Last Tuesday, President Joe Biden delivered the annual State of the Nation Address, and really? The speech surprised us because Biden, unlike his custom, was enthusiastic, combative and very energetic and his song of praise “to the uniqueness and advantages of America” reminded us of Reagan’s speeches when he ran for the presidency and especially for his second term in 1984. The media claimed that this uncharacteristic behavior of Biden was only due to the fact that he probably made a decision to run for office because the 2024 election is too important to hand over to someone else who might bring Trump back. Either way, Biden devoted an important part of his speech to the economy. According to him, his management is responsible for saving the American economy from the darkest days of the Corona epidemic, when unemployment soared, uncertainty took over and the fear of a severe economic crisis, 2008 version, rose.
“We are the only country that has come out of every crisis stronger than when we entered it,” the president said at the beginning of the speech, “and that is what we are doing again.” He pointed to over 12 million jobs added since he entered the White House and low unemployment of 3.4% and repeated that the United States is actually getting stronger at a time when many other countries are still stuck (use the word flounder).
By the way, Biden claimed, in an interview with the Wall Street Journal a year ago, that his policy and the policy of the Federal Reserve would bring down inflation and it seems that he was right. The increases in inflation are decreasing after a peak of 9.1% in June 2022. Inflation dropped to 6.5% last December. That’s still well above the Fed’s 2% target, but well below the inflation rate of 10.5% in Britain, or 8.6% in Germany. It is still early to build on this, but in the case of Biden it is a strong claim and especially regarding the possibility that such a process will help him in the elections, “Inflation was a global problem because of the epidemic that disrupted the supply chains and Putin’s war that disrupted the energy and food supply,” he said, thus “side” 2 birds with one stone, also turned inflation – as it usually does – into a crisis created by China and Russia and also the “Switzerland” that managed to stop inflation.
What’s more, he claims he was able to create 800,000 manufacturing jobs and that his investment in the microchip industry will create even more as green energy initiatives stemming from the Inflation Reduction Act are a significant growth engine – “We’re making sure America’s supply chain starts in America,” he said, adding – “projects of infrastructure will be required to use American materials, as opposed to those shipped from China, Mexico or elsewhere. On my watch, American roads, bridges and highways will be made with American products and we will finance these projects.”
He scolded the Republicans who opposed the infrastructure investment laws and the inflation reduction law he proposed when he said, “And to my fellow Republicans who voted against it, but still want to fund projects in their districts, don’t worry, I promised to be the president of all Americans, we will fund your projects too.” Biden summed up the economic part of the speech, “We are better placed (economically) than any country on earth.” So it’s true, an address to the nation is a good time for the president to show off, but after three years of fear of a pandemic, political division and economic uncertainty, Biden believes that expressing optimism can, in addition to helping the run for the presidency, also help create an optimistic atmosphere that will help prevent a crisis.
We have included part of the President’s speech in his speech to the nation and it is worth looking at the whole thing, not only for the sake of the speech but also to see the difference between Israeli and American politics. There the loathing between the Republicans and the Democrats is no less than the loathing between the right and the left in Israel, but see the respect given to the president, see the gentlemen. Probably because the facts support his words. It is true that there are many problems, but investors forget that the main reason that led to the creation of panic and the fear of a 2008-style crisis was the euphoria and the crazy peak valuations of stocks, especially technologies, at the end of 2021, valuations that were created despite the pandemic, despite the trade problems with China, despite the Russian-Ukrainian conflict that were already clear And despite the Fed’s absorption process. Everyone who has the slightest understanding of the capital market then expected a strong correction, but the dreams, as usual, prevailed over the reality and the various swans helped the reality to become clearer.
An investor should study and get to know the plans to lower inflation and support the infrastructures proposed by the president and only now and partially they are approved and slowly. These are all programs that encourage the American economy, support it, and the Republican opposition is based mainly on the budgeting side, not on the need, and that is also understandable. But those who speak in front of the facts, about a heavy crisis around the corner?: Why?
The facts – let’s start by saying that an economist, certainly a student of US economic history, does not know of a single case of an economic crisis precisely when employment is at its peak and unemployment at its lowest. There is not even a single case of a major crisis on Wall Street or in the American economy when companies were in a balance sheet situation like As strong as the leading companies are today and supply-side distortion inflation is, in all the cases I’ve encountered, short-lived.
The layoffs, which are “celebrated” by the media, especially in the technology companies (but not only) are mainly the result of intoxication created by the euphoria of the tide that accompanied the period of “recovery” from the epidemic. These layoffs, in terms of evaluating the companies, will actually help because they signal a return to economic sanity. True, the plague is still raging, Russia and China are still frightening and the climate situation is not helping, but it is important to remember two things. The first is that these problems are being solved because what is actually happening is that the USA is emerging, precisely because of the problems, as the only superpower in the world, and this in the midst of a massive and open infrastructure investment plan.
When the problems begin to disappear and this will happen due to the strengthening position of the USA, the weakening of China’s economy and the shameful image that is revealed from Russia (on this topic it is recommended to read Le Carré’s great book, “The Russian House” in which the Russian Empire is described in all its weakness as revealed these days) it is predicted With stronger global economic growth than we have seen in the past and not least due to the technology revolution which, in our opinion, is the strongest factor against the great crisis that is feared.
We tell investors to drive carefully because all those black swans are still hovering over us. But we believe that stocks are still the only game in town, it’s just important not to listen too much to the media and not believe every celebrity or rely on the headlines. The technology revolution allows everyone to check and decide what they are interested in and no less good than any analyst or consultant. One of the strangest problems that can actually help an investor in this strange time is the crazy reliance on the so-called “consensus”. When a stock goes up or down because of the consensus, an opportunity is created (to buy or sell) that a sensible and patient investor can take advantage of. The power, because of the revolution, is in the hands of the investors and on the condition that they use common sense and the possibilities that the revolution opened up to them (TSLA as an example).
Based on the behavior of the markets, it seems to us that investors agree with us both about the future and about caution.