Thoughts From The Road {Part II}

Readers of this blog will note there's been a bit of a gap between these posts while I've been working remotely.  That's because last week I was able to secure a dose of the Pfizer vaccine.  However, I had to fly back to Chicago, then drive nearly a 100 miles southwest to Mendota, Illinois and wait in line in a CVS there in order to get the job done.  All in I clocked 2,300 miles to get vaccinated.  I doubt that's a record but it may be close.  At some point maybe I'll write about Mendota as a proxy for small towns today but want to wait a bit on that.  I have a return trip down there for when I get back to get my second dose and may have some more time to poke around there then.  I had a sore arm from the shot and the next day felt really tired.  I was also a bit "off" for a few days after the shot but other than that I've had no noticeable side effects.  

Some further observations from the road and then a market comment.  Covid may not be done with Americans, but Americans are done with Covid.  I flew home and back to Florida to get my shot.  The planes were full.  The airports are full.  People wear masks but social distancing is a lost art at this point.  Governmental officials and the CDC can plead all they want about a spike in cases and to please stay home, but the horse has left the barn on that.  Whether that's the correct attitude or not only time will tell.  For better or worse Americans want their lives back.

Having said that, masks are required in every place I've been to and business establishments maintain social distancing requirements in their establishments.   Most people still wear masks in public spaces, even if not required to do so.  My impression is that people still take prudent precautions but at this point are unwilling to let the disease so totally dominate their lives that they're willing to live as exiles anymore.  Restaurants are full at whatever capacity they're allowed to have.  Many of those fully vaccinated seem to feel bullet proof from the virus.  I'm not sure that's a confidence that I'll share when I've completed the treatment, but I do have to say it eases the mind a bit to even have one shot in the arm.  I think we're going to start seeing this new found confidence show up in personal spending numbers in the next few weeks.  

Now a thought on the markets.  For the most part what we've seen over the last six weeks or so is a market that's been grinding in place.  Part of me suspects that has to do with the large bull run we saw from November through early February and the other part suspects what we're seeing is a wait and see approach from investors on whether the reopening thesis is going to play out the way most expect.  At any event a market that corrects in some parts by price in here and some parts by time is in my opinion a healthy sign that there's a potential for further price increase in the months ahead.  Now, it wouldn't surprise me if you have to wait a bit for that to occur.  Given the run we've seen in stocks since last years lows, a pause at some point ought to be expected.  I'll repeat what I've previously written, I still believe we're going to be shocked by consumer spending in the months ahead.  Nothing I've seen while on the road makes me think otherwise.  Some but not all of that spending is reflected in stock prices and I still believe that has the potential to reflect positively for stock prices in the months ahead. 

Thoughts From The Road {Part I}

Many of you are aware that I've taken the "Show" on the road for a bit this spring.  We decided after Christmas that spending four months locked down in our place wasn't going to be on the agenda so we made some plans and have relocated work down in parts of the country that are a bit warmer than home.  We're hitting two parts of the state of Florida before heading up to Kiawah Island in South Carolina.  Of course I'm part of the original work from home generation as I've been doing that for the better part of two decades, but I've also been working remotely for years when we'd spend parts of the summer in Rhode Island.   It's amazing to me how much easier this is in 2021 than it was back when my kids were little.  Back then I'd work off of a bulky lap top and would need to bring at least two big boxes of files, research etc.  Of course it helped that there is an office out in Rhode Island I can use when I'm out that way.  Back then I really needed the capabilities of a printer and fax machine which we have out there.  Today I throw a computer in the car as well as a laptop.  The computer is a self contained unit that takes up no room.  I pack what I need in a couple of briefcases and I bought a cheap printer before I came down here.  I need that for copying and scanning.  No faxes anymore!  At any rate I thought today and maybe next week I'd share some things I've noticed while being on the road.

First America is opening up and it's doing so with or without governmental permission.  The two hotels we stayed in on our way down were at capacity.  The main drag of the town of Delray Beach {where I'm near} looks like there was never a lockdown.  The beaches are full.  I don't know about the nightlife scene down here because that's not something we're doing but restaurants are booked solid.  Florida gets a bad rap, yet you can't go into a business establishment without a mask and I notice those without them down here are either young or outside.  People over 50 for the most part wear masks.  Most restaurants have done what they can to move as many of their patrons outside.  People practice social distancing.  I'm sure the vaccines have a lot to do with people's attitudes but I think you'd have a hard time keeping people locked up after a year of this even without them at this point.

Anybody who says there's no inflation hasn't filled up their gas tank.  When I left gasoline was $2.65.  It's on average $2.84 down here.  I saw $3.13 near the water the other day.  

I'm on a wait list now in Illinois to get vaccinated.  If I can get an appointment then I'd consider flying home as I have plenty of credits on airlines for canceled trips last year.  Still may want to reconsider that given what I've seen of planes.  Suddenly they look jammed again.

Plenty of the people from up north I've met down here have either already moved or are considering it.  Ran into an additional five couples from Chicagoland at the place I'm staying.  All want out of our area as places of permanent residency.  One gentleman I met came in January and planed to stay a month.  He extended his stay, then extended it again.  Now he's bought a place down here and is selling his home in the Philadelphia area.  I know there's been some press these last few days about how the supposed move away from places like Chicago and New York is overblown.  I'll say two things about that.  Most people don't necessarily want to move away from home forever.  They want the magic word residency someplace other than a place like Illinois.  Most don't plan to stay down here one day longer than they need to in order to not be considered a citizen of Illinois.  As to the actual numbers if folks making the switch, well you don't need all that many if the folks that are leaving are the ones that pay the taxes.  

I still think we're woefully underestimating what GDP is going to look like in 2021 and I still think that's supportive of stocks.  I know interest rates have moved up recently and that's been one of the excuses for why growth stocks have been struggling.  I think growth stocks are range bound because of the fantastic moves they had last year and other areas of the market looked cheap by comparison.  As to interest rates, the 10-year US Treasury bond currently yields 1.62%.  I can remember when that bond yielded between 5-6% and stocks still managed to move ahead.  Call me when you can get 3% on a 10-year bond then I'll start to worry about bonds being competition for stocks.    

Back next week.

Go Read

I'd planned to write an entirely different piece this week but then I came across this article and I knew I had to flag it for you.  Everyone should go read "The Stimulus Package Won't Cut Povety, It Will Accelerate It".  Politicians like to believe throwing money at the problems caused by the pandemic will solve its issues.  Instead they will create inflation.  See below for an excerpt.

So why exactly {does the author} believe this stimulus package is a net negative for the bottom 50% of Americans? Simply, the benefit of a stimulus check and unemployment insurance is drastically outweighed by the negative impact of inflation, both in consumer goods and asset prices.

All the academics, millionaire bloggers, and wealthy hedge fund managers get real mad when you start to disprove their narrative that the government is cutting poverty and showering money on people. Here is a generalized view of the problem:

1. Each socioeconomic class experiences different levels of inflation. The richest hold investable assets and are less likely to purchase consumer goods most affected by inflation. The lowest socioeconomic classes hold no investable assets and are more likely to purchase inflationary goods.

2. The official inflation numbers are widely inaccurate. The official data says less than 1.5% inflation, but the Chapwood Index claims 7-12% depending on the city and Shadow Stats claims over 6% inflation as well.

3. These large stimulus packages flood the system with liquidity, which drives asset prices much, much higher. (Zero interest rates help significantly here too).

4. Those holding investable assets get wealthier and those not holding investable assets become poorer.

It is that simple. The purchasing power of the U.S. dollar is being eroded away based on historical trends, but these massive stimulus bills (which now total almost $6 trillion in a year) accelerate the problem. As I said, the second the Senate voted positively for this bill, the government is further enriching the wealthiest people in America, while simultaneously pushing the bottom 40% of Americans into a worse financial situation.

There's a lot more to the article than what I've shown above, including some proposals that I think make a ton of sense so I'd encourage you to go read the whole thing.  

We are doing a few weeks out of state and next week I'll give you my impression on some of what I've seen and heard as we've made the move south.

The Best Years Of Our Lives

By Christopher R. English, President of Lumen Capital Management, LLC

I am always on the lookout for major investable trends. For example, I have often written about how technology and healthcare are significant beneficiaries of the exponential growth rate of knowledge. The post-COVID-19 world is emerging as an entirely new frontier where we can and should research investments that are adapting well to our new reality. There’s no doubt that the virus has fueled rapid change. Experts claim that in certain industries, five years of innovation have occurred within one. In addition, the pandemic has also accelerated trends that were already in place. Since markets anticipate the future, it’s important for us to start wrapping our minds around this now, even though the virus is still active. Here’s why.

The Impact Of Vaccinations

We are slowly turning the tide in our battle with COVID-19. Whatever the current vaccination rate, it will never be lower than it is as of now. Immunization rates can only improve going forward. About a million of us are now getting vaccinated each day. By late spring, we'll probably see about 100 million people vaccinated, with a sizable percentage of those folks having two jabs in the arms. Next, add in all the people who’ve recovered from the virus, both reported and unknown, and it’s estimated nearly 55% of Americans may already have had COVID-19. (1) Taking vaccinations and viral exposure into account, it is possible that herd immunity may be closer to reality than many think.  

Simply put, the virus is running out of hosts to infect. Yes, there have been mutations, but the virus is now on the run, not us. So far, the vaccines seem to work against these new variants, and our wonderful pharmaceutical companies are working on researching solutions to these changes. You may need to turn around in a few months and get a booster shot as protection against newer variants, and we’ll soon know if you’ll need to get a COVID-19 vaccine every fall for the foreseeable future, just like the flu shot. As we get the upper hand over COVID-19, it’s time to peer into the future and see what may come. To do so, we’ll first take a peek at the past—via the movies.  

A Changed World

There are many great motion pictures about the Second World War. Interestingly, one of the best ones didn’t involve much in the way of heroic battles. In 1946, just as the country was readjusting to peacetime, Hollywood gave us "The Best Years of Our Lives". The film follows the story arc of three veterans returning home after the war and follows their difficult adjustment to civilian life after so many years of military discipline and the stress of combat.  

The movie was a box-office success and struck a chord across the nation. Americans increasingly understood they had withstood a great event and the country wasn’t the same as when it had sent young people off to battle in 1941. Perhaps not everybody saw this in the beginning, but the soldiers did. They came home to a country that many could barely recognize, one that had undergone profound changes since they shipped out. The soldiers were the first to understand, just as in that movie, that great events change things. Nothing would be exactly as it was when they left. On the surface, things might look the same, but returning GIs had done too much and witnessed too many things to see the world in the same manner as they did prior to Pearl Harbor. You could come back to the place you were from, but you could never come “home” again. That place didn’t exist anymore.

I think about that movie when seeing how much things have changed as we reach the anniversary of the last time life felt normal. Back then, we were staring at a dark crisis rushing at us too quickly to make thoughtful decisions. Now, we are a year in and in an entirely different place. As we emerge from this catastrophe, we’re unlikely to find anything like “normal” (if that means returning the world to exactly as it was). As with the World War II generation, we’ve all seen and experienced too much for that to happen. Yet, as we pick up the pieces and try to find our way back, here’s what I think is going to happen.  

Our New Normal

After all we’ve endured, I think we all have a deeper appreciation for life itself, which brings greater joy. The vaccines are going to allow us, in some way, shape, or form, to resume the activities that make life worth living. Family gatherings and parties will start up again, probably relatively soon. I also believe there will be an economic advance the likes of which we haven’t experienced in decades. There's now over a year of pent-up demand for many things. A primary spend will be for entertainment, trips, and all the accouterments that come with that. All the things that have been denied to us for so long will start to come back and people are going to embrace this great reopening with the same exuberance as sailors coming into port after a long stint at sea.  

Without minimizing all the pain that’s occurred, experience tells me that folks are in a mood to live and celebrate again. Besides, many of those economically impacted by the lockdowns are those in service and entertainment businesses. These are the people most likely to be the beneficiaries of this great reopening as it occurs. I also think the spending surge will come before all of the new stimulus money the Biden administration pushes into the economy. The multiplier effect of all that money coming out of hibernation is going to be stunning. You're already witnessing this in places that have relaxed COVID-19 restrictions. Therefore, I think economic numbers for the next few quarters are probably low. Earnings estimates for the market may not reflect what I think is coming and that could be supportive of stocks in the coming months as well.  

I think we’ll also have a national reckoning of what’s been taken from us by the pandemic. Other than the death and economic costs, we’ve also had much stolen personally. Graduations didn’t happen and seniors in high schools and colleges never got that final goodbye tour. Many grandparents have not seen their grandchildren in over a year or met the new ones welcomed into the world, except through Zoom. Brides didn’t get to have the wedding they’d always dreamed about, or if they did, it was a slimmed-down affair. There were no or few retirement or birthday parties to celebrate major milestones. Residents of nursing homes have been virtual prisoners in their rooms for much of this time and, for the most part, shut off from their families. Perhaps the saddest are the stories of COVID-19 patients who died alone, with no family by their side and no chance for the family to say goodbye with a traditional funeral. We will be dealing with these consequences and these changes for years to come.

Looking To The Future With Hope

As it becomes clearer and clearer that the worst of the virus is behind us, I believe we’ll emerge knowing we’ve endured a generational great event. The world will never look exactly like it did before the lockdowns last spring. What will pass for normalcy going forward is unclear. However, my guess is that, as a country, we’re going to feel like we’ve weathered the passing of a massive storm, and if we can face down the virus, we can tackle other significant issues as well. That confidence will then trickle into the economy. I think we’re going to be surprised at the rapid pace of economic recovery and growth over the next few years.  

I think the blueprint for what we’re about to experience will be similar to what our economy went through after World War II ended. On that note, I want to end with a final reference to that time. That war ended in September 1945, when Japanese dignitaries signed surrender documents aboard the USS Missouri. Those watching on the deck of the Missouri knew they were witnessing history. They may not have been able to figure out how things were going to change, but it was pretty obvious that the world was a different place. The men and women of that time will also tell you how the war’s end lifted an immense burden from them. They could imagine life with hope again and they now had the opportunity to grow old. Well, we experienced our own “generational event” when a nurse from New York sat in a chair and received the first dose of the coronavirus vaccine. As in 1945, we’re confronting a changed world and doing so at a time when many of the burdens imposed on us by the virus are lessening.

If the past is prologue, then people will be in the mood to live again. The economy did pretty well in the years after that war. All that pent-up demand was just waiting to be spent. Similarly, I think we’ll be surprised at the economic growth we’re going to experience in the years ahead. I have optimism for the long term based on past experience and what I’m already seeing. It will be my job for you to find those new trends and try to develop winning investment themes from this as the years pass. If you want some guidance along the way, please reach out to me at 312.953.8825 or by email 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.

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(1)  https://www.wsj.com/articles/well-have-herd-immunity-by-april-11613669731