etc and lead to troubles for Fiat currencies down the road.

If all the tariffs and such are rained in one can expect several large Chinese IPO on the US exchanges, more US business going to China and a reversal of the America first policy. Beijing is probably the capital that is most delighted to see the previous Prez gone and may try and take advantage that could lead to very serious geopolitical instability. Australia is fretful about what might happen and is trying to build a military alliance with the UK, Canda and New Zealand, sort of rebuilding bits of the UK empire, and potential bringing in India who are at loggerhead with China already.

There are lots of things that need to settle down before it become clear what is going on, but for now it looks like spend, spend, spend is still the order of the day with the corresponding borrow, borrow, borrow rather than tax tax tax.

The danger for investors after the circa 12 year bull market following 2008 is that something unexpected happens and investors flee the richly priced US equity market possibly going to Cryptos which potential can not be devalued as the $ has been.

The secular bull markets that currently look unstoppable are Renewables, Battery cars, Crypto, mRNA and associated medical tech, remote working, Space development (Space broadband, lunar settlement), Robotics, AI.

IMHO anyone who can get these right will, in the absence of serious left field events, make a fortune.

Secular bear markets: Fossil fuels, retail, Real estate (mainly corporate), banking, transportation and hospitality unless Covid is cleared

The left field events I currently see are: Republicans refuse to accept Biden, Pandemic gets far worse, AI becomes sentient and takes over, Contact with Aliens (Good, Bad, no change?), China moves on Taiwan, Iran and Israel start a hot war, but left field are generally unforeseen till they hit.

Gold is a great imponderable to me. I kinda of think crypto are the new gold, but many folk like gold so I am on the fence. I would not be surprised if there are breaches into the block chain and if so that could murder crypto and bring back gold. Just how secure the block chain is to a consorted AI attack is unclear to me.

Regards,

[TheMotorcycleBoy]

Pharma was heavily targeted by Clinton, but he failed to follow through and so nothing happened. There are interesting cross currents regarding Amazon and Walmart and how they want to get into the Pharma business. This could be a dagger at the heart of high Pharma margins that gets plunged in.

I get it. Big Pharma lose some market share, but Pharma itself grows?

I'm assuming that the entirety of the Healthcare industry (which presumably includes Pharma) could bet a boost given the views of the Dems on that.

Gold is a great imponderable to me. I kinda of think crypto are the new gold, but many folk like gold so I am on the fence.

Is this related or of interest?
https://uk.reuters.com/article/uk-metal ... KKBN29A1PZ

I would not be surprised if there are breaches into the block chain and if so that could murder crypto and bring back gold. Just how secure the block chain is to a consorted AI attack is unclear to me.

Furthermore, aren't bitcoins themselves becoming computationally more resource demanding to make?

Matt

[dspp]

In this context this is interesting reading,

"The Cycle of Internal Order and Disorder & Where We Are in It

How people are with each other is the primary driver of the outcomes they get. Within countries there are systems or “orders” for governing how people are supposed to behave with each other. These systems and the actual behaviors of people operating within them produce their consequences. In the next two chapters we will explore the timeless and universal cause/effect relationships that shape the internal orders that people have and the behaviors that drive the shifts between periods of order and periods of disorder.

We are now seeing growing disorder in a number of leading countries around the world, most importantly in the United States. I wanted to put that disorder into context so I did the research I am sharing in these chapters. Because how the US handles its disorder will have profound implications for Americans, others around the world, and most economies and markets, in these two chapters I am focusing more on the US than on other countries, though I will follow these chapters with examinations of other leading countries. "

https://www.linkedin.com/pulse/archetyp ... 80&irgwc=1

My personal fairly linear expectations are:

- There will be the normal transition-testing probes by RU, CN, NK, IR.
- US defence spending will increase, mildly.
- US will aim to dominate space, CN will seek to stop this.
- US transition to green economy will accelerate, very significantly.
- US interaction and collegiate relationships with allies will markedly improve within multilateral frameworks.
- Which will include semi-co-ordinated decoupling of Western economies from CN economy, but not all rushing for the exit at once.
- The UK will receive talk from the US, but not much more. The US doesn't need to give anything to the UK, and will still receive fawning attention from the Cons.
- Similar for Israel, as for UK.
- NAFTA will not evolve in this term.
- The US-EU relationship, and the US-JN/AU/IN/SK/TW relationships will be the key ones.
- KSA etc will be kept onside but coolly, expect oil prices to generally trade at $40-$60, just below the frac-level.
- Probably on course for 3-deg-C rise minimum (note, this should alarm us all).
- And this may be sufficient deterrent to keep things peaceful, trade rolling, presses printing, and a reasonable sensible economic outcome for all in the decade itself.
- All with the intent of positioning KH to be a two-term successor to JB.

- dspp

[odysseus2000]

Is this related or of interest?
https://uk.reuters.com/article/uk-metal ... KKBN29A1PZ

I would not be surprised if there are breaches into the block chain and if so that could murder crypto and bring back gold. Just how secure the block chain is to a consorted AI attack is unclear to me.

Furthermore, aren't bitcoins themselves becoming computationally more resource demanding to make?

Matt

Ever since I can remember there have been calls for bull markets in commodities and during China building itself there was, but China is now built to a level where the incremental increases are small. Moreover, plastics have replaced copper in plumbing, aluminium is replacing copper in wiring. I have trouble seeing where a commodity boom is coming from and moving into scope is the mining of asteroids which could provide huge new supplies. There look to be commercial deposits on the moon too.

Yes, Bitcoin is massively resource hungry, but in principle the number of bit coins is fixed, there are no plans to mine more and so it is thought of as a source of wealth storage very like gold used to be.

Regards,

[odysseus2000]

Another left field event I am seeing being mentioned is some failure of he Modern Monetary Theory argument that debt doesn't matter. The folk promoting this are not saying how debt will suddenly matter but are saying that historically any kind of free lunch has proved expensive in the long term. I am not sure how this might happen but if the printing press suddenly became untenable there would be unforeseeable consequences.

Regards,

[TheMotorcycleBoy]

The left field events I currently see are: Republicans refuse to accept Biden,....

Mind you, this is now moot, after the two wins in GA, and Kamala Harris providing the deciding vote for the Senate.

So whether, it's tax, tech, trade, pharma, cabinet selections etc. the Dems have it. At least for the next 2 years.

Matt

[MaraMan]

I don't think it will quite as easy for the Dems as you think. Senator Manchin of West Virginia is the most conservative member of the Democrat party in Washington. The senate is on a knife edge and he has stated that he will not support many Democrat core plans.

https://www.independent.co.uk/news/worl ... 83008.html

[richfool]

So I'm wondering what opinions people have on the effect this will have on both economies and the markets going forward. At a rough guess, we may see higher corporate taxes, but more stimulus both monetary and fiscal.

The dollar may continue to weaken as more are printed, US equities may shrug off corporate taxes hikes, if there are any, since bank rates will remain very low. Presumably trade war uncertainty will wither away.

What firms will benefit and which will suffer? I guess green energy will be boosted, fossil fuels restricted, tech and pharma will be largely ignored. But these are all guesses, what do others think?

Pharma was heavily targeted by Clinton, but he failed to follow through and so nothing happened. There are interesting cross currents regarding Amazon and Walmart and how they want to get into the Pharma business. This could be a dagger at the heart of high Pharma margins that gets plunged in.

Meanwhile if the mRNA vaccines work they open up a whole new range of very low cost medication that will also hurt big pharma.

I am particularly interested in what affect of Biden and the democrats are likely to have on the pharma industry. Is odysseus2000's view the likely prognosis? I have some growth in a pharma holding (WWH) that I am wondering whether to take profit on.

[odysseus2000]

The left field events I currently see are: Republicans refuse to accept Biden,....

Mind you, this is now moot, after the two wins in GA, and Kamala Harris providing the deciding vote for the Senate.

So whether, it's tax, tech, trade, pharma, cabinet selections etc. the Dems have it. At least for the next 2 years.

Matt

Unless Republicans refuse to accept it and some States begin moves to do a Brexit like withdrawl from the United States.

I don't think this is likely, but nor do I think it is impossible either.

US folk are relentless required to respect the flag and pledge allegiance, but there were a lot of folk yesterday doing neither and so who knows what happens here.

Trump may see himself as wronged and set himself up as a candidate for president of states seeking to leave the union.

He was on Twitter saying that the Republicans are the Party of Law and Order, but other tweets have been taken down by Twitter.

I have no idea what happens here although I expect nothing, I can't quite convince myself that this will all end happily.

Regards,

[scrumpyjack]

The Democrats will still be limited by what they can get through the Senate so changes will be moderate rather than dramatic. Also after the political friction they will want to lower the temperature. Trump will become increasingly irrelevant as mainstream GOP distances from him.

The Dem also are now very wary of China so there will still be significant friction between the US and China. China may go for Taiwan but not early in the new administration.

There will be friction between the US and the EU, particularly over EU attempts to tax US tech. The EU may at last start increasing defence expenditure as they are beginning to realise the free lunch of being protected by the US will not last.

The Biden administration will try to build good relations with the UK – doesn’t cost anything – they still need us to give cover to their military adventures – and they might as well use us as an element in their dealings with the EU.

The US market will carry on up for some time (now there's a hostage to fortune!)

[77ss]

....
I am particularly interested in what affect of Biden and the democrats are likely to have on the pharma industry. Is odysseus2000's view the likely prognosis? I have some growth in a pharma holding (WWH) that I am wondering whether to take profit on.

Nobody ever went broke taking a profit. But do you have a better home for the cash?

I have held WWH for 8 years now, delivering an (untinkered) annualised total return of 21%. If it gets too overweight I top slice but otherwise I leave it alone and shall continue to do so.

We can all speculate about events, but its overwhelmingly hot air. Take a close look at WWH's holdings and ask yourself how vulnerable they are to any hypothetical assault on 'big pharma' in the US. Remember that alleged assaults on 'big pharma' have been around for decades. Somehow, they struggle on - wailing and gnashing their teeth on the way to the bank.

[odysseus2000]

77ss
We can all speculate about events, but its overwhelmingly hot air. Take a close look at WWH's holdings and ask yourself how vulnerable they are to any hypothetical assault on 'big pharma' in the US. Remember that alleged assaults on 'big pharma' have been around for decades. Somehow, they struggle on - wailing and gnashing their teeth on the way to the bank.

There are two potential attacks on big pharma.

One is the government, allows Amazon and Walmart, to source drugs where ever and introduces price caps and such, all the sort of stuff that Clinton threatened but did not deliver.

However, another and potentially bigger disruption is developments of new therapies at the gene level. It may shortly become possible to cure diseases by new processes that are much cheaper and much more effective than conventional pharmaceuticals. This is one of the great bull markets that Ark invest under Cathy Wood argue will transform medicine and hurt pharma.

To fully understand a lot of the potential of new drugs such as the mRNA approach for vaccines for Covid one has to either develop an understanding of the genetics or more simply look at the development times and costs. E.g. the UK Oxford vaccine was developed in about a year and costs £3 per treatment, far less than all the care time, medicines and oxygen that were given to the PM to get him through Covid. If more drugs are possible using similar low cost techniques it opens up vast cost savings for health insurance companies and massive loss of income for big pharma and huge wins for patients. As I understand it there are lot of potential low cost drugs in development.

Regards,

[dealtn]

77ss
We can all speculate about events, but its overwhelmingly hot air. Take a close look at WWH's holdings and ask yourself how vulnerable they are to any hypothetical assault on 'big pharma' in the US. Remember that alleged assaults on 'big pharma' have been around for decades. Somehow, they struggle on - wailing and gnashing their teeth on the way to the bank.

There are two potential attacks on big pharma.

One is the government, allows Amazon and Walmart, to source drugs where ever and introduces price caps and such, all the sort of stuff that Clinton threatened but did not deliver.

However, another and potentially bigger disruption is developments of new therapies at the gene level. It may shortly become possible to cure diseases by new processes that are much cheaper and much more effective than conventional pharmaceuticals. This is one of the great bull markets that Ark invest under Cathy Wood argue will transform medicine and hurt pharma.

To fully understand a lot of the potential of new drugs such as the mRNA approach for vaccines for Covid one has to either develop an understanding of the genetics or more simply look at the development times and costs. E.g. the UK Oxford vaccine was developed in about a year and costs £3 per treatment, far less than all the care time, medicines and oxygen that were given to the PM to get him through Covid. If more drugs are possible using similar low cost techniques it opens up vast cost savings for health insurance companies and massive loss of income for big pharma and huge wins for patients. As I understand it there are lot of potential low cost drugs in development.

Regards,

Why do you appear to be excluding "Big Pharma" from this secular change, and appear to be assuming it will be new entrants? It is unlikely to be so binary, particular with something as important as health. Interestingly the example you provide was from AZN, itself part of "Big Pharma".

[odysseus2000]

dealtn
Why do you appear to be excluding "Big Pharma" from this secular change, and appear to be assuming it will be new entrants? It is unlikely to be so binary, particular with something as important as health. Interestingly the example you provide was from AZN, itself part of "Big Pharma".

Mainly because if the drugs work they will be very low cost and will not have the repeat prescription earnings power of traditional medicines.

The Ark thesis (Cathay Wood) is that this new cost regime will undermine traditional pharma in similar ways to how the web, email, txt have destroyed print news papers, photographs, snail mail letters, telephone calls, type writers etc. In all cases new methods have proved more popular and a lot cheaper.

Typically in revolutions such as these new medicines promise the cost structure is so much reduced that it can no longer support the existing status quo that allows for very expensive drug pricing for drugs that often treat symptoms not the disease. The promise of these new therapies is that they will treat disease without side effects or long term repeat usage.

To fully understand what may happen requires in depth study of the potential new medicines.

Regards,

[scrumpyjack]

You only have to look at the accounts of companies like AZN to see that the cost of manufacturing drugs is a tiny proportion of what they are sold for. That isn't going to change. The costs of development, testing, regulation, legal fees, marketing etc etc are still going to be there. Also it isn't really true than the drug companies have been making huge profits. They prepare make believe accounts where billions of inconvenient costs (like legal fees or writing off developments that were not successful) are excluded from 'Core' profits. They then have to borrow to pay the dividends!

[dealtn]

dealtn
Why do you appear to be excluding "Big Pharma" from this secular change, and appear to be assuming it will be new entrants? It is unlikely to be so binary, particular with something as important as health. Interestingly the example you provide was from AZN, itself part of "Big Pharma".

Mainly because if the drugs work they will be very low cost and will not have the repeat prescription earnings power of traditional medicines.

The Ark thesis (Cathay Wood) is that this new cost regime will undermine traditional pharma in similar ways to how the web, email, txt have destroyed print news papers, photographs, snail mail letters, telephone calls, type writers etc. In all cases new methods have proved more popular and a lot cheaper.

Typically in revolutions such as these new medicines promise the cost structure is so much reduced that it can no longer support the existing status quo that allows for very expensive drug pricing for drugs that often treat symptoms not the disease. The promise of these new therapies is that they will treat disease without side effects or long term repeat usage.

To fully understand what may happen requires in depth study of the potential new medicines.

Regards,

None of which explains why it will be new entrants rather than legacy providers doing this.

Creative destruction occurs all the time where legacy destroys and improves its offerings, remains relevant and profitable. Some will adapt slower, and perhaps disappear. No different to much of the history of Capitalism.

[odysseus2000]

dealtn
None of which explains why it will be new entrants rather than legacy providers doing this.

Creative destruction occurs all the time where legacy destroys and improves its offerings, remains relevant and profitable. Some will adapt slower, and perhaps disappear. No different to much of the history of Capitalism.

No.

You have not understood what is potentially about to happen.

If the new therapies work the whole health care industry implodes. One low cost drug fixes an illness permanently, no repeat prescriptions, no on-going treatments, one low cost drug, one cure, next.

If all comes to pass it will be total revolution in the human condition and it will sweep away a lot of existing health care.

If things go to plan. Someone is born, their genome is stuck on the block chain. Any hereditary diseases are corrected, any diseases that occur are diagnosed by an implant in the person, a tailor made drug is created at very low cost and given and that is it, health problem corrected. No GP, no dentist, none of the current medical infra-structure.

Yes, this all sounds like science fiction and it may be, but the potential to revolutionanise human health and break the whole health care industry exists at least in the minds of some folk working in these areas.

Just a few years ago it would have been impossible to create a vaccine in months and then flog it for £3 a go, but that is now reality.

Regards,

[SalvorHardin]

If things go to plan. Someone is born, their genome is stuck on the block chain. Any hereditary diseases are corrected, any diseases that occur are diagnosed by an implant in the person, a tailor made drug is created at very low cost and given and that is it, health problem corrected. No GP, no dentist, none of the current medical infra-structure.

Yes, this all sounds like science fiction and it may be, but the potential to revolutionanise human health and break the whole health care industry exists at least in the minds of some folk working in these areas.

Just a few years ago it would have been impossible to create a vaccine in months and then flog it for £3 a go, but that is now reality.

A good example is Moderna's coronavirus vaccine, which has recently been approved. It was designed in just two days in January 2020.

https://globalnews.ca/news/7492076/moderna-coronavirus-vaccine-technology-how-it-works/

For some years a biologist friend of mine has been talking about how computers, advanced imaging tools and new methods of synthesising molecules, combining with the field of bioinformatics, would enable the treatment of all sorts of diseases with extreme precision and rapidity. As you said, low-cost tailor made drugs.

Five years ago we had a long conversation about this after he saw my DVDs of the Canadian biopunk drama "ReGenesis", in which a lot of advanced biology (and speculation with a lot of basis in fact) drove the various plots (e.g. practicalities of human cloning, weaponising ebola). His conclusion "this stuff is going to happen sooner than you think and it will be revolutionary when it does". He liked that the show almost made PCR testing seem glamorous

Of course there is going to be a lot of resistance from incumbents. There always is. Safety will be the number one method of delaying the adoption of new technology, as is so often the case.

I haven't come across a decent investment candidate, though this isn't a sector in which I have any great confidence in my abilities to analyse (and I missed Moderna). It may very well be that this is a technology that doesn't emerge from the labs with one company's patents nailed to it, but instead is applied across an entire industry more like open source software.