A basic income would decimate it.

From a markets perspective, our intuition tells us that investors would perceive more UBI-like policies as negative for risk assets and conducive to higher long-term treasury yields driven by an increase in inflation risk premium. Most likely volatility would rise and the dollar would weaken.

Introducing UBI and implementing minimum income would certainly raise the cost of labor for businesses. Corporations would likely be forced to pass along the costs to consumers, although their ability to do so without damaging demand is uncertain. Despite the potential inflationary risks of this type of policy, with the economy and labor markets still adjusting to a COVID-19 world, we believe the Fed would focus on promoting growth over fighting inflation (given their confidence in controlling inflation down the road). Easy fiscal policy coupled with loose monetary policy and rising realized inflation should be bad for the currency value of all USD denominated assets. While generally, inflation expectations are positively correlated with growth and risk assets, this could be a unique scenario in which inflation expectations decouple from risk assets in anticipation of a potential stagflationary scenario as fears of corporate profitably outweigh higher incomes for consumers.

It is difficult to craft a story where equities do well in the face of higher taxes, higher labor costs and higher cost of funding. Real yields are likely to remain low as the productive growth of the U.S. is perceived to be impaired by less labor force participation, higher fiscal burdens, lower productivity (at least initially) and less dynamism in corporate America. Inflation Breakevens will widen and cost of funding to the entire economy is likely to rise. The scenario has all the hallmarks of a stagflationary environment albeit more tame than the 70s and 80s.