Biden’s trillions

In the previous article, I had tackled what Biden was up to. I had discussed what the effects of Biden’s new economic recovery plan were, that we had estimated to be around $2 trillion, and the effect it had on the markets. So now that Biden has finished his speech and the true figure of the stimulus plan revealed, let’s take a look at what Biden is promising and if there is any chance of it actually going through.

Not $2 Trillion

Several reports were flooding the markets as investment banks and regular banks alike were trying to upstage and outdo each other by increasing the expected value of the stimulus plan that Biden was to deliver. The figure kept on rising to reach $2.2 trillion, however it was a CNN and Bloomberg report that said there is a very big chance that the actual size of the stimulus plan will be around $2 trillion.

To say that the markets and traders did a double take, would be an understatement. Many investors started to get very excited about such a plan as it meant $2,000 for each American, a very sizable and much needed injection of money into the system and one that the people are very much appreciative of.

However, as the title of this section said, the figure wasn’t $2 trillion, nor was it higher as I pointed out in the previous article, it was actually lower. The actual figure is $1.9 trillion. However, that figure did not come from Biden himself as he didn’t offer a full figure of how much the total stimulus package is, the full figure came from an article by the New York Times (NYT).
So that means, it’s not going to be a $2,000 check for Americans, in fact, it is going to be a $1,400 check, on top of the $600 approved back in December.

Biden’s Speech

In his speech, President-Elect Joe Biden, unveiled his 2-step plan of ‘rescue and recover’. This plan included big-ticket spending on Democratic priorities which include aid to state and local governments, a hike in the minimum wage to $15 an hour, and expanded unemployment benefits. He said “We have to act and we have to act now.

”That’s not all, Biden had also laid out a second, even broader economic recovery plan, which would include long-term development goals such as infrastructure and climate change. What does that mean? Expect another big ticket spending spree in this Democratic government.

Here’s a brief recap of Biden’s proposal

• Direct payments of $1,400, on top of the $600 approved in December.

• $400 per week in supplementary unemployment benefits through September.

• $350 billion for state and local governments.

• Raising the minimum wage to $15 an hour.

• $130 billion to help schools reopen.

• $160 billion in funding for a national program of vaccination, testing and other coronavirus containment efforts.

• $30 billion for rental and small-landlord support.

• $25 billion for childcare providers.

• Expanded food assistance.

• Expanded child tax credits.

• Expanded medical and family leave.

I do have to say that while all of this is fine and dandy, it doesn’t tackle the major socio-economic issues that America faces today, and the ultimate effect will be a brief sugar high. Once the effects wear off, the polarization, the wealth and income divide, and the class hatred, will continue if not worse. You see none of this really addresses the primary reason for the destruction of the U.S. middle class, namely the FED and its money printing abilities.

But I digress.

Another aspect of Biden’s speech is the words that he used such as “paying their fair share” and “closing loopholes.” All of these could be pointing to a tax-hike, of course that means that the stock market isn’t going to be all that happy with a “Blue Wave,” but I am getting there.Will it Pass?

Even though this stimulus and economic recovery plan could do so much good for the American people (at least for a little while), I can’t see it gaining the republican votes that it may pass. I can’t help but imagine the republicans standing on a narrow bridge shouting “YOU... SHALL NOT... PASS!” The plan will encounter immediate Republican opposition due to its big-ticket spending items that we mentioned previously.

You see, the bigger size, and inclusion of Democratic priorities such as a minimum-wage hike, also means that it will be next to impossible for Republicans to vote for Biden's proposal. This is a problem because certain key measures such aid to states and money for health care, will likely need 60 votes in the Senate.

On the other hand, jobless benefits, stimulus payments and the minimum wage hike, could go through with a simple majority under a special budget tool. Amusingly, progressives are already saying Biden's bill isn’t big enough.

What Happened in the Markets?

The biggest shock has to be the movement in yields and the stock market. Overall the currency and commodity markets were unfazed by all the speech and remain confined in their respective ranges.

The 10-year U.S. Treasury Yields soared on the prospect of more stimulus. The yields increased from a low of 1.085% to 1.135% over the course of a couple of hours.

However, the real movement could be seen in the stock market. It would seem that the markets were not happy with “only” $1,400 as a stimulus check to the American people. So it wasn’t a real big surprise to see the S&P futures (ES) fall after Biden’s speech and continue to move lower because of it.

The reason stocks dropped to session lows is that instead of an $2,000 additional stimmy, the Biden plan will "only" include another $1,400, adding to the previously released $600 from the December $900BN stimulus plan, as mentioned before. But this also means that there is roughly one-third less purchasing power to buy out of the money call on stocks trading at all time highs.Not to mention the words that Biden used as previously mentioned. This could spark a tax-hike driven sell-off in the stock market since the stimulus boost is already fully priced in. Bloomberg said the following best, as this is the moment “in which the market could pivot to some of the other risks associated with a Blue Wave like taxation or antitrust scrutiny.”