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Joe Biden will accelerate the ‘green revolution’

The win of the two Senate seats in Georgia by the Democrats changes the outlook for world markets, as well as for the USA. We look at the implications of the latest US vote.

The win of the two Senate seats in Georgia by the Democrats changes the outlook for world markets, as well as for the USA. We look at the implications of the latest US vote.

by
Charles Stanley

in Features

11.01.2021

The win of two Senate seats by the Democrats – which is likely to be confirmed later this month – changes the outlook for world markets as well as for the USA. So far, stock markets have taken it positively on the grounds that Democrat control of Congress will be used to put through a much larger public-spending boost to the US economy. It will also mean higher taxes on companies and the rich – and an intensive drive to decarbonise the world economy.

Joe Biden repeated his campaign pledges in a warm and inclusive statement to US citizens on 7 November. The whole thrust of his election was to unite Americans to work together to heal the divisions. He looked forward to Republicans and Democrats co-operating together and discovering they have more in common than divides them.

Mr Biden has not updated his message to cover the current drive of his party in Congress to get President Trump removed from office a few days before the end of his term. Nor does he express a view on possible impeachment proceedings against the President, possibly continuing until after he has departed the White House. He also has not opined on the actions of the large US social media companies in driving millions of Trump supporters off their platforms following the badly misjudged protest at the Capitol by some. It may be that the President-elect cannot control his supporters in the House and Senate – or maybe he has changed his mind about building bridges to millions of Trump voters, even before Inauguration Day.

Big tech, red tape

For investors, it marks the clear politicisation of the big-tech, social-media companies which will offer more regulation to the incoming administration. This will both raise their costs and deter users who object to their perceived bias. Steve Hilton, for example, tweets from his Californian home that Silicon Valley has declared war on half the country. The social-media companies are no longer able to shelter behind the proposition that they just provide a platform for free speech and will be at the centre of the battle over what thoughts are permitted and how far censorship should extend. Becoming publishers may have an adverse impact on profits and valuations. 

The Senate and House will see battles between the left – which wants much higher state spending and intervention paid for by higher taxes as well as more borrowing – and the more moderate Democrats. Meanwhile, the Republicans will have their own civil war between those who want to keep the Trump voters and those who wish to purge their party of Trump influence.

Mr Biden is likely to see the attack on King Carbon as the best way to unify his party, so we should expect the green revolution to intensify. Advanced governments and the EU are generally united on this approach and talk of little else apart from the pandemic. Today, Prince Charles in the UK launches his Terra Carta challenge to business, whilst institutional investors demand tougher decarbonising action from large companies.

Bifurcated market

Valuations of so-called ‘virtue stocks’ continue to rise to very high levels, reflecting a shortage of options for investors rushing to show their portfolios do not just have a bit of greenwash, but are green through and through. Some shares are now well detached from the reality of their current profits and cashflows.

These developments also mean the list of sectors and companies that will suffer grows longer. We need to add the carbon losers to the businesses still being damaged by the responses to the pandemic.  Some of those simply suffering from social distancing policies are often given the benefit of the doubt on the grounds that some of them will recover strongly when controls are relaxed.

The problem for the carbon-based businesses is that this policy is long term, and aims to close most coal, oil, gas and internal combustion engine activity down. We should expect a divided market to continue between the winning themes and the losing areas – just as we should expect US politics to remain deeply divided.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

 

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