What does Joe Biden’s victory mean for your money?

The “likely” scenarios of a Joe Biden presidency are priced in, says John Stepek. The “unlikely” ones are not. Here's what might happen next to surprise investors.

The ‘i’s have not quite been dotted, and the ‘t’s haven’t all been crossed, and the man currently in the White House isn’t at all willing to accept the result – but it looks as though Joe Biden is almost certainly going to be US president from 2021.

So, assuming we get through the next couple of months without some wild, wild upset, what does that mean for your money?

The assumption for now is that there will be gridlock. So you have a divided government with a Democratic president, and a Republican majority in the Senate (although in January, there’s another election in Georgia which could tip the Senate into a tie).

Gridlock is viewed as being good for markets, even now. The idea is that the government can’t do too much to mess things up. So Biden can’t pursue the more ambitious/extreme (depending on your politics) elements of the Democrat agenda, but equally you don’t have radical surprises from the Republican side either.

Also, markets are just relieved that there’s a result. Donald Trump might not want to go quietly, but it’s clear to everyone else that there’s a winner now, and it’s just a matter of getting through the admin of making him president.

So where might this view be wrong? No one can predict the future. But it’s worth considering different scenarios, so that you’re prepared for them. And it’s particularly worth looking at “unlikely” scenarios. Why? Because the “likely” scenarios are priced in; the “unlikely” ones are not, so those are the ones that can either wipe you out or make your fortune.

So what might happen next to surprise investors? When considering the actions that politicians or central bankers (or human beings in general) might take, you can generally assume that the average person (which is usually what matters) will follow the path of least resistance. So what is that path now?

What if the Trump era is erased?

There’s a lot of talk about how “Trumpism” is here to stay. Some are arguing that the 2024 candidate might even be Trump, or someone very like him.

I’m not sure that’s right – I suspect that Donald Trump made a lot of enemies in his own party. I suspect that for every Republican who thinks he was a genuine breath of fresh air, or that he represents the future for the party, there’s at least one more who went along with him through fear or tribal loyalty, and is now keen to put all that “unpleasantness” behind them.

The path of least resistance during Trump’s reign was to support him. The path of least resistance for many, following his downfall, is to desert him and go back to business as usual. Populism might be popular with some of the people, but it can be a real headache for a comfortable mid-ranking career politician.

There are parallels with the Labour party over here. There was a group of die-hard Jeremy Corbyn supporters who will never stop believing in him. Then there was a larger group of Labour party politicians who went along with him, but never felt comfortable doing so, for a wide range of reasons.

The one key thing that has happened in both countries as a result of populism is that the political mood music has swung decisively in favour of government spending, rather than any attempt at fiscal conservatism. And, in fact, it’s probably more correct to say that the causality runs in both directions – it’s reflexive. After all, in the States, the first prominent populist movement of this era, the Tea Party, was all for slashing government spending.

So, say you’ve got a sizeable group of Republicans who want to disavow Trump and wipe the slate clean. And you’ve got a pair of political parties who are broadly open to more government spending – all they disagree on is whether or not you need to bother soaking the rich to pay for it.

That’s a recipe for a much more consensual Senate than anyone might imagine right now. If the Democrats can give way on the tax-raising side of things, then everyone might be happy to wave through more spending than expected. That would get the reflation trade going even faster than perhaps markets expect right now.

Clearly, this is just one scenario. We’ll be looking at other potential scenarios – both bullish and bearish – in this week’s issue of MoneyWeek, out on Friday. Subscribe now to get your first six issues free.

Recommended

Changpeng Zhao: Binance founder undaunted by the crypto winter
Bitcoin & crypto

Changpeng Zhao: Binance founder undaunted by the crypto winter

Changpeng Zhao, the founder of controversial cryptocurrency exchange Binance, has been severely battered by carnage in the sector. But the future is b…
3 Jul 2022
Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
Just how powerful is artificial intelligence becoming?
Tech stocks

Just how powerful is artificial intelligence becoming?

An uncannily human response from an artificial intelligence program sparked a minor panic last month. But just how powerful are machines getting – and…
2 Jul 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
How to invest in copper, the most important metal in the world
Industrial metals

How to invest in copper, the most important metal in the world

As the world looks to electrify and try to move away from fossil fuels, copper looks set to be the biggest beneficiary. But how can you invest? Rupert…
30 Jun 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022