In a Nutshell: A Trillion Here and A Trillion There

The second quarter of 2021 is off to a blazing start, with the S&P 500 Index pushing above 4,000 on the heels of President Biden’s so-called infrastructure plan update.  In the weeks or months ahead, the market focus may turn to whether Congress will actually pass this “Biden” proposal that includes $2 trillion in spending on many things other than infrastructure. One news source stated that only 6 percent would be spent on roads and bridges. This controversial bill also includes much higher corporate taxes (with rates increased from 21 percent to eventually 28 percent, spread over 15 years).

Economists at Jefferies estimate the proposal could add 0.5 to 1 percentage point to their estimate of 5.2 percent growth in U.S. gross domestic product in 2022. However, soon having a higher corporate tax rate than most of the free world would create future growth obstacles. Higher Treasury yields have already indicated just who else will pay for this grandiose plan. A trillion here and a trillion there, and pretty soon we are talking real money!

When will the Biden administration declare a coronavirus victory?  July 4? Never? During his first news conference, he stated that we should be “allowed” to have parties in our backyards and at least be partially back to normal by July 4.  It was widely perceived by cynical observers that the Biden administration did not want to admit that new COVID-19 cases were plummeting, because they wanted to use the pandemic as a Trojan Horse to push through more unpopular policies.

Naturally, as soon as the administration admits that COVID-19 is under control, all schools will be expected to reopen, and working Moms can return to the labor force. At that point there should be nothing holding back U.S. economic growth. The only “glitch” is that some politicians do not like to end or potentially waste any perceived crisis. So, watch out for political advisors counseling Biden to keep economic restrictions in place even beyond July 4.

However, let’s also be realistic in acknowledging what really turned the COVID tide. One year ago, the Dow Jones Industrials fell by a record 3,000 points. Following that fateful week, the stock market continued down as California, New York, and then state after state closed down their core economies. The two most volatile market days—and four of the top seven—came over four straight days, March 16-19, 2020.  It took real old-fashioned leadership by then President Trump to save the economy and maybe the nation.  But then, something crazy happened.  Traders on Wall Street virtually shouted, “It’s OVER”!

The market bounced back the next morning with a +2,114-point Dow gain (+11.4 percent) on Tuesday, March 24, 2020, and a total of more than 20 percent in just three days, the shortest bear market and fastest bull market recovery in history. In about a year, the Dow and S&P 500 rose over 80 percent, while NASDAQ is up 114 percent and the Russell 2000 is up an astounding 143.6 percent. There is only one former leader of our country that deserves primary credit for this miraculous economic rebound.

However, it appears that not all good news is welcomed by the current president since (presumably) “no crisis should go to waste.” Maybe we are seeing that Biden’s advisers can’t afford to let last year’s smorgasbord of bad news evaporate too quickly. Even with dramatically declining new cases from the winter peak, and considerably lower deaths, it appears that this administration doesn’t want to release Americans from all COVID-19 restrictions any time soon.

In his recent speech President Biden held this four-month carrot out for us: “If we do this together, you, your families, and friends will be able to get together in your backyard or your neighborhood and have a cookout or a barbecue and celebrate Independence Day. That doesn’t mean large events, with lots of people together, but it does mean small groups.” No fireworks, no parades, no town gatherings—and barbecues only if you behave from now until then! It’s your choice, America.  Want to “Go Big” this coming July 4?

Doesn’t this also make you wonder how many of our constitutional freedoms current Washington insiders feel we should ever be allowed to again enjoy? We’re still living in the land of the free, I think. And we thought that COVID-19 restrictions and related government mandates were only temporary.