Who would have thought it? That the industries former President Trump said needed his help – coal, steel, aluminum and petroleum – would finally receive it from President Biden.
It’s an ironic reversal of fortunes. Trump’s policies designed to aid those industries (high tariffs, reduced regulations and weakened or abandoned trade agreements) backfired. The proof is in each industry’s stock performance between the 2016 and 2020 election days.
Enter President Biden, an apt leader in the time of ESG (environmental, social and governance) investing, and up go those Trump-favored companies.
Unintended consequences undermined intentions
After a burst of enthusiasm from Trump’s surprise win peaked with the tax bill optimism, reality set in as Wall Street viewed Trump’s actions as ineffective or harmful. As time passed and hopes diminished, even industry leaders turned skeptical.
Note: Some remained hopeful, especially the late Robert Murray. As head of Murray Energy, he committed large, borrowed funds for expansion in anticipation of the growth in coal sales he expected. However, the negative trend continued, so the company had to file for bankruptcy in 2019.
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From NPR (August 2019):
“The man most closely linked to President Trump’s push to make coal great again — and the head of the country’s largest privately owned coal mining company — is now the latest to reckon with the industry’s decline.”
However… Before looking at Biden’s actions, give some credit to what Trump’s actions provided
A good way to look at Trump’s actions is not that they were flawed, misguided or somehow designed to help billionaires. Rather, they were an experiment in taking plausible actions that didn’t work well in the past but perhaps could in this modern age. Trump chose to enact them using the presidential emergency powers (thereby skirting the long, uncertain congressional approval process) and accompanying them with harsh rhetoric.
Did it work? In the end, no. But look at what it did accomplish – it reinforced the knowledge base. Now we know that, even in our modern age, these things are true:
- Tariffs are neither a solution to a trade problem nor a tool to boost a nation’s economy
- Regulations are a requirement to ensure capitalism and democracy achieve their desired ends
- Trade agreements, to be effective, need to be created through diplomacy and compromise
I know – some (many) of you will say, “I knew that.” Okay, but many (40%?) didn’t. They thought a get-tough approach could cure the ills they saw. Now, they are in the midst of a two-part course of learning. Semester one is based on Trump’s lesson book. Semester two is built on Biden’s coursework.
President Biden’s actions are of two types
Understanding Biden’s performance requires separating his actions into two camps: Novel and restorative.
“Novel” actions address the issues of the day (like Covid-19) and the issues of the uncertain tomorrow (like climate change).
“Restorative” actions address what is not working well and needs repair or improvement. These actions include “fixing” Trump’s failed endeavors like tariffs, regulations and trade agreements. These fixes are where semester two delivers the important lessons: That what existed prior to Trump was not the result of erroneous, flawed, weak governmental interference. Instead, these were the solutions arrived at through time and coordinated efforts aimed at addressing all the goals of all the people. While necessarily imperfect, the solutions were effective and accepted by most.
Note: There is one interesting benefit that Biden has in restoring the tariff, regulation and trade agreement status: The ability to negotiate the readjustments. Already, such action took place when the U.S. negotiated with the EU for the removal of tariffs. With regulations regaining their importance, companies and industries, knowing the days of win-win laxity are past, are once again moving to ensure fair treatment. As to trade agreements – all parties want the dysfunctional, gyrating, sudden Twitter-messaged actions to remain gone. Additionally, and very important to the U.S., China’s ascendancy and expansion over the past four years means regional trade pacts could be desirable for all parties.
The bottom line: The economy is running on all cylinders
For laggard industry stocks that do not fit the ESG, growth, meme mold to shine since the election is a good sign that the economy’s improvement is broad-based. Such an environment is an excellent foundation for a long-term bull market.