By Christopher R. English, President of Lumen Capital Management, LLC
We have now officially flipped the calendar from summer to autumn, although habitually, for most Americans, fall arrives the Tuesday after Labor Day or whenever the NFL starts playing. Chicago’s September, traditionally our best weather month, has been warm and dry. Unfortunately, we’ve now waved goodbye to all that as the first major batch of cold Canadian air has invaded the Midwest, likely meaning a farewell for the most part to warmer temps.
Historically, autumn typically evoked a certain amount of dread in humans living in places that experienced significant variations in the seasons. Fall was the make-or-break time of crop harvesting, while the bitter cold was often feared in the era before central heating was invented. While times have changed, some of us may be feeling that dread as we face the uncertainties of the next few months. But there are those who don’t seem all that uncertain: the pundits and prognosticators. They seem to know exactly what’s about to occur with the virus, the election, and the financial markets. They’re constantly telling us how much they know and what must surely occur. I say let’s consider a few alternatives.
Those same prognosticators say that the coming cooler months for us in the North are going to be a time of social hardship as the virus forces us to spend more time locked up, just like last spring. Could be, but here's my guess: winter won’t be normal, but I also don’t think it will be as difficult as what we experienced earlier this year. Here’s my view.
Life With The Virus
You may not like this, but I think COVID-19 is here to stay. I don’t believe there's any hope of completely eradicating it in the next few years, if ever. Instead, I think eventually it may be more on par with the flu. Maybe not this winter, but in future years, as we’re learning more about the virus and developing the tools to fight it. First, a vaccine is coming. 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 their COVID-19 shots. Vaccinations will move slowly at first, but I’m expecting you’ll see a pick-up in availability as the winter progresses. This alone may not be enough to lessen people’s worry about the disease, but it should be an enormous psychological boost in the months ahead.
Second, we have better therapeutics today. I don’t want to get the COVID-19, 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 it now compared to last winter. Similarly, if I’m going to contract the virus, I’d rather come down with it six months from now because we’re going to know even more then. Better therapeutics also means a better chance of you not being severely impacted if you’re infected. 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.
That being said, 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. The best way to do that until we have medical backup is by mass testing, and it’s coming. Abbott Laboratories* recently told us they now have a rapid test that's 97% accurate. You take their test and the results are then downloaded to a smartphone app that you can use to prove to people that have tested negative for the disease. Testing supply is limited right now, but that should improve in the months ahead. Other companies are working on rapid testing as well. My guess is that by late this year, you will start seeing regulatory approval for at-home testing devices where the results are nearly instantaneous and also downloaded to a device like your smartphone.
Imagine how much more comfortable you would feel going out if you could enter a crowded restaurant and know that all the guests around you, as well as the staff, have tested negative for the virus. 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 U.S. economy. Besides restaurants, you could get on a plane again, go to a sporting or cultural event, even go on vacation to a resort or a cruise if you could be confident that those you come into contact with aren’t carrying the virus. Testing is the game-changer and the way I believe we’ll finally get the upper hand on the virus.
Adaptation Is Required
Humans have survived as a species because of our ability to adapt to our surroundings. We are adapting to this disease. Masks, social distancing, and temperature tests are all the norm right now. Expect this to carry over into winter. You might not eat outside in 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, some might opt for the sweater. Adaptation will be the new normal and we’ll likely figure out ways to go about our business as the months pass. 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 adjustments. As we find that new normal, life and the economy will improve.
Can You Predict The Future?
Let’s go back to those prognosticators. They say that people are going to be content hunkering down working in their homes forever. Somehow, they just know that nobody wants to go back to work again in person or ever go out again, for that matter. Could be, but I wonder how many are starting to express the same thoughts as passed on to me recently by a businessperson who said he couldn’t wait to get back into his office. He was tired of working from home. Now, maybe that person doesn’t want to go back to the old 9-5 routine, but I’ll bet many people in this country are itching to get back out there in the world. This may become especially true as summer wanes here in the North and people begin to contemplate months of being cooped up again. There’s been much 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.
They also say the election is going to be a disaster, that there’s no way we’re going to know who wins anytime soon after the voting is over and the whole thing is going to devolve into a mess. The President is supposedly laying the groundwork for a challenge to practically every state he loses in if the results don’t go his way. Heck, he might not even leave office if he loses! Could be, but here’s what the polls are saying.
If the election were held today, polling suggests Mr. Biden would likely win between 280-300 electoral votes. He only needs 270. What’s more, he’s leading in practically all the swing states that he’ll need to win the election. Now, the election isn’t today and this isn’t a political commercial. It’s taking a look at the current batch of data. Certainly, things can change, but I think the first two debates will pretty much crystalize the election. Swing voters are likely leaning toward Mr. Biden but need to feel comfortable in their choice. Joe’s gotta close the deal with them, I believe. Assuming the debates don’t go poorly for Mr. Biden, then the polls aren’t adding up for the President. 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.
Finally, they say the stock market is overvalued and must have a major correction. Could be, but I’ve said for some time that I expected the markets to become more volatile as we get closer to the election, so I’m not surprised at what we’ve been seeing. Besides the upcoming vote, add in how far certain sectors have moved since this spring, plus normal market seasonality, and you get the perfect recipe for stocks to move into a digestive phase. So far, at its worst moments last week, major indices were down close to 10% from their recent highs, but still have seen major increases since their March lows. This decline at its worst has basically taken us back to the beginning of August. It’s been a normal pullback so far, which is healthy as we’re removing some of the speculative froth from the markets.
There are a few sectors of the market that are overvalued by traditional metrics, but much of the market, like 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 highfliers take a breather. Again, time will tell. 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, and this one definitely doesn’t qualify for that description. Make sure your portfolios are in tune with your risk/reward parameters and timelines.
To The Future
Too many are certain they know the future. I say, consider potential alternatives. Consider an economy that continues the growth we’ve seen since the worst of things last spring, as well as better investment fundamentals. Consider better individual and business confidence if we start to believe we’re getting the upper hand on the virus. Also, take into account an election that potentially isn’t as divisive as many expect. All of these factors could be good for growth and have the potential to be good for stocks over the next 12 to 18 months. Evidence of green economic shoots has been showing up for months. A dose of the possibilities I’ve described above could be just what the doctor ordered…as well as an effective vaccine!
Finally, there is a central principle I hold that I’ve discussed several times with you (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 on to 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.” 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 you’re so inclined.
As always, stay safe and healthy and reach out to me with any questions at 312.953.8825 or email us at lumencapital@hotmail.com.
About Chris
Christopher R. English is the President and founder of Lumen Capital Management, LLC-a Registered Investment Advisor regulated by the State of Illinois. A copy of our ADV Part II is available upon request. We manage portfolios for investors, developing customized portfolios that reflect a client’s unique risk/reward parameters. We also manage a private partnership currently closed to outside investors. Mr. English has over three decades of experience working with individuals, families, businesses, and foundations. Based in the greater Chicago area, he serves clients throughout Illinois, as well as Florida, Massachusetts, California, Indiana, and other states. To schedule a complimentary portfolio review, contact Chris today by calling 312.953.8825 or emailing him at lumencapital@hotmail.com.
*Abbott Labs is a holding in certain ETFs we hold in client and personal accounts.
