President Biden – Lame Duck?

Date: 12/21/2021
Author: Mr. X

Senator Joe Manchin (D-WV) may have done more than just doom President Joe Biden’s Build Back Better legislation. He may have doomed the Administration.

Many Americans voted for President Biden because they thought he would end the pandemic, renew economic growth, and generally lead to a less divisive climate in Washington. None of these things have happened. This is not to blame President Biden. If anything, the president at any given time often receives far too much credit or blame for the state of the economy. President Biden has also gone out of his way to work with Republicans and moderate Democrats.

Yet the fact remains that President Biden remains in an extremely weak position. Let’s take each of these reasons for supporting President Biden today.

With the omicron variant of COVID-19 now sweeping the country, the president has been reduced to begging Americans to get a third COVID-19 “booster” shot. However, with people from Jim Cramer to Senator Elizabeth Warren (D-Mass) coming down with COVID-19 despite the boosters, there is a major credibility crisis. Data suggest that boosters and vaccines do lead to better health outcomes generally, but until this pandemic, “vaccines” meant things that prevent disease transmission. It was also President Biden who told Americans that the pandemic was essentially over if they were vaccinated last July 4. Instead, it may be worse than ever. That was more “transitory” than the inflation that the Fed has been so lightly dismissing.

The “Roaring Twenties” argument is also fading. Goldman Sachs cut the GDP growth forecast for the United States for 2022. Mark Zandi at Moody’s Analytics also cut growth estimates. The failure of the BBB legislation is partially responsible. The Republicans, looking at polls showing that inflation is a top concern of many Americans, know that all they need to do is sit tight and hope Donald Trump stays out of the headlines. They can hardly be blamed for the failure of the Build Back Better act… it was a Democrat who sealed the legislation’s fate.

What of that Democrat? Well, rather than leading to a less divisive country, there’s simply a more divided Democratic party under President Biden. Again, it’s not his fault. He’s an old pro used to building bipartisan coalitions. Yet this is a different age, where social media can drive people to take stands that seem more mainstream than they really are.

Many progressives will insist, perhaps with some justification, that President Biden should have used his mandate to push through sweeping legislation soon after taking office. That said, do these progressives truly believe that Joe Manchin is out of touch with his conservative state? Senator Manchin is not simply being selfish by refusing to go along with his party. He knows that if he does, he would probably be voted out of office and his political life would be over.

Media have an active interest in making the country seem as divided as possible. Yet there is a rough consensus about what needs to be done. Polls consistently show most Americans support more funding for infrastructure, vaccine mandates for at least some categories of workers, and the Child Tax Credit. Aid for climate change also has a great deal of support – especially for investors who are looking for America to take the lead when it comes to electric vehicles.

Nonetheless, the fact remains that right now, President Biden is not able to get it done.  Perhaps he will swallow his pride and accede to Senator Manchin’s demands, which could change the political calculus. If he does not, it is hard to see him as anything other than a lame duck already.

Why does such a sweeping statement seem justified so early in his term?

First, if the Republicans take over the House and/or the Senate, they will still have no reason to support massive Democratic legislation. It will still be in their best interest to obstruct Democratic legislation. Not even the Fed is pretending that inflation is going to be “transitory” any longer. GOP fiscal conservatism could return as Republicans preach about the debt and the deficit – admittedly easy things to do when the other party controls the White House.

Second, the simmering division within the Democrats may explode into open civil war. After 2016, many progressives believed (rightly or wrongly) that Senator Bernie Sanders would have defeated Donald Trump. In 2020, they voted for Joe Biden because they were desperate to get President Trump out of the White House. If the GOP returns in strength in 2022, it will look like Joe Biden will have blown a once-in-a-generation chance to align new voters with the Democratic Party. What’s more, Donald Trump may simply claim the GOP nomination again in 2024, if his health holds up and he still wants it. A candidate who adopts some of President Trump’s more populist language but avoids some of the traps he fell into could be very formidable. Donald Trump might be the Democrats’ worst nightmare and their best hope – and at this point, it’s a coin toss whether he would win or not.

Third, there’s no obvious heir for President Biden. If President Biden does not run again in 2024, that leaves Vice President Kamala Harris as the front-runner. She is not popular and did not win many votes during the Democratic primaries. One might even argue that the Biden team picked her because she doesn’t have a strong, nationwide political base. She poses no threat to President Biden, but she also can’t take up his mantle. If she wanted to establish herself as a progressive firebrand and become a media hero, that moment just passed. Interestingly, the vice president is not going out of her way to criticize Senator Manchin, instead saying “let’s get it done” about the Build Back Better act.

The problem is that unless Senator Manchin changes his mind, it is done, in the other sense of the word. So too may be the Biden Administration and any bold moves on infrastructure, clean energy, or electric vehicles.

What does this mean for investors? Paradoxically, this could be the greatest opportunity possible. It’s rare that people get a chance at a mulligan in investing, but this may be the opportunity that is presenting itself.

The stock market boom that followed the initial crash following the beginning of the COVID-19 pandemic was a major opportunity for traders to get in on companies at a low valuation. Then, it was biotech companies. Now, it may be electric vehicle companies, lithium mines, and other suppliers for clean energy, EVs, and semiconductors.

This isn’t because these stocks will soar in the short-term if the BBB act fails. Far from it. We could be looking at a market correction in January, particularly if the omicron variant of COVID-19 continues to spread. The lack of government support for these industries will also be a huge disappointment for many traders. Support for semiconductor manufacturers has already been pushed back into 2022.

Yet the overall trend will not change. While Republicans are generally more favorable to oil and natural gas investment, they aren’t going to actively disrupt EV production. People like Elon Musk are going to continue to move forward with or without government support. Indeed, Musk has been moving forward against what seems like the active opposition of the Biden Administration. One could easily imagine an opportunistic Republican rallying behind EVs, clean energy and rare-earth element control, especially if these issues can be framed as ways to oppose Chinese power.

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Best of all, investors generally like divided government. A Republican Congress would prevent tax increases, especially those on capital gains. A Democratic president will force the Republicans to pay more attention to fiscal conservatism – a core value of the GOP which tends to go out the window when a Republican controls the White House. With both parties looking towards 2024, divided government would also force both parties to turn more towards the center. Not a few are wondering if Senator Manchin is doing all this to position himself for his own presidential run.

Obviously, President Biden may simply decide to give Senator Manchin whatever he wants and so pull victory from an embarrassing defeat. If he does not, it’s hard to see how the Administration can regain its momentum. With a continuing pandemic, slower economic growth, and a divided party, the Biden Administration will almost seem irrelevant unless a major foreign policy crisis comes to the fore… and the president’s team would need to handle that better than the Afghanistan withdrawal.

For investors though, whatever your politics, this crisis is a major opportunity. Media rhetoric aside, the country is not on the verge of breaking apart, nor are the two parties that divided. After all, President Biden did manage to get a major infrastructure bill through with the explicit support of Senate Minority Leader Mitch McConnell. The split among Democrats and Republican voters is greater than the split between the politicians at the federal level.

What we’re seeing is simply the reemergence of the strongest force in politics… inertia. Clean energy stocks and EV companies could suffer from a stiff correction. Yet that will provide a major opportunity for investors to move in… before EVs come to dominate the American automobile market.

Regardless of who is in the White House, that change is coming sooner than many people think.

Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for to bring you news on what those with power are debating, planning, and doing.

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