Biden’s “Buy American” vs Trump’s “America First”; Nancy Pelosi; Imaginary interest rates; S&P 500 and wealth
Your dose of nonsense - Monday, 01 February 2021
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Source: Somewhere on Reddit
Source: boredpanda.com
Source: ISTOCK.COM/PANDA3800
Biden’s “Buy American” vs Trump’s “America First”
So Trump’s “America First” policies, from my simpleton’s point of view, were motivated by the Trump Administration (and its voters) seeing that:
the US’s relationships with the rest of the world is one-sided (i.e. the world gets most of the benefits and the US gets just a little, all the while the US pays for most of it while the rest of the world pays for little);
the US has many unsolved domestic issues, so why should it spend time, money and effort on foreign issues;
Some international agreements are holding back the US’s true capabilities.
These motivations were realised by policies such as (but not limited to):
Pulling out from the Iran nuclear deal (perceived, or at least the justification was communicated to the public, as a one-sided relationship, e.g. the partner who always promises to improve on a very bad habit but never does);
Withdrawing from the Paris climate agreement (as this is perceived to shackle the US automotive and oil & gas industries);
Starting trade wars with the European Union and China (perceived one-sided relationships with regards to trade);
Withdrawn from the Trans-Pacific Partnership, a mega trade deal with 12 other nations.
In short, Trump was saying to the rest of the world:
Source: Futurama. Explanation of this picture is here if needed (possibly NSFW).
So enter the current Biden Administration. What has this new administration signaled so far?
It intends to (but not limited to):
Rejoin the Iran nuclear deal (so much so that Netanyahu’s government is reviewing Israel’s defence plans; however, Biden has also refused to lift sanctions on Iran just yet);
Rejoin the Paris climate agreement (executive order here);
Reverse the US’s withdrawal from the World Health Organisation.
In short, Biden is very enthusiastic about:
Rejoining the international community; and
Retaking global leadership on issues such as climate change, nuclear disarmament, and public health.
On the topic of trade, however, it’s a completely different tone:
Biden has introduced a “Buy American” executive order, where the actual official title is “Executive Order on Ensuring the Future Is Made in All of America by All of America’s Workers”. For now, this means that all federal government procurement has to be Made in America products and services, which the US Federal Trade Commission defines as “the product should contain no — or negligible — foreign content”;
Janet Yellen, Biden’s appointed Treasury Secretary, has said “President Biden has been clear that he will not sign any new free trade agreements before the U.S. makes major investments in American workers and our infrastructure”;
On China, Biden will not scrap Trump’s trade deal or sanctions;
Biden has not said anything about the Trans-Pacific Partnership so far.
In my previous posts (such as this, this and this), I’ve briefly voiced my suspicion that if Biden were to win the election, his attitudes (and many Americans’ attitudes) towards free trade might, while not exactly the same, potentially has parallels with Trump’s.
And honestly, why would it differ? The job of whichever person in the office of the President of the United States is to, first and foremost, champion America's interests, perceived or otherwise. If free trade is perceived to align with their interest, yeah, sure, it’ll do it. Otherwise, nah. The underlying issues that led to the motivations discussed at the very top of this piece have not gone away in the US.
So far, the US’s trade partners have rightly recognised this. For example, while the European Union has signaled that it wants to forge a new transatlantic relationship, it has hedged it bets by also forging new ties with China with the new EU-China investment agreement (I guess in geopolitics, between the devil and the deep blue sea, sometimes the answer is “why not both”). Again, the only real job of the European Union is to champion its own interests. The EU can wax lyrical about values and what not, but when it runs counter with its interests, the EU has shown that it’s also very willing to take drastic measures (such as the vaccine export controls).
And China itself has sent extremely strong reminders to the new Biden administration that Biden should take China seriously, by simulating an attack on a US Navy aircraft carrier in the South China Sea, while the aircraft carrier is physically right there. And remember, Xi Jinping has personal ties to the US, such as the American heartland town of Muscatine, Iowa. He even read Mark Twain and really wanted to see the Mississippi river. But I can’t stress it enough - his job is first and foremost to champion China’s interests.
Again, a reminder that, at least in geopolitics:
When you’re top dog, you’ve got to make hard decisions;
There are no permanent enemies, and no permanent friends, only permanent interests; and
Nothing personal, kid. It’s just business.
American EVs and Nancy Pelosi
Anyway, Biden’s climate change and Buy American agendas have a crossover episode - Biden plans to replace all government vehicles with electric ones, but only Made in America electric vehicles.
I mean, that’s all great and all. I guess it’s a good means to reduce the US federal government’s carbon emissions at the tailpipe. And if this really does spur the US electric vehicle industry further (and create more jobs for Americans), then yeah, I guess this would be a good policy to pursue.
And here’s one other US policy maker that really stands by this plan - Nancy Pelosi, Speaker of the United States House of Representatives, representative of California's 12th congressional district, has reportedly bought many many Tesla call options.
Is this a measure of “I’m so stoked by this deal that I’ve decided to put some skin in the game”, or is this a conflict of interest?
You decide.
Imaginary interest rates
Here’s a question - would you take the deal if your bank offers you an interest rate of √-1 per year?
This YouTube video of 3Blue1Brown’s stream argues that you should, on the condition that interest is compounded annually. After 8 years, you’ll get back 16 times your original capital, as shown as this plot on the complex number plane (vertical axis is for imaginary numbers, the horizontal axis for real):
Source: 3Blue1Brown via YouTube
But between now and Year 8, you’ll have to go through quite a long period where you have negative real money and some imaginary money. Which is kinda like a VC firm, where some valuations are probably quite imaginary, even if you’re hemorrhaging money. But once you have an exit (say, IPO, or dare I say it, a SPAC merger), you may get back many many multiples of your original investment.
S&P 500 and wealth
Here’s part of a report by Saxobank that shows:
How much the S&P 500 has grown relative to US average wages; and
How people older than 55 own 75% of US equities.
Source: Bloomberg via Saxobank
Source: Federal Service, Goldman Sachs via Saxobank
No, I’m not going to talk about GameStop.
There’s enough of that in the news already.
But Savvas Savouri of Toscafund, however, has this opinion: “In all the history of the FA Cup, it has eventually been won by big clubs. And that's what will happen here too – the hedge funds will come out on top. For small investors, this is their lottery win.”
Is he speaking the truth? Or are these going to be famous last words? Or would something else unrelated to Reddit (e.g. passive funds) be the demise of both hedge funds and Reddit?
The plot thickens.
PS: None of my content is sponsored content. All opinions are my own. Nothing in this newsletter is investment, legal, business, medical, or life advice (my subtitle is “Your daily dose of nonsense”). Don’t be believing everything a random guy on the internet says.