Biden’s Bumptious Hatred of Stock Buybacks Gets A Well-Earned Smackdown And Hopefully Leads To A Course Correction: The Geopolitical — Stock Market Connection

While Joe Biden stands up to anti-liberal Russia he simultaneously divides America by attacking the bedrock of American liberalism, namely financial capitalism. Such populist progressivism can’t be implemented by government workers but since the aged President lacks the wisdom to know better an even older and wiser capitalist has taken on the burden of educating him. It all likely falls on deaf ears unless a chorus of liberal patriotic dissent emerges, and consequently my outlook for valuations and earnings through the year is negative. But for now the bulls are just as esurient as the bears and can match them equally since the S&P is closer to its 52-week lows than highs. Consequently the volatility risk premium points to a higher market over the next few days while my technical reading of key stocks in the S&P 500 is neutral. Yesterday's cross-asset action brought several positive factors for US stocks. Oil's chart is signifying global growth. The US yield curve is falling and in the current context that is bullish. Inflation expectations are stabilizing based on measures of Treasuries and TIPS. Expect the S&P 500 to be range-bound over the next few days as it tries retesting the 4200 area before cratering as we round out the winter.

Warren Buffett’s nicely worded rebuke of Biden highlights the central problem with the Biden-Trump efforts to help the American economy — namely pro-statism. Biden shifts constantly from an avuncular exhorter to a dutch uncle policymaker as he tries constraining the natural efficiency of American capitalism in the name of patriotism. Substituting the well-adduced inefficacy of the state for well-established corporate actions, Biden exploits the nationwide tendency to seek escapism rather than boning up on economic history, so his policies can be marketed as normal interventions to keep America safe and prosperous from avaricious American capitalists and foreign governments. But his policies are guaranteed to manifest in stupid execution and insipid paucity of foresight because the agencies tasked with carrying them out aren’t treated with deference by the very institutions they deal with, let alone by the majority of the American people. Deference is what makes an authoritarian group effective, and the American public sector largely gets none of this.

Government agencies lack the esprit de corps necessary to work cooperatively and synergistically and to course-correct when mistakes are made in serving the public interest. By contrast capitalist firms have a transparent and simpler goal of maximizing valuation or profits or an intermediate goal like market share or sales, which gets workers and partners to work productively up to the point the business is failing. This is why business and product failures are profound signals to other firms and entrepreneurs about how to make good ideas work and how to execute them. By contrast each government agency is a profound monopoly and thus subject to all the grotesque inefficiencies of both monopolies and politically-directed institutions. Only deference by the people can raise a government monopoly from its natural tendency to superficial discourse, punctiliousness, infighting, obsequiousness and officiousness, toward designing and implementing quality services in the interests of a divergent and diverse public. The fact is very few agencies merit or naturally acquire such deference, and consequently most government programs and regulatory agencies are poor performers.

The CHIPS act is foremost among Biden’s high risk policies that cannot succeed due to lack of deference, but can retard technological growth and stimulate geopolitical tensions across Eurasia. As Peter Tchir of Academy Securities notes “Even as Taiwanese companies build more foundries outside of Taiwan, they will not produce cutting edge products anywhere other than onshore (it is their “ace in the hole” from a geopolitical standpoint)…U.S. companies sell a lot of “mid-tech” chips to China, and that “cash cow” is an important part of what funds research and development for new chips and also funds the building of foundries on-shore. If these sales get attacked by D.C. (a possibility as the popularity of banning tech with China seems high), then the chip industry might be hurt and it would hamper its ability to wrestle more control of higher tech (and ultimately cutting-edge tech) away from Taiwan. This would potentially make it easier for China to catch up in this area.”

Biden’s agencies are bound to execute poorly since the chip industry is remarkably successful and cannot possibly hold politicians and regulators in equal esteem. Biden’s goal of reshoring seamlessly compliments Trump’s xenophobia and is thus bound to rankle chip workers and leaders, while setting off any number of unpredictably fearful and malevolent reactions in the US, China and across Eurasia. Only a rising rebuke of statism by Wall Street and the Business community can shake Biden off his instincts and set America up for a return to dynamism and rising valuations.

Yesterday I exited the majority of my short-term bullish position via the levered ETF UPRO. Consequently my current positions include a very large cash position, 3M (MMM), Pfizer (PFE) and a small short-term bullish position in UPRO.