CNBC/Elliot Smith
Shift in U.S. spending emphasis ‘almost the end of Reaganomics,’ strategist says

The change in emphasis for fiscal stimulus in the U.S. under President Joe Biden has effectively signaled “the end of Reaganomics,” according to Embark Group CIO Peter Toogood.

The government and the Federal Reserve have deployed unprecedented levels of support over the past year as they look to guide the economy out of the coronavirus crisis.

Last week, Biden signed a $1.9 trillion relief bill delivering $1,400 stimulus checks to individuals in around 159 million households. Meanwhile, the Fed has committed to continuing its loose monetary policy, signaling a willingness to overshoot its 2% inflation target if necessary.

Stock markets have been volatile in recent weeks as bond yields rose alongside expectations for higher inflation, sparking concerns that central banks could begin to unwind some of the stimulus measures currently in place.

Toogood told CNBC’s “Squawk Box Europe” on Monday that the market is reacting logically in anticipating “the big underlying change” in U.S. spending.

“We have got massive pent up savings, we have given away and have engineered particularly in the U.S. but elsewhere as well, the most amazing fiscal and monetary stimulus — unparalleled — and then we have 25% money supply growth which is the first time we have really had that since the 80s,” Toogood said.

Toogood said Powell’s focus on using “the poorest person in the poorest state” as a benchmark to define full employment had fundamentally shifted the focus of monetary policy.

“We have taken the corona war and we are turning into a war on inequality. It is being led by Biden and it is a massive change in emphasis, and I don’t think it is really understood,” he said.

“It is almost the end of Reaganomics, and I would go that far. This is unprecedented spending in the United States.”

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Kitco/Neils Christensen
VanEck sees gold price falling to $1,600 before it rallies to $3,000

Gold prices have pushed solidly above last week’s 10-month low; however, according to one portfolio manager, the precious metal still faces challenging headwinds as the outlook for the U.S. economy continues to improve.

In a report published last week, Joe Foster, portfolio manager for the VanEck Gold Strategy, noted that gold’s price action has been disappointing since November when the market was particularly hard hit by the news regarding vaccines that could bring the COVID-19 pandemic under control.

‘This, along with the $1.9 trillion stimulus bill, created an outlook for strong economic growth and euphoria in the markets,” Foster said in his report. ‘Gold, as a safe haven, will continue to struggle so long as this outlook prevails, possibly through the first half.”

Because of the growing optimism surrounding the U.S. economy, Foster said that he is downgrading his short-term outlook for gold.

‘We have downgraded our near-term outlook from a consolidation to a correction in which we expect gold to trade above $1,600,” he said.

Currently, April gold futures last traded at $1,728.80 an ounce, up 0.52% on the day.

Although gold could continue to struggle in the next few months, Foster said that they expect to see a catalyst emerge in the second half of the year to drive gold prices higher. He added that he remains a long-term gold bull.

‘The most likely catalyst would be excessive inflationary expectations. Inflation expectations have returned to pre-pandemic norms, although a number of developments suggest it could spiral out of control,” he said.

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CNN Business/Julia Horowitz
Wall Street is already eyeing Biden’s next trillion-dollar spending plan

Stimulus checks from President Joe Biden’s huge relief package, enacted last week, are just making their way out the door. But Wall Street is already looking ahead to his administration’s next priority: infrastructure.

“The $1.9 trillion stimulus has been adopted without much ado and the Biden administration has now set its sight on a big figure infrastructure bill,” AFS analyst Arne Petimezas told clients Monday.

Treasury Secretary Janet Yellen has indicated that no time will be wasted getting to work.

“Infrastructure, education and training, climate change [and] other longer-run priorities will be on our list to address next,” Yellen said in an NBC interview last week.

But there are scant details so far — leaving investors to hazard a wide range of guesses on exactly how ambitious the legislation will be.

Goldman Sachs expects the White House to propose at least $2 trillion for infrastructure, but believes the price tag could reach as much as $4 trillion if the next fiscal package also tries to tackle issues relating to child care and health care.

In addition to the size and scope of the package, expect much of the coming discussion to focus on how the US government plans to pay for the initiative.

“Increases in the corporate and capital gains tax rates look likely to finance a portion of this, though we believe it will be difficult for Congress to agree on more than around $1 trillion in such offsets,” Goldman strategists said over the weekend.

On the radar: A rise in corporate taxes could cause traders to reassess their sanguine view of earnings. Conversation surrounding the package could also fuel jitters about inflation and government bonds, which recently contributed to a spike in yields and a slump in high-growth tech stocks.

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