Larry Berman: How to brace for the possibility of life with Biden
Former U.S. vice-president Joe Biden formally announced parts of his economic policy on Thursday prompting the following headlines to hit the tape:
- BIDEN: WANTS TO RAISE CORPORATE TAX RATE BACK TO 28%
- BIDEN: ENDING THE ERA OF SHAREHOLDER CAPITALISM IS OVERDUE
Biden’s full platform included calls for more innovation in manufacturing, reversing U.S. President Donald Trump’s tax policies that could encourage outsourcing, increasing the federal minimum wage to US$15, and boosting infrastructure investing with an eye to bolstering America’s middle class.
All these policies will have meaningful impact on profit margins and mean the markets are even more expensive than current expectations suggest.
In the long-term, an increase of the U.S. minimum wage is very good for the economy and consumption. But it’s not good for profit margins. Bringing supply chains back to America will push costs higher. The costs to business of reaching net-zero emissions will add to costs, too. Cost-push inflation, with the overhang of mounting debt, will likely lead to a long period of stagflation. This is not priced into markets and I think it’s where we are heading, regardless of a Trump or Biden White House.
As I have said before, I’m not a supporter of extreme left or right policies. I’m far more a centrist that believes in smaller government. So I’m not advocating for or against, I’m merely looking at what is, or what likely will be, and making a market judgement.
From an investment standpoint, if Biden wins, which companies benefit most? It’s clear that infrastructure and clean energy will trump most other industries.
The best way to play infrastructure is not the traditional infrastructure ETFs that invest in pipelines and utilities. It’s steel and base metals — the products we need to build the infrastructure. The focus under Biden would be broad with an emphasis on clean energy. These are the two ETFs I will be buying into election weakness in the next few months.
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