Go Read!

 I'm swamped this morning and so a longer post I had planned is going to have to wait.  Instead go read over at CNBC about what September's market decline accomplished.  People forget all the time that stocks will inevitably experience a corrective phase that at its worst can result in a 10-20% whoosh from the most recent highs.  It's the process of removing speculative excess from the markets and setting the stage for things to eventually resume an advance.  Sometimes those corrective declines turn into real bear markets, but that's rare.  It usually takes an extraordinary event for that to occur.  We experienced one of those back in the spring with the virus.

Anyway go read the article here.

Back Friday.

Electoral Votes

One of the points I discussed in an earlier post called  "Three Things Everybody Knows" was that most of the media and political pundits have been endlessly discussing all of the dire possibilities that could happen if the election is close or undecided for weeks after it's held.  In that post I said I thought if the election were held when I was writing that piece Mr. Biden would win perhaps 300 votes.  That's not a political statement, I don't do politics on this blog except how it's related to investing.  It's me donning an old political science hat and counting votes.  The political blog 538.com, however, is all about politics and when they count the votes they think Mr. Biden could win as many as 350 electoral votes.  If so that's a landslide.  I'll stick with my 280-320 range from Friday {the post below this one}.  

If these numbers hold up then you can probably forget about all that post election angst we've been hearing over the electronic airwaves.   Now obviously the election isn't being held today so there's still time for the President to change the narrative.  But, the assault of negative news coming out against him is unrelenting and NBC yesterday reported in their polling data that a very low amount of the electorate remains undecided.  It's getting harder and harder for him to find minds to change.

The reason this is important from an investment perspective is that if these numbers continue to hold up then the markets will increasingly price in a Biden presidency next year.  I have said before that I don't think the markets care if Mr. Biden wins as he's a known commodity to investors.  What is important to them is the composition of the Senate and that still seems to be neck and neck.  

Back Wednesday.

Post & Comment (09.24.20}

I haven't run one of these columns for awhile.  This is a section of posts where I respond in brief comments to something I've seen in the news or online.  I've highlighted the headline note or post.

On Testing.

Testing is the key to reopening the economy.  To get things moving again you have to convince people who have money that it's safe to go out and spend it.  *Abbot Laboratories has recently told us they have a rapid test now that's 97% accurate.  You get the test and you have the results downloaded to their Navica App {which I have downloaded and is pretty cool}.  That way you can maybe in a few months time in the winter go to dinner while having a higher degree of confidence the people sitting around you aren't infected.  Supply is limited right now but you know that will get better in the months ahead.  Other companies are working on rapid testing as well.  Testing is the game changer and the way we'll finally get the upper hand on the virus.

On the Spike in Covid Cases.

Likely coming from two things.  First is all those college campuses reopening and also better testing.  I think we're detecting a lot more infections than perhaps more of a spike, except at universities.  Didn't anybody ever stop and ask if it was ever going to be a good idea to send out into the world this fall the age cohort that has shown us the complete inability to socially distance?  However, when talking about college aged kids I'd love to see data from them on infections and outcomes.  The circumstantial evidence suggests that for the most part they don't get very sick, if at all.  I'd love to see current data broken down by age.  

On the Election.  

I think the first two debates will pretty much crystalize the election.  Swing voters are likely leaning towards Mr. Biden but need to feel comfortable in their choice.  Joe's gotta close the deal with them I believe.   Assuming he does that then I'm beginning to think that the election might not even be that close.  If the election was held today I think Mr. Biden might get between 280-300 electoral votes.  I'll update these numbers after the first debate.  One unanticipated event is that the Republicans pulling out all the stops to rapidly fill the vacant Supreme Court justice seat could possibly incentivize both swing voters and the Democratic base to come out and vote.  

On Market Volatility.

I've said for some time that I expected the market's to become more volatile as we get closer to the election.  I'm not surprised at what we've been seeing.  Besides the upcoming vote, add in how far certain sectors had moved since this spring plus normal market seasonality and you get the perfect recipe for stocks to move into a digestive phase.   Major indices are down maybe close to 10% from their highs just a few weeks ago, but still up huge since the March lows.  This decline takes us basically back to the beginning of August.  A normal pullback so far and an event that's likely healthy as we're removing some of the speculative froth from the markets.

Go Read: "The Plan That Could Give Us Our Lives Back."

Back Monday.  

*Abbott Labs is a holding in certain ETFs we hold in client and personal accounts.

This Winter

Today is the first official day of autumn, although habitually for most Americans the season arrives the Tuesday after Labor Day.   Until recently in human memory autumn invoked a certain amount of dread, especially for those societies in the zones on our planet that experienced large variations in the seasons.  Fall was the make or break time of crop harvesting that had to last people through the hard winter months while the cold was feared in an era before inside heating systems. 

We are experiencing some of that now because many are worried what will happen to us and exposure to the virus when we are forced to spend more time inside.  Here's my guess.  I think we won't have a normal cold weather season, especially up here in the north, but I don't think it will be as bad as last year.  Here's why.

First a vaccine is coming.  Now it may not be as powerful as many hope and there certainly won't be enough doses to vaccinate everyone when it first arrives but I'm guessing that by January you're going to see the first pictures of people getting vaccinated for Covid.  Vaccinations will move slowly at first but I'm thinking you'll see a pick-up in availability as the winter progresses.  This may not be enough on its own to get people less worried about the disease but it should be an enormous psychological boost in the months ahead.

Second, better therapeutics.  I don't want to get Covid but if I'm going to come down with the virus I'd rather get it today than when it first appeared last January.  We know so much more about the virus today than we did back when it was first appearing in this country.  Similarly I'd rather come down with Covid six months from now because we're going to know even more then.  Better therapeutics and perhaps a belief that the virus isn't something akin to a death sentence should make people more confident about being out and about.

Third is testing.    I think by late this year you are going to start seeing regulatory approval for at home testing devices where the results are nearly instantaneous and can be downloaded to a device like your smartphone.  Imagine being able to be confident as you enter a crowded restaurant that all the people sitting around you as well as the staff in the place have tested negative for the virus.  Well they already are doing that in Wuhan and other parts of China.  It may not yet work as well as advertised over there but think about what that could potentially mean if there is an easy way to get tested at home, maybe every day.  Think about what being able to have mass testing would do for many sectors of the US economy.  You could get on a plane again, go to a restaurant, go to a sporting or cultural event, even go on vacation to a resort or cruise if you could be confident that those you come into contact with aren't carrying the virus.

Finally we are adapting to the disease.  Masks, social distancing, being outside are all the norm right now. Expect this to carry over even into cooler weather.  You might not eat outside is subzero weather at a restaurant but you might be willing to eat under a well ventilated and heated tent.  Yes it might not be as warm as you'd like but if the choice is wearing an extra layer of clothing or staying at home, you might opt for the sweater.   Adaptation will be the new normal and we'll figure out ways to go about our business as the months pass.

So this is what I think is coming.  I don't think the disease is ever going away, it may become like the flu.  Then again flu kills something like 60,000 people on average in the US every year and we don't stop life for it.  So it will be with Covid at some point I think.  Life will likely never be as it was before the virus but whatever the new normal will end up being, I think it can be pretty close to how life was back then, especially with a few adaptations.  As we find that new normal, life and the economy will improve.

Back Thursday or Friday.

Postscript

I'm going to add a few postscripts today that are follow ups to some things I've recently discussed here.  

It is a central principal I carry which I've discussed several times on this blog {see here and here} that there is more that unites us as a nation than the press and popular culture would have you believe.  Turns out I may be onto something.  Harvard's Carr Center for Human Rights and Institute of Politics recently ran a survey and found that more than 7 in 10 believe they have more in common with one another than many think.  One of the key findings in that poll was “That a majority of Americans are fed up with polarization and looking for ways to reimagine the values they have in common — the rights and responsibilities important to being an American today.”   Now this is only one poll and some might question its accuracy but it's closer with what I see than what you'll find out there in the public domain.   You can read about the poll here if your so inclined.

Back towards the end of August I discussed our political parties in terms of their respective conventions and my belief that one of them in the long run will need to pivot back towards the American middle or risk the formation of a third party.  Shortly after that I listened to an interesting podcast over at the Freakonomic's website on our broken political system.  If you want an interesting take on politics, as well as a different way to view our political parties then go listen over there to "America's Hidden Duopoly."  It examines our parties as if they were businesses.  It's insightful if your into understanding our modern political realities.  

Finally, the other day in the post just under this one, I discussed three things that everybody just knows.  It's may take on things the world seems certain about that are possibly inaccurate.   I'm going to add one more to that list.  Everybody just knows that people are going to be content hunkering down forever working in their homes.  Everybody just knows that nobody wants to ever go back to work again in an office.  Except I'm not so sure of that.  I wonder how many are starting to express the same thoughts as passed on to me yesterday by somebody who does some work for me who said he couldn't wait to get back into his office.  He's tired of working from home.  Now maybe he doesn't want to go back to the old 9-5 routine but I'll bet he and a bunch of other people in this country are itching to get back out there in the world.  This may become especially true as summer wains here in the north and people begin to contemplate months of being potentially cooped up again.  There's been countless speculation on the death of the office but I'm not sure I'd put all those towers up for sale yet if I owned one.

Finally regarding the markets anybody who tells you they know for sure what's going to happen the rest of this year, or even into 2021 for that matter, is dissembling at best.  Nobody can know even in a more normal year, which this one definitely isn't on that list.  Make sure your portfolios are in tune with your risk/reward perimeters and timelines.

Back Tuesday or Wednesday next week.

Three Things Everybody Knows

 Here are three things everybody seems to know right now.

1.  The election is going to be a disaster.  No way we're going to know who wins on election night and the whole thing is going to devolve into a repeat of Bush v Gore back in 2000.  Besides the President is supposedly laying the groundwork for a massive challenge to practically every state he loses if the results don't go his way.

Could be....but....

If the election were held today Mr. Biden would likely win with more than 300 electoral votes.  He only needs 270.  What's more he's leading in practically all the swing states that he'll need to win in order to to capture the election.  In many of those states the lead has grown in the past few weeks.  Now the election isn't today and this isn't a political commercial.  It's taking a look at the data as it stands right now.  Certainly things can change in the next seven weeks.  For one thing the debates could go poorly for Mr. Biden.  But assuming they don't then the numbers currently don't look in the President's favor.  If he loses by what the numbers currently indicate then it would be hard for him to claim the election was either rigged or stolen.  Certainly it would be hard for him to make a convincing argument for that beyond his base.  Time will tell.

2.  We are in for another miserable fall/winter/spring because of the virus.  Things are going to look just like they did back in March and April.

Could be....but....

I think the virus is here to stay.  Even if we get a vaccine I don't think there's any hope of completely eradicating it.  Instead I think eventually it will be more on par with the flu.  Maybe not this winter but in future years.  In the meantime while I don't think this year will look like a normal winter season, I don't think it will be as bad as last year.  Three quick reasons for that.  First, a vaccine is coming.  Maybe not till sometime this winter but something will be on the market by spring I think.  2nd, we have better therapeutics today than when this thing first hit.  We know more today than we did last March and we'll know more in six months than we know today.  Better therapeutics means a better chance of you not dying or potentially getting really ill.  3.  Mass testing is coming.  I'll have more to say on each of these in a future post but just understand that these three along with human adaption likely means that while life won't seem like it's back to normal come the winter, it will likely be better than last year.  Again time will tell.

3.  The stock market is overvalued and must have a major correction.

Could be...but....

There are a few sectors of the market that are overvalued by traditional metrics but much of the market, as the economy, is still significantly lower than where it began the year.  One could argue that for the main street economy we are more likely approaching the point in a recessionary cycle where things are just starting to turn positive.  If that's the case then these sectors are possibly the next leaders in the markets even if the high flyers take a breather.  Again time will tell and this is also something you'll see me expand upon in a future post.

Anyway that's how I see these three arguments.  Too many are so certain they know the future.  I say consider potential alternatives.

Back later in the week. 

Thoughts From Driving Across The Country

 These are my thoughts after driving nearly 1,000 miles the past few days.

-Market action as we chronicled last week has been downright ugly.  We are seeing a bit of a bounce today but that's to be expected given how oversold we've become.  Still what's sold off have been the high flyers that have come to dominate the major indices this year.  Looking at those sectors you can see they've basically retraced their blow-off runs in August.  Right now most of the ones I follow are back to where they were trading in Mid-August, which means these sectors are still up double-digits for 2020.  These sectors, basically technology and health care, could go nowhere the rest of 2020 and still have stellar performance for the year.

-Leaves were turning in the mountains as we drove west.  Very unseasonable cold snap here in Chicago.  Snow already in Denver.  Why do I think we're going to have a rough winter in 20-21?

-It seems there's more traffic on the roads now than we experienced when we drove east in early August.  I know the rest areas seemed busier.  My hunch is that Americans are venturing out more than the press wants to admit.  Everybody had on a mask, even in places that have been resistant to wearing them.  

-I'm not sure that everybody is going to want to work from home forever.

Anyway that's some quick musings from my drive.  Back later this week.

*I own ETFs related to technology and health care in client and personal accounts.  

Ugly!

Market action has turned ugly the past couple of days with major US indices losing between 3-6% since Wednesday.   Here's a couple of things to think about.

Stocks don't go up in a straight line forever.  A pullback after a strong run is normal and healthy.  It removes some of the froth from the markets.  What we're seeing is pretty typical after a strong run up.  The first few days of profit taking tend to be ugly.  3-10% market declines can be normal in this first phase.  After that a period of backing and filling usually is the reset mechanism for markets to at some point resume a rally.

So far this decline is hitting the high flying technology names the hardest.  Other sectors haven't seen nearly the decline in some of the companies or industries that have been running the show these past few months.

The current decline in the major indices, while steep and fast, has only taken us back to levels were markets were trading less than a few weeks ago.

Irrespective of what we're seeing these past few days, I think all investors need to be prepared for an uptick in volatility as we get closer to the election.

Labor Day means summer is unfortunately over.  Expect to see a few more posts showing up here in the weeks ahead.