Weekly Wrap

A New President Means What?

Calendar Icon   Friday, 22nd January 2021

Does a politician have any real power?

There is a body of thought that relies heavily on economic and political news to make investment decisions. The new president in America has signaled a desire to look into the dominance of the tech stocks and perhaps try to limit their reach.

The new Treasury Secretary has also wondered whether Bitcoin and other Crypto coins have been used for nefarious purposes. Bitcoin is currently trading close to US$30,000 a coin, which is down from the US$42,000 record a few weeks ago.

The obvious answer to whether Bitcoin has been used for criminal purposes is a resounding yes. It is ideal for anonymous transfers and it is stored in places that are either very hard to crack, or a complete exchange is held to ransom. However, this doesn’t mean the technology isn’t valuable. The ability to hold a unique number in a range of transactions to avoid theft or fraud is very worthwhile.

The outlook for the Crypto universe is unclear, as the number of coins launching and the lack of transparency for many exchanges is unsettling to governments. If a government decides that they need to control the Crypto space the value of the coin would be under severe pressure.

For the big Tech stocks in America, their unprecedented access to information may be curtailed by the new administration. Currently, there is no limit to what these companies can hold about individuals and they certainly do not pay anything to access this information.

Over time, it is a common response from governments to launch anti-trust suits against companies that they deem are too big. It happened to Microsoft back in 2001 and it is currently happening to Google in America and Europe. In Australia, there is a proposal to make Google and Facebook et al, to pay for the news content that they release on their platforms.

Far from accepting this as a reasonable suggestion, Google has declared that they will probably turn off the Google search function for Australia. For a company that earned close to $5bn last year in Australia, they feel that the $48m they paid in tax is sufficient.

Of course these responses are great fodder for politicians who can rail against the lack of tax paid and appear to be fighting for the Australian consumer.

Economic Effect

The new administration has quickly reversed a number of policies of the previous group, including the ban on exploring for oil and gas on Federal land. There is a new direction being followed with an emphasis on renewable energy and a strong focus on climate change policies.

There won’t be a sudden halt to exploration and finding potential reserves. However, the government would still have to approve any developments to get the oil or gas to markets.

During the week, America announced a large increase in the number of Initial Jobless Claims, which has surprised the market. However, we can see from the chart below that the jobless claims have been increasing since November.

Consumer price inflation expectations are elevated in America at the moment, which is interesting as there is little proof of price increases in the US. Without wage inflation, the appearance of consumer price inflation is very rare. If we saw rising prices and rising unemployment that would indicate the world was in a period of Stagflation, which last appeared in the 1970’s.

To summarise, the effects of a government can be severely detrimental to sectors, but they don’t have much effect on the market over the long term. The problem occurs if the government applies a policy that exacerbates a bad situation. Currently the new president is attempting to bring both political parties together to restart the economy, but it may be a tough ask.

Many forecasters in America have pinned their hopes on a V shaped recovery in unemployment claims. It would appear that there has been a K shaped recovery, with the have’s doing well, whilst the have-not’s are suffering the most.

US Initial Unemployment Claims