Eagle, CO
Investors,
The strangest of times continue… and (they) seem to get stranger by the day.
I signed off my last note with a quip about the cruise ship industry needing a bit more time before getting back to business. Evidently, officials in Italy agreed with me as of Monday. In a news release on July 9th, Carnival Corporation announced plans to restart “Sailing Vacations,” in August.
According to news outlets, the company failed to gain regulatory approval for their plan and as I suspected, the cruising will indeed have to wait… what a shame.
That a group of 20, 50, 100, or 1,000 grown-up, adult humans are not able to get on a boat together and enjoy themselves is beyond astonishing to me. I wonder how full/empty the ships would be if they were permitted to sail today…
I am sure the oil industry is missing the consumption. Have you driven more or less than normal, lately? Can you imagine how much oil is not being burned by all the cruise ships collectively not being sailed? Same deal with airplanes… Tough times for the oil producers continue.
A large cruise ship can use up to 250 tons of fuel per day – which is about 80,000 gallons.
1 barrel of oil can produce about 12 gallons of diesel fuel…
Each “large” ship not operating leaves about 6,666 barrels of oil in storage that would have otherwise been burned.
There are normally 61 “large” cruise ships on the high seas – today there are zero.
This works out to about 0.50% of daily global oil demand.
Great for mother nature, (still) bad for Exxon Mobil (XOM).
With all that oil being stored for so much longer than normal, and supplies running as high as ever, why should the stock of electric car makers, like Tesla (TSLA) be flying high?
Your guess is as good as mine. But it has been this way for a long time now, and it is not likely to change in the near term.
So long $600/week
Q: What’s the opposite of progress?
A: Congress.
These bozos (collectively) literally gave a huge number of people more money to stay home and not work, than many of them would have ever earned by going to a place of business and providing a product or service to a customer.
For example, my daughter who works about 20 hours per week at the local fitness center, and makes around $13.00/hr, generally earns around $260/week. She could have decided to collect unemployment benefits (when the gym closed for a while) and received substantially more income from the government to NOT work, than she otherwise would have. Not to mention that she must literally risk her life (if you believe the hysteria) just to make that $260/week… Staying home and safe seems like the logical choice – but it isn’t.
I am pleased to report that she did not file for unemployment and has been going to work regularly for several weeks.
But the $600/week of “extra” money is officially gone. At least for now…
I like to remind my wife that there is no such thing as “extra” money – there is more, or less, and more is always preferable – but there is never any “extra”!
Not to worry, rather than giving money to only unemployed folks, the vote-buyers, aka politicians in Washington are seeking to give even more money to an even larger slice of the population through the next round of “stimulus” payments… which are a lot like using a baseball bat to stimulate a sleeping person to a point where they wake up… yes, they will wake up but they will take a long time to stagger to their feet and they will be severely damaged if they ever get there. Not all stimulus is healthy, or good, or even necessary.
Where were the stimulus checks during World War II, for example? Well, interestingly, they went the other way. The American citizens loaned the government money via “War Bonds” to fight the war… the government (which never had any money and doesn’t today) was not bailing out restaurants and businesses who couldn’t survive through confiscatory money printing. Nor should they ever. It is not the government’s role to confiscate value from one citizen and then give it to themselves under the premise of sharing it with others who are less fortunate. This behavior lends itself to further oppression of the underprivileged.
How?
Well, when the government prints money, an invisible tax is paid largely by the poorest Americans. When monetary policy forces price inflation (increases) on every-day goods and services, it also forces price increases of even larger magnitude on assets like real estate, gold, and stocks…
Who owns all the real estate, gold and stocks? The wealthiest 20% of the country.
For anyone who “controls” more assets than they have in expenses they are enriched by inflation while the poorest citizens fall further and further behind. It is no wonder people are angry. Many of the folks you see protesting, rioting, and behaving in crazy ways actually have nothing to lose. So many people having so little to lose (whether true and accurate or just in their own assessment) is not compatible with “the best economy of all time”, as our President would have you believe.
Elections and markets
Many are focused on the upcoming presidential election in the United States as a market-driving event. I am not. I almost don’t even care. Frankly, I shouldn’t have to. The name, skin color, gender, religion, sexual preference, and even political affiliations should have almost nothing to do with how we invest or any other impact on my life.
The office of the President (along with all the others) is supposed to be that of a public servant – not a visionary founding entrepreneur. I realize that isn’t how it works, but a guy can dream, right?
Honestly, it seems like the highest office will turn into even more of a popularity contest in the coming decades with more and more billionaire celebrities threatening to enter the race. I have joked that we should just make the American citizen with the most twitter followers the President every 4 years. We would save a lot of time and money as a country on the election charades which always seem to be contested.
In 2016, nobody expected Trump to win. I don’t even think he expected to win. And get this, people literally feared what would happen if he did win. Democrats and republicans, CNN and FOX news, all of them were concerned about Trump winning on the idea that he would “drain the swamp” and disrupt the status quo.
You had republican hedge fund managers pledging allegiance to Hillary Clinton… and a ton of republican politicians who refused to support Trump and his policies because of course, they would be disruptive. People thought the market would literally crash if Trump got in.
If you look at a chart of the market from the summer of 2016, you will see that as Trump picked up steam and it became more likely that he would be the republican nominee, the market was steadily falling, I think largely on the uncertainty surrounding the election outcome.
Even as late as the night of the election, the market was very unsure of how things would go with futures trading closing for the night because index futures contracts had reached their “max limit down”. By morning, once the dust had settled and it became clear who the President would be, the stock market rallied back to open higher than where it closed the previous day – even after going “limit down” overnight.
Many Trump supporters attribute the market turn-around to the surprise of Trump winning over Hillary. And even though it WAS a surprise to basically the entire world, I disagree. I have seen this story play out time and time again in the markets. And you may have even heard me say it before.
The market hates uncertainty more than it hates bad news.
The market can handle bad news. Yes, it goes down, but it comes back too. Just look at the bad economic news we have seen recently… More people have lost their jobs in the past few months than ever in the history of the America. How is the market reacting to that bad news?
So, if you happen to see Mr. Biden’s potential election as bad news, perhaps you should rejoice and look forward to that news being final. The market doesn’t care who sits in The White House any more than I do, personally. We (myself and the market) just want to get it over with so we can move on to focusing on matters which are actually relevant to the economy. Once the outcome is certain, I believe the most likely scenario is for the market to rise on average.
Some clients want to know what we will do if Biden wins.
Answer: The same thing as always. Follow stops and allocate cash to our best ideas and opportunities that are sure to develop.
We just witnessed the fastest, most violent stock market crash in the history of the American stock markets. And frankly, we crushed it. We hit some stops yes, but we took the opportunity to reposition the cash raised from selling positions (largely for profits after a long bull market) into new companies that are positioned to do well in the new (COVID19) economy.
We were never down as much as the market was, and we are still ahead for the year.
If the market is going to crash on election results in November – I am looking forward to it.
If it actually comes down to a choice between Biden and Trump, a couple of rich old white dudes, I just can’t see the differences between them as much as I can see the similarities between them. So, in my view, I just don’t care. I will probably vote for Jo Jorgensen, the female Libertarian candidate, or not vote at all.
I actually think that Trump’s odds of winning are lower than last time. But Mr. Trump’s odds were terrible last time, too. I think the difference this time is that Trump is the incumbent and favorite, whereas last time he was the underdog and there was no incumbent. Its easy to vote for the underdog. Especially when he is claiming not to be a politician and that he is going to make serious changes in Washington.
After 4 years of basically doing exactly what he said he wouldn’t do, and what all the other politicians in that office have done for the last 50 years (raise debt ceiling, hire Goldman Sach’s cronies, publicly attempt to influence Fed policy, etc. etc.) - anyone who voted for Trump on the basis that he was going to be different has to be extremely disillusioned.
So, now, Trump must win as the incumbent favorite who inherited the worst economy of all time, then increased deficit spending, begged for lower interest rates when the economy couldn’t handle “normalized” rates, failed to reform healthcare in any meaningful way, and then called it the “greatest economy of all time.”
Go figure. Its political magic.
Don’t worry, it’s not just Trump that I don’t like. I hate all politicians equally. But Trump is the king of all bozos and absolutely disgusts me. Not any more so than Biden, though.
And don’t worry about the impact of the election on your portfolio, either. Worry (if you must) about the next “Black Swan”, the next COVID19 – which is mostly an exercise in futility.
“Worry” is actually one of the most useless of all human emotions. Usually, when we worry about something, it doesn’t happen, which positively reinforces the worrying even though it doesn’t have any impact on the outcome. In the meantime, we experience emotional and even physical distress. It’s unhealthy at best.
We are well prepared, and positioned for whatever comes next – and so, I tend not to worry much.
Cash
Speaking of positioning… We still hold a bit more cash than normal in both the Income Strategy and the Appreciation Strategy. This is because no matter what anyone says, our economy is trash.
We all know this and see it for what it is – yet the market continues to climb and climb.
The dollar had its worst month in a decade in July and is down about 10% since the March 2020 high. When stocks are priced in dollars and the dollar loses value, it appears (in terms of dollars) as if the stock has gained in value but this is mostly an illusion.
Further, only about half of the population of the USA owns stocks; that includes less than 50% of Black Americans and only around 25% of Hispanic Americans.
Again, I say the economy is trash. And again, I say, that won’t stop the stock market from going up, relentlessly - no matter who sits in The White House.
Holding dollars while the dollar is going down may seem counter-intuitive. But, for perspective, the dollar has lost around 95% of its value/purchasing power since the Federal Reserve Act of 1913. That hasn’t stopped anyone from holding plenty of dollars.
Our cash position gives us the ability to hold on to our best positions through major volatility. It also allows us to allocate to more aggressive positions than would otherwise be possible, while maintaining the desired risk exposure.
And even though the cash reduces the upside return potential, both strategies performed in-line with their benchmarks for the month of July with the Appreciation Strategy largely matching the S&P 500 gain and the Income Strategy achieving roughly half the upside.
Further, we have some exposure to gold and silver (and personally, bitcoin too) as hedges against all the dollar value destruction.
As we gain more clarity around the ongoing COVID19 situation and put the 2020 election in the rear view mirror, I will actively be seeking to reduce our cash position, in favor of high-quality stocks that will reward shareholders in the long-run.
There will always be uncertainties to worry about. For example, I haven’t yet mentioned that the 120 day period where mortgage servicers were prohibited from initiating foreclosure proceedings – will expire today, if you missed your April mortgage payment.
And while that seems like a big negative for the economy, and it probably is, it also probably just means more stimulus and more stock market growth.
So, wrapping up:
1. Economy is terrible. But it has been for a long time. Since before Trump, and before COVID.
2. We were ill-prepared to deal with COVID19, which is why we need all the federal stimulus.
3. The economy wasn’t “great” at any time since the financial crisis... maybe longer.
4. Stocks and bonds have gone up over the long-term, anyway.
5. There will always be something to worry about. Some of these things will even cause short-term crashes.
6. The crashes generally lead to government stimulus and buying opportunities.
7. Cash (and trailing stops) give us the ability to take advantage of those opportunities while cushioning the downside.
8. Markets hate uncertainty more than bad news.
9. Even if a Biden victory is “bad news” for the stock market, once we have the bad news, the most likely path for the market is up.
a. 10 years after the election of any president since the great depression, only once has the S&P 500 lost value. That was the 10 years following the election of a republican named George W. Bush, from 2001… which is probably just unlucky timing.
Of course, the market won’t go straight up. It never does and never will. There will always be worries and setbacks that create uncertainty. As the market gains clarity around those uncertainties the market tends to recover its losses and make new highs – only to find a new set of worries along the way.
One quick item of housekeeping for clients: you have grown accustomed to receiving your monthly report card on the 5th of the month but due to some operational changes we are going to move that to the 10th of each month, starting in August.
As always, thank you for reading!
Shane Fleury, CFA
Chief Investment Officer
Elevate Capital Advisors
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