Can Biden Soothe Institutional Investors as Shortages and Inflation Run Rampant?
Posted on 05/11/2021
U.S. President Joe Biden was able to convince American voters he was the right candidate to navigate the U.S. through COVID, racial strife, and geopolitics. In the first few months of office, despite success that was carried over from the last administration over vaccine creation and distribution (Operation Warp Speed), inflation is popping its head out from central bank QE excesses, causing concern for pension funds, sovereign funds, and other long-term savers. With little choice in low-yield bonds, many U.S. public funds augmented exposure to the stock market in 2020 and bought the dip after the March 2020 COVID crash.
For some Americans this feels like the late 1970s during the Jimmy Carter era.
Stimulus payments, coupled with generous unemployment benefits come at a cost. Increasing the money supply at a rapid pace has impacted raw materials. Rising raw material prices have broad repercussions for households and businesses. The price of lumber is rising fast. In 2021, lumber prices have more than tripled. Wood mills made a wrong bet that during the COVID pandemic, the housing market would slow down, but the Fed’s generous QE measures has kept U.S. residential housing afloat. Prices of plywood in the Southeast of the U.S. were around US$ 7 per sheet, now sell for around US$ 30 to US$ 40 per sheet.
On the food front, corn, wheat, soybeans and vegetable oils form the core of the world’s diet and prices are rising. This is flashing alarm signals for consumers and investors. Key farm products have surged the most in almost nine years. The price of food is also impacting emerging economies, in which their currencies have depreciated during COVID times. Rising food prices in poorer countries could create greater political instability. For example, Nigeria’s statistics agency revealed that one in three people in the country were unemployed. Furthermore, food inflation in Nigeria has accelerated at the highest pace in 15 years. As Nigerian spend on average half of their earnings on food, food inflation rose to 22.95% in March 2021. Nigeria is home to the Nigeria Sovereign Investment Authority, whose asset focus has become nearly 100% inward.
U.S. Gas Fuel Shortages
The fallout from a ransomware attack on Colonial Pipeline Co. has caused fuel shortages along the East Coast of the U.S. This has caused U.S. consumers to panic buy, causing lines down the streets at gas stations in some areas. Colonial Pipeline oversees a 5,500-mile pipeline system transports more than 100 million gallons of gasoline, diesel, jet fuel, and heating oil per day, or roughly 45% of fuel consumed on the Eastern Seaboard between the Gulf Coast and the New York metro area. The governors of Florida, Virginia, and Georgia declared a state of emergency on May 11, 2021 due to the East Coast fuel shortage. According to Gas Buddy Tracker, the worst shortages were in North Carolina, where 9.7% of all stations in the state were without fuel. Virginia was second hardest-hit at 7.9% of gas stations empty. Biden pleased his constitutency and angering Canada and the fossil fuel industry by nixing the permit for the Keystone XL pipeline.
Unraveling Peace in the Middle East
President Trump was able to quash the ISIS insurgency, lockdown Iran via sanctions, while having Arab nations recognize Israel through the Abraham accords. The Abraham Accords are a joint statement between Israel, the United Arab Emirates, and the United States, reached on August 13, 2020. In just 4 months into the Biden administration, Iran is getting ready to expand its influence in the Middle East as the U.S. government looks to ease sanctions. Already, the U.S. Navy has shot at Iranian patrol boats.
Furthermore, tension is rising in Israel and Palestine, after a raid on the holy site of the Al Aqsa Mosque in Jerusalem during the holy month of Ramadan. Israeli government airstrikes killed at least 28 people, including 10 children, in the Gaza strip. Hamas then fired 130 rockets toward Tel-Aviv, hitting a residential building. Hamas rules the Gaza strip. Hamas wants Israel to stand down its security forces from the Al-Aqsa Mosque.
Israeli’s new allies have condemned their actions during the Al Aqsa Mosque protests, causing potential strain. UN Secretary-General Antonio Guterres is demanding an immediate halt to the “spiraling escalation” in Israeli-Palestinian violence.
