Well, that went fast. Faster than even time can imagine. 2020 came and went, and it all seemed to unfold in less than a fortnight. In fact, less than a week. Risk warning for the young bloods out there: the older you are, the more the clock accelerates.
It all seems like little more than a dream, and maybe it was. A dream that is. But it is our obligation to review its highs and lows so let’s get to it, shall we?
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Of course, the most important news came in the waning days of February, in the wake of all that Middle East psychodrama that left the world pretty much where it was before it all began, anew, in early January. The region is no more (and no less) settled or peaceful than it has been over the last thirty centuries. Wake me in early 2121, and I suspect I’ll tell you the same thing.
The Big Event transpired after Iowa, after New Hampshire, after South Carolina, but before Super Tuesday. It was, in its way, pre-ordained. The money people in the Democratic Party, foreseeing the train wreck that awaited them in November, managed to impel, cajole and extort the only person who possibly could enable them to retake the White House, into running. We should have known that Michelle Obama was waiting in the wings, and it should surprise no one that she managed to take out the Orange Man. The only real shocks were: a) that she didn’t win by a wider margin; and b) that her coat-tails were not longer. As everyone knows, the House is now, for all intents and purposes, in jump ball configuration, while the Senate tilts slightly further to the Right than it did just a year ago.
Of course, the markets, which had been bouncing around with high vol and little direction as the inevitable outcome began to sink in, got scared and turned tail. The Gallant 500 has retreated, ignominiously, 10% from the high ground it captured in the first days of 2020. But bonds have rallied, and we’re again testing new all-time lows on the 10-year. I’m not too terribly worried at this point: a couple of short weeks before M.O. puts her hand on the bible. She seems smart and reasonable. Yes, she sports a degree from Harvard Law School, but in this era of increasing woke-ness, it is not our way to hold this against her. Plus, she doesn’t have much juice in Congress to do the bidding of her progressive paymasters, the increasing status/intrusion of The Squad notwithstanding. The global economy continues to slow, rates are yet again in sustained plunge configuration, and, after a frantic flurry of capital markets activity in the lead up to the election, investible securities are in scarcer supply than even a year ago.
So, if you’re so inclined, you have my permission to do some buying here.
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Wait, that must’ve been some sort of psychedelic flashback I had. Of course, what really happened was that Biden bumbled through a contested convention, but was forced to take Big Bucks Bernie, and (more importantly) his platform, on as his running mate. With all of 45’s unforced errors across the year (and, indeed, across his entire first term), the electorate found itself so horrified at the prospects of government controlled health care, nebula-like increases in government spending, higher taxes and intrusive regulation, that it unthinkably reinstated the current White House occupant. Looking back on this crazy year, one can only wonder at the Big Guy’s resilience, managing, as he did, to shut down not one, but two rounds of impeachment, and winning re-election to boot.
A couple of other factors helped Trump’s cause, including the reality that the Dem base simply couldn’t work itself up to turn out in force for two septuagenarian white boys. In addition, we can only applaud his shrewd move to ditch Pence from the bottom half of the ticket, in favor of the entirely more suitable Nikki Hayley.
The race, of course, was closer than many of the prognosticators had prognosticated, and, other than comforting presence of the fetching former Governor of South Carolina, little has changed. The Dems retain the House, the Republicans the Senate.
And now, with Blackjack ‘21 unfolding upon us, we’re on that boundary where whether to hit or stick becomes a true conundrum. Equities are up 6% from where they were a year ago, and the 10-year remains in Horse Latitude configuration: between 1.7% and 1.9%. The global economy is still winded and in need of a respite, and I will retain my stubborn call that rates will be going lower. I do expect Pelosi to finagle her way into another two years holding the gavel (almost certainly her last), and the soon-to-be-reappointed Schiff is likely to yet again crank up his impeachment engine. If (when) this fails, he will begin Round 4. At this point I feel pretty sorry for him. He never was carrying a full six-pack in his fridge to begin with, and now I fear he’s on the verge of a full-on nervous breakdown. I won’t lie: this worries me, as does the burgeoning rage of progressives, which, just when you thought they could not further outflank themselves in terms of hysteria, seems to be climbing to new heights of derangement.
Don’t get me wrong: I marginally prefer a second Trump term to the economically crippling prospects of the far left’s policy agenda. But I do worry that we’re going to carry this thing to far.
I’m OK with you buying and holding onto financial securities at this point though. It looks to me like QE5 is on tap, and, again, I remind you that inventories of stocks and bonds are dwindling by the day.
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I reckon, though, I should get offa my cloud and (reluctantly) re-enter the realities of terra firma. I am aware that it is in fact the dawn not of 2021, but rather of 2020, and that the latter story has only barely begun to unfold. I do think that the markets will be sucked into an inescapable political vortex, and believe that the scenarios I tripped up in the preceding paragraphs are worth pondering.
In the meantime, we picked up Thursday (1/2/20) where we’d left off on New Year’s Eve: with an unfettered bid on equities. But of course the big news of the week hit that night, with the announcement of the capping of this Soleimani character. Of course, it was viewed entirely through a political lens, with supporters of the current Administration weeping with joy, while their opposite numbers, with measured recognition that the dude was a bad actor, were nonetheless shaking their fingers at the horrific prospects of his delivery into the Land of 72 Virgins.
But while the politicians/pundits spun their webs, the markets reacted negatively, shedding almost all of Thursday’s gains, and leaving the SPX, unthinkably, at a year-to-date return of a meager 0.13%. I encourage my public to take heart, though: even after Friday’s give-back, the figures project an annualized return in the high teens. Which I reckon we’d take under any scenario.
There are a couple of other factors that render my mood about valuations somewhat sanguine. First, and as I suspected, bond yields backed off like a b!tch at the first sign of trouble. Expect more of this as the year unfolds, with every threat, every selloff, every economic stumble,causing galactic flows into Treasuries. Those who have been voting with their Prime Brokerage accounts on a steepening of the yield curve had a particularly difficult week:
So yes, I am stubbornly sticking to my long call on Treasuries. And even more so on my belief that they offer a unicorn-like hedge against headwinds in the equity markets. Nothing is so clear to me as the reality that the capital markets need the warm embrace of the Central Banks to avoid a form of collapse. Except maybe my certainty that the CBs know what they must do to accommodate this financial penury, and will act accordingly.
And, if I’m right, then interest rates will trend lower, creating a paradigm where market participants are for all intents and purposes baited into both borrowing and investing. The world, already facing record level indebtedness, will as a result experience a further bloating of the right side of their balance sheets.
In turn, and according to the rigid protocols of double-sided accounting, this will catalyze an expansion of the happier side of the financial statement, the one that records asset holdings. And, my friends, this will imply higher valuations.
I’m also, from a markets perspective, pleased at the bid that the recent military action catalyzed for on the Energy Complex. Ground Zero of the Credit Bubble is on their turf, and we need oil prices to remain elevated in order to avoid a crippling cascade of defaults. Which, speaking for myself, I’d rather avoid at present. Trust me here: it’s worth paying a little extra at the pump as a form of insurance against a domino-like explosion of insolvencies and bankruptcies that are certain to transpire if (when) the cracks in the bloated credit universe begin to widen.
On this we can all agree: we didn’t get too far into 2020 before the inevitable next soap opera scene of overwrought drama entered the proceedings. I have no informed opinion as to how this will shake out, and as such, won’t offer an opinion of any kind. I will state this, though: even if the current military condition fails to escalate, and the Middle East remains the dumpster fire it’s always been (minus one thug), we’re likely to hit some market headwinds soon. Under most circumstances, I will deem this a buying opportunity.
It all makes me deeply nostalgic for 2019, but we’ve covered that, ad-nauseum. My own personal struggles are not anything with which you can help me. I know this. I must deal with them on my own. And as the saying goes: Reality Bites. That was the name of a film released more than a generation ago. But it’s true even today. Maybe even more so.
I am thinking of going back into therapy. But not today. Instead, I think I’ll just fold into the concept of tucking under my weighted blanket and listening to my five favorite records on vinyl. That I am able to do so is a miracle I can barely describe, and it gives me hope in my ability to navigate what is sure to be a very complicated 2020. We will all face tradeoffs this year, but we always do. We know what we want, but the path to actualization is unlikely to be either linear or pain-free.
So please take care of yourselves, won’t you? Do it for me. I’ll be working on my own stuff, and upon further reflection, the quicker I can source a therapist the better off we’ll all be.
Here’s hoping she (yes it will be a woman) can help me resist the temptation to project out to 2021 until the appropriate time to do so arrives. Because the biting reality is that it will be here before we know it.
TIMSHEL