All hail President Joe!

President Biden has set out a credible programme to take America forward in his first days in office. The USA must find a way to recover from the trauma of the coronavirus pandemic and the deep political divisions exposed on 06 January, writes Victor Hill.

Number 46: the first 100 days

Joe Biden is no spring chicken and would struggle as a member of your average pub quiz team. But he is a wily political operator with unrivalled experience of how the Washington political machine works, having first been elected to the Senate back in 1972. Most importantly, he knows what he must do as president. He sees his mission as to rekindle a sense of hope and optimism, of healing and renewal – things lacking in a second year of pestilence and political turmoil.

At the moment of his inauguration as 46^th POTUS at 12:00 hours ET on Wednesday, America had lost 411,520 of its sons and daughters to Covid-19. Another 28,000 people were said to be in a critical condition from the disease. That will mean something to a man who has known serial bereavement in his private life. But that is just part of the challenge ahead. In his inaugural address, he condemned the uncivil war that had enveloped America and called emphatically for unity.

We look ahead in our uniquely American way — restless, bold, optimistic — and set our sights on the nation we know we can be, and we must be…

Mr Biden aims to administer 100 million doses of Covid-19 vaccine within his first 100 days. Almost his first act was to sign an executive order to centralise the handling of the pandemic at the Federal level. Mr Biden will increase the supply of vaccine by invoking the Defence Production Act. He will ask Congress for $415 billion in emergency funding to cover the cost of the vaccination programme. All Americans will be required to wear face masks in public.

A host of executive orders were decreed immediately. About 11 million illegal immigrants could be offered an eight-year path to US citizenship. Restrictions on Muslim visitors were removed. The USA will return to the 2015 Paris Accord on Climate Change forthwith. It will re-join the World Health Organisation (WHO) with Dr Fauci as America’s representative. The ban on transgender people in the military was lifted. There will be a Green New Deal. The American Spectator and Breitbart have already described Mr Biden’s agenda as one of America Last.

Mr Obama’s presidency (2009-17) focused on reform of healthcare and foreign policy. Joe Biden’s main priority will be to boost economic growth to recover from the damage inflicted by the pandemic. There will be a $1.9 trillion stimulus package which will probably include a cheque to every American adult for about $1,600. Infrastructure investment will be prioritised.

Foreign Policy

Mr Biden will be greeted by the leaders of Western powers, Mr Johnson included, with open arms (socially distanced, of course). All he must do is talk the language of shared democratic values and common freedom and he will be lauded as a hero of our time. At the G-7 gathering in Cornwall in June the “D-10” will be launched: a club of prosperous democracies that will pointedly exclude China and Russia. Mr Biden will get the credit. He will return from the UK via Ireland and talk the language of reconciliation. He will be feted.

Incidentally, I suspect that the personal chemistry between Messrs Biden and Johnson will be vibrant. Mr Biden often speaks about his Irish roots and is not a natural Anglophile. But then Boris isn’t English either. They are on the same page on the climate issue. But a full-scale trade deal will be tricky.

I foresee that he will want to coordinate the thorny issue of how to regulate the tech titans with the European Union. Expect Frau von der Leyen to visit Washington very soon. He will point out that Messrs Bezos and Zuckerberg are free citizens who nonetheless have civic obligations; whereas Alibaba’s Jack Ma was disappeared for three months after he criticised the Chinese authorities.

He will challenge Mr Putin’s regime in Russia – initially by criticising the dubiously legal detention of Alexei Navalny. Russia’s role as a serial cyber-pest will be called out. I would expect a visit to the front-line – most likely Poland – early on in his presidency. Mr Trump’s relationship with Mr Putin was always suspect – even if, in some ways, unjustifiably so. Mr Trump thought Mr Putin was a man whom America could do business with – as Margaret Thatcher described Mr Gorbachev. That delusion has now been dissipated.

There will be no wild diplomacy with blood-stained dictators. Mr Trump’s attempts to woo North Korea’s Kim Jong-Un now look crass. Saudi Arabia will now get arm’s length treatment – though it was Mr Obama who coddled the desert Kingdom, not least by rushing to King Abdullah’s obsequies in 2015.

Mr Biden is a devout Roman Catholic at a moment when the current pope, Papa Francisco, is gaining influence. The pope’s recent book, Let Us Dream, which is a re-statement of Catholic social teaching in the era of climate change, will have impressed him. Expect a visit to the Vatican soon – with great photo-shots.

But the real foreign policy test for Mr Biden will be whether he is able to stand up to a belligerent China. The mood in Washington is that a tough stance is required, regardless of who sits in the White House.

06 January 2021: Epiphany of fear

The national mood on inauguration day was framed by the shocking events of 06 January when the Capitol – the seat of the Republic’s democracy – was stormed by a motley crew of Trump supporters – white supremacists, shamans, gunslingers and an assortment of loony tunes. The desecration of the holy-of-holies of the US constitution was widely regarded as a historically unprecedented attempt to subvert the constitution on the day that Congress was about to acclaim Joe Biden as the lawfully elected president.

I’m not going to rehearse the sequence of events that day, but I just take away one memory. As we attempted to work out what was really unfolding, whether indeed a coup was underway in the Land of the Free, Joe Biden went live with a well-judged and reassuring address in which he described the events as an insurrection. He also pointed the finger of blame at Mr Trump, who had made an extraordinarily poorly judged speech of incitement.

A strange historical parallel suggested itself to me that evening. I was reminded of the moment when Boris Yeltsin clambered atop a tank parked outside the Moscow White House (the seat of the Russian parliament) during the abortive Moscow coup of August 1991. Grabbing a microphone, Yeltsin excoriated the perpetrators of the coup. At that moment, the fate of a nation pivoted in a more positive direction. Mr Biden emerged on 06 January as a man of stature.

In contrast, Mr Trump ended his presidency on Wednesday a man in disgrace. Whatever his achievements (a legacy of peace in the Middle East, amongst others) they will always be overshadowed by the enormity of his folly on 06 January – which was the product of his perverse and sulky refusal to accept the election result. What on Earth did he think his supporters would achieve? Six people lost their lives that day and thereafter; we now know that some of the insurrectionists – whom Mr Trump called beautiful people – were planning to kill congressmen. One patriot stole Speaker Pelosi’s laptop, intending to sell it to the Russians.

As recently as Christmas I thought that Mr Trump might have a reasonable chance of storming back in 2024. Now we know he is finished, his political (and commercial) brand in tatters – even if he continues to attract support from an increasingly eccentric base, which includes conspiracy-nutters such as QAnon. If the Senate affirms his second impeachment by the House, he will be disqualified from holding any future public office.

Mr Trump’s rambling final address at Andrew’s Air Force Base was full of bathos.

The question he left hanging was: Where does the Republican Party go from here? It has lost not just the presidency but the House and now the Senate, not to mention its identity as the Grand Old Party (GOP)? (That’s a question I shall try to answer another day). A poll by YouGov suggested that 45 percent of Republican voters supported the storming of the Capitol. After all, Mr Trump got 74.2 million votes last November – over 11 million more than he won in 2016. Trumpism without Trump might yet win out.

And then he left, Tweet-less, for Mar-a-Lago.

Ms Yellen testifies

On Tuesday (19 January) Mr Biden’s nominee for Treasury Secretary, Janet Yellen (who was, of course, Chair of the Federal Reserve 2014-18), testified before the Senate – naturally, remotely. Her confirmation (probably today) is assured. There were five things she said which were of note to investors.

First: Lord, make me chaste – but not yet. That was Saint Augustine’s prayer. On Tuesday, Ms Yellen implied that there would be tax rises – but not for now. At least not until the pandemic is history. She indicated there would be no hurry to undo Mr Trump’s reform of corporation taxes. Second: Ms Yellen made a plea for fiscal sanity – by which I think she meant nations, even rich ones, cannot finance their expenditure indefinitely through continuous additional debt. The USA currently has a debt burden of $27.7 trillion, having ended fiscal 2020 with a budget deficit of more than $3.1 trillion.

Third: Ms Yellen said that the new administration would concentrate on getting China to change its ways. (Good luck with that.) Fourth: “The United States does not seek a weaker currency to gain competitive advantage…The intentional targeting of exchange rates to gain commercial advantage is unacceptable.” In other words: We want a stronger dollar. Could that mean higher interest rates?

Fifth: there will be another stimulus package (though how that squares with fiscal sanity is not clear). Mr Biden last week proposed the $1.9 trillion plan and the stock market loved it.

Ms Yellen is trusted by Wall Street as a safe pair of hands. Overall, I suspect it will be business as usual henceforth – with America spending more trillions it does not have, because it can get away with it. Until China launches its state-imposed digital currency, that is. More on that soon.

Market Reaction

Although President Trump campaigned on the notion that the US markets would slump in the event of a Biden victory, the fact is that since Joe Biden was elected the New York markets have hit new highs. On Wednesday, inauguration day, the DJIA closed at 31,188, the S&P-500 at 3,851 and the NASDAQ at 13,457 – the latter being driven, as usual, by buoyant tech stocks.

In traditional valuation terms, US stocks are ludicrously overvalued. According to one esteemed analyst, on pretty much whatever valuation measure you apply, whether EV/EBITDA, price-earnings, price to cash flow, price to book or dividend yield, US equity markets are somewhere between their 90th and 99th percentile. As of last week, the S&P-500 was trading at more than one standard deviation above its 200-day moving average.

But such valuation models ignore the macroeconomic context. We live in a time of near-zero interest rates in which asset managers must allocate to equities given negligible returns on bonds. And the markets expect that that situation will persist indefinitely.

That said, it is of note that US Treasury bond yield has trended upwards over the last six months, suggesting that the markets think a bout of inflation is quite probable eventually. And since the turn of the year, the yield on the US 10-year government bond has risen from just over 0.9 percent to 1.104 percent. Similarly, the 30-year bond yield has risen from 1.642 percent to 1.853 percent. That may not look huge, but this movement is significant. A world of higher inflation and thus higher interest rates would reduce the relative appeal of equities.

I doubt if Mr Biden will lose any sleep over that. He has not linked his success with the New York stock markets, as Mr Trump did. A reasonable fall in the markets in due course might be welcome to the Biden administration as a correction against irrational exuberance. In the meantime, the imminent stimulus package and a passably successful vaccination programme will push the US markets higher.

Historically, the US equity markets have performed well under Democratic presidents – most notably under FD Roosevelt (president 1933-45) when the stock market rose by 44 percent, admittedly from a low basepoint. But it will not be all plain sailing.

***

It was 19 December – the day that Boris cancelled Christmas and declared Lockdown III – that my Other Half came back from London complaining of feeling unwell. He soon developed flu symptoms. A few days later I felt shivery and started coughing. We sputtered and wheezed our way through Christmas with only digital contact with the world outside. By New Year, I determined that this might not be common old flu, and I booked a test.

I’m happy to report that the whole testing process – from going online in the early morning to getting to swab ourselves in the car park of Mormon temple about three hours later – was remarkably well organised. Then came the verdicts by text message the next morning: doubly positive.

Those obligatory ten days of total isolation with occasional solicitous calls from NHS Test and Trace passed as if in a dream. (Though, with dogs, one never feels isolated.) I managed to do my garden chores each morning but never ventured beyond the gates. Fortunately, the pantry and freezer had been well stocked for Christmas. A neighbour delivered the Daily Telegraph every morning.

Gradually, our symptoms improved. The Other Half slowly regained his normally healthy complexion, having gone a worrying shade of grey. (He dosed himself with paracetamol, whereas I self-medicated with decent wine.) There was only one morning when I did not get dressed.

Because neither of us exhibited the three classic Covid symptoms – a persistent cough, a high temperature and loss taste and smell – we were categorised as asymptomatic. The flu I had in November 2019 was much worse than this affliction. (I have often wondered if that was an early bout of proto-Covid.)

We are both back – almost – to normal, though we are still isolating. I’m even pumping light weights before breakfast. I am thankful: it could have been an awful lot worse.