The Big Spending Race is About to Begin… Here’s Where You Want to Be

Shah Gilani|January 18, 2021

The up and down sounds you’re hearing out of equity markets reminds me of what it sounds like when racecar drivers, positioned on the starting grid, rev their engines before the checkered flag is waved to start the race.

Investors know there’s a big spending race about to start with the Biden administration poised to unleash a torrent of cash on households, unemployment support, health initiatives, states and cities, and eventually on infrastructure and a Green New Deal. As such, they’re positioning themselves.

Here’s how you can do the same…

Ladies and Gentlemen, Start Your Engines

In last Thursday’s speech, President-elect Biden laid out plans to deliver $1,400 per-person to households, on top of the $600 Congress passed in December. He also proposed an additional $400 per week in supplemental unemployment support through September, rental assistance, money to accelerate vaccinations and reopen schools, a paid sick-leave program to encourage people to stay home when they’re ill, as well as a host of other spending initiatives.

The money for whatever the new Administration and new Congress enacts will be there, however much is needed. That should be music to investors’ ears.

Initial money for spending plans will come from the government by means of selling Treasuries to finance policy prescriptions. It doesn’t matter that the national debt will keep soaring; the President-elect said this isn’t the time to worry about the deficit.

And it doesn’t matter that interest rates are prone to rising when governments borrow insane amounts of money every month and quarter, because interest rates won’t rise much.

The Administration and Congress have the Federal Reserve to thank for that.

America’s “central bank” will print as much money as it must to buy as much government-issued debt as they need to, to keep a lid on potentially rising rates. There’s literally no limit as to how much money the Fed can print to finance Treasury borrowing.

They print what they need to buy, whatever the Treasury sells, in case no other investors are buying, or if banks and institutions and individuals and other countries amass more government debt than they need or want.

With Modern Monetary Theory (or MMT) now a policy tool and the need, desire, and ability to spend, spend, spend, the neatly laid-out track before us is plain to see and easy to navigate.

And investors are revving up their buying engines.

The sectors most likely to lead the initial laps in the race to higher equity prices are healthcare, energy, industrials, materials, communications services, and the consumer discretionary sector.

There are plenty of obvious reasons these sectors will take off first and more than a few reasons that aren’t as obvious.

On Wednesday, I’ll give you those reasons, and I’ll give you my favorite picks in each sector. Some might surprise you, but once you hear my reasoning and measure the facts, you might be calling your broker before you’re done reading…

Stay tuned.

Sincerely,

Shah

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