Ok so, changing Presidents always has an initial rush of actions typically through executive orders. These orders have the potential to change things in ways you should consider when investing. In all, Biden is expected to sign 15-17 executive orders on his first day in office. By knowing what they are beforehand you can use that knowledge to make more informed decisions for these next four years.
On the Pandemic, COVID-19
- Biden will first launch a “100 Days Masking Challenge,” asking Americans to cover their faces as much as possible and issuing an executive order requiring social distancing and mask-wearing in federal buildings, on federal land and by all federal employees.
- Biden will end Trump’s effort to withdraw from WHO, making Anthony Fauci the top delegate to the international agency. Fauci will deliver remarks to WHO on Thursday, January 21, 2021.
- Biden will sign an executive order bringing a coronavirus task force inside the White House and creating a position of COVID-19 Response Coordinator who will report directly to him.
On the Economy
- Biden will extend a federal eviction and foreclosure moratorium until the end of March, while petitioning Congress to extend rental assistance to those in need.
- Biden will also ask the Department of Education to extend the pause on interest and principal payments on student loans until September 2021 (so you have until October to focus paying off debt, building up emergency funds, etc.).
On the Environment
- Biden plans to sign the paperwork to reenter the U.S. into the Paris Agreement, which should become official in 30 days time.
- Another sweeping order will direct all executive departments and agencies to begin reviewing all federal regulations and executive actions from the past four years to root out those viewed as “harmful to public health, damaging to the environment, unsupported by the best available science, or otherwise not in the national interest.”
- The agencies will consider new fuel emissions and building efficiency standards, and will revoke or replace any of Trump’s presidential actions that “do not serve the U.S. national interest,” including the presidential permit Trump granted to build the Keystone XL pipeline.
On Racial Justice
- Biden will sign an executive order “embedding equity across federal policymaking and rooting out systemic racism and other barriers to opportunity from federal programs and institutions.” That order will require federal agencies to “undertake a baseline review of the state of equity” under their purview and to provide more opportunities and engagement with people of color.
- The order will also rescind the Trump administration’s 1776 Commission, which Trump said was developed to deliver a “patriotic education” in response to the growing focus on systemic racism in America. A Trump order that limited the ability for government agencies to conduct diversity training will also be revoked.
On Immigration
- Biden will rescind Trump’s order limiting immigration from predominantly Muslim countries.
- The U.S. will begin accepting new applications under the Deferred Action for Childhood Arrivals (DACA). The order will also focus on creating a path towards a permanent status/citizenship.
- Biden revokes a Trump order that excludes non citizens from the census count.
- Biden eliminates the emergency declaration that was used to divert funding to the construction of a border wall.
From those actions we see several sectors that will be directly impacted in meaningful ways. Specifically the broader energy sector. Speculation on action has gotten this sector pretty far, let’s see what the real thing does. – Todd Carlisle
Impacts on the Market (Updated)
Since the election. the market has advanced 14%. That’s an all time record. (History side note the previous record was under Hoover in 1929) Anytime there’s a run like this there are going to be side effects. One of these side effects that I’m sure everyone is noticing but maybe not everyone understands are secondary offerings. So what are they? Why are they happening so frequently now? How do they impact you? Glad you asked.
Surely you know about IPOs. You know, those crazy overpriced things happening frequently. IPO or initial public offerings are stocks sales on the public market. They can happen because a successful private company wants to cash in on that success or more commonly because a company with little to no revenue needs cash in order to make their vision happen. For example, most startup biotech companies have zero revenue. They are in the process of developing the product they hope will eventually bring that revenue but they need money for testing, trials, employees, and day to day operations. If the idea is compelling enough then Investors will purchase the shares as a sort of down payment on future success.
The problem is that these initial offerings eventually run dry. The process for drug approval can take a decade or more. This applies to other sectors as well. Setbacks in development or a desire to grow will exhaust the funds. So what can they do from here?
Two options:
1) Borrow (this includes bonds)
2) Release more shares into the market
Borrowing brings interest into the picture and an obligation to pay back on a set timeline. They can borrow from banks or other lenders and they can sell bonds which work in a similar fashion.
But what if you’re a company that’s just watched the value of your shares increase +50% or more in the last month? Many companies are currently in that position after this 14% overall run. When given the choice between taking on debt or releasing more shares to the market in a secondary offering, well you can see what they’re choosing.
A secondary offering is when a company that’s already undergone an IPO decides to sell additional shares to the market. While there are technically two types, dilutive and non dilutive, the most common will have the effect of diluting the value of current shareholders shares. Why? Well yesterday you were holding something that was one of three million. Today they offer an additional 2 million shares so you now have one of 5 million making it less rare. The more common the less valuable.
Companies will work with an underwriter and determine a price for the shares being released. This is a very important detail. If they price them too low they’ll cause the stock price to crater, price too high and they may struggle to sell the additional shares.
This part is what affects you the most as an investor. Let’s say a company trading at $5 decides to raise money and announces an offering of 2 million shares at $4 per share. Well the price of that stock is obviously going to drop for the period of time the offering is open. Why would anyone pay $5 to buy when they can get the same thing for $4? So you’ll see some pretty huge price swings at the mention of these secondary offerings. Rarely, but occasionally, companies will price them at current market price which will have less of a drastic effect on price.
Another important consequence of any offering is this: the more shares that exist the more “difficult” it is to move the price of a stock. When you see these 100% runners they’re specifically targeted for being low float, meaning they have a low number of outstanding shares. Companies like Apple with billions of outstanding shares will almost never see such huge moves because it takes buying/selling a huge number of shares to even notice in the price. With each offering the chance for huge price movement decreases.
So there you have it. Companies as big as Tesla have recently undergone secondary offerings in an effort to take advantage of the huge increase in share prices. If you’re holding a ton of penny stocks you need to be aware that it’s not if it’s when are they going to undertake a secondary offering. When they do the reaction is swift and drastic. Usually the price will return to the pre offering level within a month of the completion of the offering. Sometimes sooner sometimes longer. As the market continues to rise you need to be aware that this trend will increase.