Trump to Biden: Business as usual

Ultimately, what’s more important for our economy is the two Vs: the virus and the vaccine.

US President Joe Biden arrives to swear in presidential appointees during a virtual ceremony in the Oval Office of the White House in Washington, DC, after being sworn in at the US Capitol on January 20, 2021. (Photo by Jim WATSON / AFP)

Goodbye Donald Trump, hello Joe Biden - and almost certainly in the not too-distant future Kamala Harris, beating Hillary You-Know-Who to the Oval Office.

While the expectations for the incoming Biden-Harris administration might run high - or low - the change is going to make very little difference to the immediate prospects for the global economy, far less our own economy, or for the outlook for investments, there, here, or globally.

What happens ultimately depends entirely on the two ‘Vs’ - the virus and the vaccine. As I’ve discussed there are two broad scenarios.

The ‘good news one’ is if we get an economically effective vaccine, relatively quickly and pervasively around the world, that allows us to go back, broadly, to the economic operating world of December 2019.

But one now supercharged by the zero interest rates around the world and all the multi-trillion dollar stimulus.

The ‘bad news one’ is if we don’t. We then get variations on a replay of 2020: rolling lockdowns within countries and broad bans on international travel.

The change in the White House is essentially irrelevant to all that.

Within that broad virus-vaccine overlay, we will continue to live in a world made between the Fed in Washington and Wall St in New York - fed to us across the Pacific overnight and then with a finishing touch so to speak from the Reserve Bank.

The big thing the RBA is going to do this year is essentially nothing. That’s to say, it will keep doing exactly what it has been doing and any initiatives will be relatively marginal.

It will leave interest rates at zero. It will continue to buy government bonds, both to keep yields near zero and also to add liquidity to the market. It will keep supporting bank borrowing at those zero rates and so lending rates for housing where they so alluringly are.

We will find out exactly how RBA governor Philip Lowe sees things at the first policy meeting back for the new year Tuesday week, along with the RBA’s quarterly forecasts.

The important thing to understand about the RBA’s forecasts is not that it has any great success as a forecaster. Indeed, it forecast both 2019 AND 2020 rather badly wrong.

But that its forecasts are critically important because it makes its policy decisions off them.

The big thing to watch for - but not, anytime soon - is when Governor Lowe stops guaranteeing that the RBA won’t raise interest rates for “at least the next three years”.

The only thing he can do before that point is actually taking rates negative. He really, sincerely, absolutely, does not want to go there. If he ever did, it would mean the world had turned seriously - and I mean, seriously - dark.

So any big dynamic change in coming months will come from FED (not political) Washington and Wall St.

Right now Wall St is headed in only one direction, although I do sense some increasing hesitation.

Again, it’s not driven by any political uncertainty or fear of a ‘Fed bear trap’. There is no way that the Fed is going to ‘snatch away the punchbowl’; if anything it will pour in yet more 150-proofmoney-printing hooch.

The combination of a Fed-on money-printing steroids and our RBA cutting rates to zero has taken our market essentially back to its pre-virus level. That’s in aggregate – the local tech sector has out- boomed as much as that of Wall St.

Continuing Fed head Jerome Powell and former Fed head Janet Yellen, who will become Biden’s treasury secretary, are of one mind, to keep stimulating.

In sum and in short, it’s ‘business as recently usual’ for the moment.