Eagle, CO
Investors,
After the first three quarters of 2020, I could not be more pleased with our results. The Appreciation Strategy in particular, has done extremely well, more than doubling the return of the S&P 500 index. Meanwhile, the Income Strategy has largely achieved its objectives and is up a little for the year while experiencing only about 1/3rd the downside of the index back in March.
Regular readers know that I think value stocks (which is what the income strategy is full of) have been due for a comeback after underperforming growth stocks for basically a decade. The income strategy did outperform the appreciation strategy for September. Both were down a little, but less than the S&P 500 which finished the month -3.92%.
Elections & Markets
By the next time I write this note, we will all have cast our vote for president. Whether or not we’ll know the results of the election is another matter altogether.
The answers to the final question in the recent presidential debate along with the stock market reaction to those answers, were telling.
Here is a link to the debate, the last question is at 1:59:25 or so… The moderator, Chris Wallace sets up the final question by stating that there will be a lot more mail-in ballots than normal this year, and so it may take days or weeks before they are all counted… at 1:59:12 Trump interrupts Wallace with “it could be months!” before Wallace finally gets his question out:
“Will you urge your supporters to stay calm during this extended period, not to engage in any civil unrest? And will you pledge tonight, that you will not declare victory until the election has been independently certified?”
For what it is worth, any answer besides, “Yes.” should be shocking.
Not only did Mr. Trump not agree to this pledge, but part of his answer included “it means you have a fraudulent election!”, at 2:00:20… which also should be shocking…
Stock futures had been steadily climbing for the entire two-hour debate but then gave back all of those gains, and then some, by the time Mr. Trump was done answering that final question.
The president has already said he thinks this election is a fraud. He has also said he will refuse to leave the White House if he thinks the election is fraudulent. He said during the debate that “it could be months” of uncertainty.
Remember the month before last, when I mentioned the markets being okay with bad news, but not with uncertainty? Well, the markets reacted poorly to Trump’s answer, and they will react even more poorly if his months-long contested results situation comes to pass.
I wonder though, what happens if Trump wins again?
Magically not fraudulent election, again, I presume…
Trump & COVID19
That first debate was on Tuesday, September 29th. By Friday, October 2, Mr. Trump was at Walter Reed National Military Medical Center, fighting his own battle with COVID19.
The markets took the bad news in stride. Again, it’s uncertainty, not bad news that the markets don’t like. Plus, even for a guy who is 74 years old, overweight and doesn’t get much exercise, the odds of survival are still very high. Don’t get me wrong, I am sure he’d rather not take the chance, but as a professional (and unemotional) betting man, I would put big money on 97.3% survival, if I had to bet. And I am glad I don’t have to bet on mortality – I will leave that to the insurance companies.
I wish President Trump the best toward a full and speedy recovery.
COVID19 & The Economy
I have heard several people posit that “the whole mask thing” will go away after the election, suggesting that the mandates are a direct effort to get Trump out of office. It seems like a stretch to me. I have a hard time believing that “the whole mask thing” will just go away after the election if Biden should win.
In fact, our Director of Investment Operations, Jacob, said after the debate was over:
“My biggest takeaway from what I saw last night was Biden is prepared to shut down the country again and Trump isn't.”
Jacob isn’t the only one I know who feels this way, either. In any case, it seems to me that if Biden wins, masks are more likely to stay, and become more heavily mandated… not less.
I find it fascinating that masks are optional at the White House but mandatory almost everywhere else, by the way.
Unfortunately, it seems that countries around the world are looking to reimpose heavy restrictions on their economies. Israel is the first country to reimpose a nationwide lockdown and bars in Paris, France will be shutting down on Tuesday, according to recent reports.
With these shutdowns will come massive new stimulus that will probably only propel the markets higher while exacerbating global income inequality issues. As I mentioned last month, the food bank lines are long and getting longer…
The big problem with all the stimulus is that it inflates the respective currencies, making them worth less and making goods and services cost more. The only way to maintain purchasing power is to own assets before the stimulus comes.
But if you earned a low income before COVID, and now you are unemployed you probably don’t own (m)any assets that would appreciate as the government prints the money to give you via unemployment (where the extra $600/week is long gone).
And you certainly won’t be doing much investing in your future until you can get back to work – even if you don’t have to pay your rent or mortgage. Democrats in the House of Representatives recently passed a $2.2 Trillion COVID19 relief package that included a total ban on evictions for nonpayment for (another) 12 months.
But again, these are all short-term fixes that hurt someone else. Think of the local bank with large mortgage book in a hard-hit community. Who is going to pay bank employees if nobody in the community is paying their mortgage?
The government doesn’t have any money – anything it gives to someone must first be taken from someone else. So, it won’t really be Uncle Sam footing the bills.
Uncle Sam has a printing press and he will use it to print a bunch of money to give away. Each new dollar printed will be worth less than the previous one. Each new dollar will bring all the other dollars down to its new, lower value. And this invisible tax is paid disproportionately by the poorest – the very people Uncle Sam has claimed to be helping with this economic alchemy.
Those currently in political office do not pay. They benefit and expand their power and control.
As much as I hate it, that is the way it is.
With all that said, since we know how the political class will always behave in times of great distress, we must act accordingly to position ourselves to gain more wealth than they can steal through inflation.
What now?
The best ways to hedge against inflation are through exposure to real estate, precious metals, and bitcoin.
Real estate is a major holding for most people in the form of their home and we maintain some gold and silver in our portfolios already – but bitcoin you must do on your own. It’s easy though, so let me know if you want some help getting started.
Right now, I am also thinking of the upcoming holiday season as a shorter-term way to position portfolios for gains.
Growth in online holiday shopping has been growing steadily, for years. I think that growth is about to explode. It is obviously not very socially acceptable to have massive crowds gathering for door buster sales and at check-out lines – masked or not.
Companies will drive all those customers online. For the first time in 3 decades, Walmart will not be open on Thanksgiving Day, this year. Same goes for Target and many others, to be sure. But I highly doubt the kids will understand that “COVID cancelled Christmas,” so the show must go on(line)!
Which companies are positioned best for the upcoming “online only” holiday season? I have a few in mind.
The obvious choices are Amazon (AMZN), MercadoLibre (MELI) and probably my personal favorite, The Trade Desk (TTD).
TTD is in the online advertising business. They sell advertising space to the highest bidder using your internet cookies to tell the bidders who you are, driving the price of the ad space much higher that it would otherwise be.
With all those eyeballs being driven online, from in-store, TTD stands to benefit in a huge way as advertisers pay up for access to the shoppers most likely to click “buy.”
As always, thank you for reading!
Shane Fleury, CFA
Chief Investment Officer
Elevate Capital Advisor
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