President Biden: Making Jimmy Carter Look Good
I’m just going to straight-up say it. The Biden administration has nothing to offer. It is writing its own obituary not even a year in.
That isn’t a political indictment. It’s a functional one. Sure, politics can provide momentum, but it's starting from a baseline deficit that has been building for years, if not decades.
Energy prices spiraling upwards, inflation at three-decade highs, policies that are progressive — not in the political sense, but in the forward-looking sense — but utterly fail in spite of bipartisan support.
Now there is a victory tour, of sorts, for the infrastructure bill that President Biden really has no business claiming. All of this many months after it was a done deal in the House and Senate.
The Carter administration failed on almost all of the same beats, and Biden will trump (cough) that level of ineptitude.
Now state governors are pleading for action, on many fronts, only to have it filed away in the bureaucratic morass.
Lordy, it’s hard to know where to start, but we’ll cover the top five issues that are languishing with no real hope of resolving, and tie it all together for what it means for us as investors.
As Luke Burgess mentioned just over a week ago, we really don’t do politics around here at the Outsider Club. It isn’t because it doesn’t matter, or that some kind of top-down moratorium muzzles us.
It is because our focus is on the markets. Presidents are quick to take credit for what they don’t actually accomplish on their own. It's more of a universal disdain.
Make no mistake about it. Governments build the stage that business and economic actors can play upon. The government can’t do much to improve the show — all it can do is undermine it through incompetence.
When the rigging for the lights fails, the floorboards creak and rot and have nails sticking out, the seats are on par with the most unergonomic church pews, and the props are half-assed or missing, that’s when the blame falls on the crew and not the cast.
That’s where we are now. Here is a short list of some damning parts of the neglect. I’ll rank them, top to bottom, for what the Biden administration could truly affect:
“The Rent Is Too Damn High” but the leases are binding: Money to bail out both renters and landlords was budgeted and passed through Congress over half a year ago and is still poorly utilized. This is dependent on states to implement, but the rules involved are terrible. The requirement that renters apply for it — and not landlords — is not working, and it depends on data that functionally doesn’t exist on the local, state, or federal levels.
Yet these are contracts that people voluntarily entered. They are binding, and the long-term moratorium on evictions has been terrible business. A large majority of rental property owners own less than a handful of units. While the courts are stacked against renters in many ways, reducing the flow of money between the two parties has been a disaster and has contributed to court backlogs, reduced maintenance, and spiraling rent costs.
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The duality of small property owners being starved of critical cash flow and the long-term accumulation of debt by renters is a ticking time bomb that will cost far more to unwind for all involved for many years to come.
The false promise of “temporary” inflation: Inflation rates ticked up in headline numbers just yesterday in the worst possible way. Rent, energy for household use, gasoline for cars, food, healthcare, etc. This is the true “core inflation” that reflects what we really prioritize to keep our personal budgets in order.
This is not properly reflected in the headline numbers, though it is close. More importantly, this is outpacing wage gains. It doesn’t matter if wages are moving up when costs move up faster.
Well, it does, but it is a nasty cycle that has the potential to hurt us all.
We’re seeing 31-year highs now in both CPI and core inflation, and yet the narrative from the Federal Reserve Board of Governors and the federal government still wants to put a spin on it. The jig is up. The ship has sailed. Virtually all economists and market analysts that aren't guzzling the Kool-Aid are counting on years of intense inflationary pressures. More telling, they just don’t want to project past a couple years. There is no mention of confidence that it will stop in 2022, or 2023, and so on. Just a need to reevaluate then.
Energy costs will undermine all of the clean energy policies: The Biden administration is absolutely correct that there will be a large push to clean energy. It isn’t theirs to claim though. It’s been a long time coming, and the arbitrary focus on specific dates is complete rubbish.
Federal government subsidies have helped on the consumer side but have a questionable effect on actual deployment of renewable and non-carbon-based fuel sources. Solar didn’t take off because of domestic subsidies. It took off because of lowering costs from greater efficiencies in production, mostly in China. Yes, subsidies helped there, but ultimately it was pennies on the dollar compared to capital expenditures for companies that actually deployed large-scale solar projects. The same goes for wind power.
Yet in a market where tight supply for energy-intensive industrial activity is prevalent, and consumer energy sources are still reliant on carbon-based fuels in homes that will not update their heat sources for air and water, it’s not looking good. The capital cost to move old ovens, antiquated hot-water heaters, and in-house coal burners dwarfs the relatively small scale, purely electrical grid-based deployments that we’ve seen to date.
That's why coal, oil and its equivalents, and natural gas costs are spiraling. There is still no substitute.
That whole shipping thing: Straight up, the administration can’t do much about this at all. Plenty of articles are out there talking about how the problems aren’t just in port capacity. They aren’t just in a lack of truckers. They aren’t just in a lack of warehouse space. They aren’t just in a lack of “last mile” delivery capacity.
This is a problem that runs into core constitutional issues. To name just a couple, local vs. federal for forcing zoning changes and imminent domain issues for repurposing property in a systemic and efficient manner that overrides property ownership rights. The solution to this takes years and would have to have started years ago. Any that could stand up to court scrutiny would take years of appeals.
Plus the U.S.A. has virtually no cargo fleet flying under its own flag. The only leverage we have is who we allow into our ports, and that is wide open already. Ain’t no way to ramp that up.
High-value, GDP-driving electronics production is going to cap the economy for ages: This one really hurts because of how much it affects, and how much value it adds, to the economy. Don’t just think cars. Think microwaves, smoke detectors, fridges, and all the things that we don’t even think about needing chips at all.
No wonder nine state governors just petitioned the government to start actually spending the money that is already budgeted and set aside through federal legislation.
But the simple fact of the matter is it will take years and hundreds of billions of dollars more than the feds can possibly allocate. Even then, as we’ve seen, the Biden administration has no idea how to actually utilize it.
Meanwhile, there is a crushing demand for high-end computer chips that has pushed existing fabrication plants to upgrade to meet demand for far more profitable lines. Even then it isn’t enough.
As much as computational power has increased in the last several decades, a profound mismatch for what businesses need and what is available has been playing out for years. The Biden administration is powerless in the face of this demand, and cannot possibly fund any projects that will come online, even if it gets another seven years at the helm.
Not since the Carter administration has there been such a mismatch between political acumen, will, and potential to meet the demands the market is pleading for.
I sympathize. I really do. It can’t do much to move the needle. But by claiming it can it also claims responsibility for the problems it faces. I hope it proves me wrong, but nothing suggests it has a chance.
Editor, Outsider Club
Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page.
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