Author: adamweingartner

Verschlimmbesserung (German) is an effort to make things better, which really ends up making things worse.  No, I don’t know how to pronounce it.

For this month’s missive, we’re going to talk a little bit about what’s happening and not to be guided by what we’re hearing.

We’re hearing (especially in Missouri) about new mask mandates, the risk of the delta variant (although thankfully deaths and hospitalizations remain relatively low),  increasing tensions with China (I thought these trade wars were easy to win?), and rising inflation.

Here’s what’s happening.  The chart below of the Russell 2000 index (the de-facto proxy for the reopening of America) has gone sideways for the better part of six months after an amazing rally post-election (and post vaccine announcements).

While we have been outspoken “large-cap tech” buyers for the past several years, the spread between value and growth has now become stretched to a point where it would make some sense for technology to take a bit of a breather, while the underpinning of the American economy (small businesses) catches up a bit.

Just last week we saw an extreme in sentiment in relation to smaller businesses as shown by breadth (volume of stocks going up versus going down).  On Monday, July 19th, we saw just 15% of stocks contributing to “up volume” on the NYSE, but on Tuesday, we saw that ratio come back in spectacular fashion with 85% of volume on the NYSE on the upside.

According to Jason Goepfert of SentimenTrader, since 1962, the S&P 500 has never showed a loss in the month following similar signals. These mostly occurred during momentum markets, and buyers followed through to avoid missing out on the next bull run.  Our default expectation is that small cap companies will continue to rise as earnings season provides the proof in the pudding showing continued improvement.

So what does this mean for you?  While most of this has already been done for existing clients, quarterly re-balancing should probably focus on small cap allocations to lead over the next few months (or VTWO with a lower expense ratio, thanks Sandy).  Other than that, we still expect more bumps over the next few weeks, but our macro outlook for markets to be higher 6 months from now remains unchanged.

It’s still a relatively low volume part of the year (summer is always like this), so try not to get overly high or low based on short term movements.  One of my favorite quotes came from a recent Google conference call.  They said, “A management team distracted by a series of short term targets is as pointless as a dieter stepping on a scale every half hour.”  Your overall investment outlook should be the same.  Complexity is the language of the confused.  Let’s see what the market brings and try and not make this harder than it already is.

– Adam

This month’s missive comes from a blog post I read almost two years ago.  It’s from Movement Capital’s founder, Adam Collins.  It was just so simple and direct, I was immediately jealous.  With a seasonally strong period in the markets over the next 30 days (S&P 500 over the last 12 years has been positive 11 of 12 years, with a 3.3% average gain), it’s time to get a quick reminder of the basics, and remember things within our control (not the stock market returns) make all the difference.

– Adam

Sacrifice and Success

Sacrifice is necessary for success in life and investing.  Someone researching portfolio strategies or new hot stocks, but refusing to save more than 3% of the income is like spending hours at the gym and then driving over the Krispy Kreme for dinner.  You might feel good about doing something but you won’t actually make progress until you make a sacrifice.

Investors have to embrace the fact that they cannot predict the best portfolio for the future.  The silver lining is…that’s OK.  Recent studies have shown that 10 different strategies earned similar returns over the past four decades.  Most importantly, high fees transformed the best performing portfolio into the worst.  There are only a few things you can control that have a big impact on your finances.

• If you’re young, how much you save
• If you’re retired, how much you spend
• How you behave when markets panic
• Your allocation between stocks and bonds
• How much you pay in fees

Everything else is a rounding error.  The issue is we tend to focus on the rounding errors as it’s easy to get addicted to an endless rabbit hole of new investing ideas.  Announcing a new goal, not even achieving it, gives you a dopamine rush.  Investors get similar psychological payoff when they constantly buy and sell, even if the activity doesn’t add value.

The truth about investing in the current time period is that there isn’t an easy fix for high stock valuations and low bond yields.  No strategy can magically transform your portfolio into a low risk/high return future.  So what can you do?  Focus on what you can control and don’t get tempted by someone promising they can turn lead into gold.

As you may have heard, COVID cases, hospitalizations, and deaths are likely to reach pandemic lows over the weekend.  Recently, over 50% of the US population crossed the vaccination threshold and the optimism over a reopening economy is palpable.  In recent months, investment professionals throughout the country have rebalanced portfolios away from technology stocks toward these reopen names in the hopes of a “catch-up” trade, but our belief going into to summer would be to fade the move.  Howard Marks says this most simply, “Non-consensus views can make money for you, but to do so, they must be right.”  Something we do here at Second Level Capital, is to first help identify consensus.  This is difficult in it’s own right, but it’s where behavioral and sentiment analysis comes in quite handy.  Here’s a few examples over the last month.

According to Bank of America, two weeks ago showed the largest outflow from the tech sector since December of 2018.

Also from Bank of America, the technology allocation for investment professionals is now at the lowest point since the beginning of the global financial crisis in 2007.

 

Couldn’t get great quality on this one, but this one happens to be from Morgan Stanley which shows the divergence between the best performers of the market and the worst performers (emerging growth technology stocks, which were the darlings of 2020).

While we feel the reopen trade will continue and overall economic activity will reach levels not seen in many years, valuation is starting to become a concern for the reopen stocks and we believe a shift back TOWARD technology, specifically large cap technology, should be where new capital should be placed.

Overall, we expect more sideways action as the summer trading volume lull comes into focus.

For one more fun spurious correlation and a keen reminder that we do not have a crystal ball, is it possible that Phil Mickelson has done the market a favor by becoming the older ever Major golf tournament winner?

Have a great holiday weekend everyone!

Talk to you again next month,

Adam

As we sit here in late April, over the past week we have seen new all-time highs for the S&P 500, the Nasdaq, the Dow Jones Industrial Average, the Dow Jones Transportation Index, the Healthcare sector, the Consumer Discretionary sector….well, you get the idea.  Did you know that the S&P 500 has closed higher 14 of the last 15 years during the month of April for almost a 3% average gain? (a thank you to Steve Deppe for this one).  While April showers bring May flowers, it appears they also bring some decent stock market gains.

While the speed and magnitude of the sharp 10-year interest rate rise this year (from .91% to a high of 1.77%, now around 1.55%) had investors trading their fast growth and big technology names for more inflation-protected assets, we felt it was a dip worth buying.  We have continued to recommend large-cap technology throughout our portfolios, but not because we’re perma-bulls, but because history provides us context for a longer-term edge.  According to LPL Research, when coming from an all-time high price and dropping 10%, over 90% of the forward returns have been positive within 6 months (averaging 23% over that period too).

Furthering our confidence that it was a buyable dip was the fact that Nasdaq was in a seasonally weak period and tends to make its bottom in March.

Paraphrasing Michael Santoli, he said, “The choppiness of the past few months had been a fitful realignment of asset prices to account for a reflationary acceleration and profit recovery.  But along the way the “reopen trade” gets crowded and no longer cheap, while quality grows less loved and less expensive.”  Combined with the fact that the greatest percentage of global fund managers in the past 15 years believe that value will outperform growth, we simply felt that technology was a little unloved.

But as I mentioned at the beginning of the post, we’re back at all-time highs, almost across the board (the Russell 2000 small caps have lagged a big as the “reopening” stocks have taken a little breather.  So what now?  With over 95% of the S&P 500 stocks above their 200-day moving average, it doesn’t get much better than this.  Which is to say, that if you are devoting NEW capital to the markets, it’s probably time to wait for a better entry point, but our view that 2021 will be a positive one for overall equities is very much intact.  We are still watching our main possible pitfalls very closely (Inflation, Interest Rates, and COVID), but as the Federal Reserve had clearly indicated, it doesn’t see interest rates rising until well into 2022, and until then, market traders will likely continue to front-run any potential tapering of QE (which will be seen a precursor to an interest rate rise) as a sign of a top.  We are happy to let people continue to try and time the market and call a top, while we wait for actual information and then react as best we can.

Thank you all for reading, and look forward again to talking next month.

– Adam

 

 

 

This is a post we have hesitated to do for sometime, but given the many questions that have popped up over the last 2-3 years regarding speculative investments (electric vehicle component manufacturers, cryptocurrencies, NFTs, etc), we thought it would be nice to put down our official positions as something to look back on later.

As with most new things, people want to know one thing: “Why?”  People are fascinated with new investment ideas, specifically the potential to get in on the ground floor.  This inevitably leads to people doing their own research in a search for “why”?  Why is this happening?  Why don’t I own any?  Why does it keep going up?

My favorite retort to these questions was something I read from a former NYSE floor trader, Mike Epstein.  He said, “the search for ‘why’, whether right or wrong can just as easily lead you to irrelevancies, or worse yet, to valid data that will not impact the market.  The best analog is arguing with your wife.  Being right is often totally valueless if not counterproductive.”  In my opinion, the search for “why” is a fruitless endeavor, but I understand people’s need to search for meaning.

So let’s turn to bitcoin.  Bitcoin was born out of the global financial crisis.  Satoshi Nakamoto (his/her real identity is still unknown) wanted an alternative to the banking system.  The thesis was fairly simple.  Why do we need to use a bank for every simple transaction, increasing costs to use our own money?  When we go to the grocery store, why do I need to give them a card that debits my account and credits the store?  Can’t we just cut out the middle man?  While these initial ideas of dis-intermediation have sowed the seeds for the fastest growing and most cutting-edge technological firms of today (some of which we believe will have staying power), the reason we use a central banking system is simple.  Trust.  Both sides trust the bank to have the “official” record.

Satoshi figured out a solution to the old computer-science problem of building trust over an anonymous network.  The ensuing open-source technology created a system where access is unlimited, forcing everyone on the network to agree each time a transaction occurs.  As payment for making sure transactions are correct (proof of work), the “miners” are rewarded with a token (in this case bitcoin).  A collection of these verified transactions (chains) is then stored in a block, and once filled, a new block in the chain begins.  Guess what it’s called?  That’s right, blockchain.  I like to think of it as a worldwide shareable Google spreadsheet.  And that’s pretty much what it is.  A fantastic utility and a brilliant entrance into a potential new world.

From a technology standpoint, blockchain and the future innovations will be something we talk about for decades.  It has implications to disrupt almost every centralized business model in the world.  But from an investment standpoint, the blockchain is free.  From its inception, it was meant to be used by everyone and to decrease friction in the financial system.  So if there’s no way to profit from the blockchain (other than increasing the efficiency of current business models, hint hint), why has Bitcoin been the best performing asset of the last decade (by a WIDE margin)?

From an investment standpoint, Bitcoin feels like the “greater fool theory” on steroids.  Similar to gold, Bitcoin’s intrinsic value will always remain the same (1 BTC = 1 BTC).  Also similar to gold, it provides no cash flow, no balance sheet, no fundamentals whatsoever.  An asset based on pure emotion, albeit with amazing supply and demand constraints to help push prices higher. (forever?)

Please don’t get me wrong.  When a mania takes hold, price becomes irrelevant, at least for a while.  Seeing Bitcoin at a price of $100,000 or $1,000,000 or $0 are all very real possibilities, but as investment advisors, our main goal for clients is to avoid PERMANENT loss.  Ups and downs will be part of the risk you must be willing to take in order to receive the rewards, but as Warren Buffett famously said, “if you don’t feel comfortable owning something for 10 years, you shouldn’t own it for 10 minutes”.  This is the way we presently feel about most speculative assets in the current climate.  There’s just too much real of real loss to consider these vehicles anything other than sophisticated numbers on a roulette wheel.

But real financial advisors are guides in a changing landscape, NOT, defenders of an outdated map.  And just because something has worked before, doesn’t mean it will work later.  We only mention this as a way of telling you that the craziest of ideas deserve serious due diligence.  Risk should always be your primary focus and ours.  Something the equity markets are teaching quite clearly as it systematically clears excesses built over the past 12 months.  Until Bitcoin (and many other speculative investments) show their utility, it’s doubtful we will ever recommend an allocation to cryptocurrencies for a traditional, diversified investment portfolio.  It also doesn’t mean we’ll be right.  But for now, we plan to stick to the bird in the hand versus two in the blockchain.

– Adam

What else would we write about this month?  GameStop (NYSE: GME) and its ensuing short squeeze has been the culmination of so many factors over the past six months.  Fundamentally, it’s a quintessential casualty of our current digital transformation, a changing and difficult retail real estate landscape, and over the past month or so, “sticking it to the MAN”.

How could a company that was 1/1000th the size of Apple at the beginning of January send shock waves through the entire financial system?  Well, let’s see how we got here and perhaps give a bit of guidance as to where we might go next.

First, what is short selling?  When you purchase a stock, you have hopes that at some point down the road you can sell it for more.  Short selling is simply the opposite.  You sell shares first (which you’ve borrowed from someone else, but we will get to that later) with the hope you can buy them back at a lower price and thus keep the difference from where you initially sold (high) and bought back (low).  Seems odd to think that you’re allowed to sell a stock without actually owning it first, but that’s exactly what happens.

Second, why do you sell short? Shorting a stock usually occurs when you feel the fundamentals of a company are deteriorating and the value of that company will be much lower in the future than it is today.  In today’s market environment, the most heavily shorted companies are those hit hardest by COVID; victims of an increasingly digital society, like GameStop, AMC Theatres, Kodak, Blackberry, and Bed Bath & Beyond.  

Typically, short sellers are large institutions searching for excess returns for their clients (above index fund returns). Oftentimes, these firms will amass a large short position in a company and then publish negative “analysis” enlightening readers of the stock’s inevitable decline.  A practice that will likely come under well warranted scrutiny from regulators in the near future.

Finally, what happened? Institutional short sellers borrowed 140% of GameStop’s outstanding shares. Then, many traditional buyers entered the market (rallied together by the WallStreetBets crowd on Reddit) and bought shares of GameStop.  Because there were so few shares for sale in the market (remember all the shares have been “lent” to the short sellers) the buying pressure causes the price to jump quickly.  Short sellers then scramble to “cover” by buying their shares back.  This, in turn, increases the buying pressure, causing the price to rise even further.  These are the conditions for the prototypical short squeeze.  

What’s the takeaway? The practice of allowing institutions to use excessive amounts of debt (shorting in itself is quite healthy and a great source of stabilization in declining market) will, no doubt, be the subject of future congressional hearings and further regulation on the financial markets.  Anytime the internal plumbing of the financial markets is threatened, new laws are passed to attempt to shore up cracks in the pipes.  In 2008, it was Dodd-Frank.  In 2000, it was Sarbanes-Oxley.  In 1987 it was the invention of circuit breakers, and even going back almost 100 years, in 1929 it was the SEC itself.  

Given the number of political agendas that have hijacked this market quirk, I very much doubt this time will be any different.  In our experience, during market dislocations, there are very few individual investors that make money and to be honest, most lose it (sometimes with very sad consequences, like this).  We understand why people feel the urge to play in this space, but without any long-term underpinning (fundamentals), these are pure gambles and should be avoided.   The number of incredible businesses borne out of COVID should be more than enough to scratch the itch of great investors, if they are willing to buy and hold.

Overlooked during the market frenzy has been some of the best corporate earnings in the history of the stock market.  Apple made more than $100B in a quarter for the first time ever.  In 2020, Walmart had revenue of $16,614….per second.  Amazon grew revenues 44% year-over-year for their 77th consecutive quarter of double digit revenue growth.  The fundamentals on main street appear stronger than ever and with optimism regarding reopening and stimulus, combined with some light at the end of the tunnel, it doesn’t seem so far-fetched to see the market continuing to run.  Why shouldn’t it with these types of numbers?

Here’s the rub.  “The market is currently caught in a stand-off between strong momentum & and excessive sentiment & speculative fever.” (h/t David Steets).  Combine that with my favorite Charles Bukowski quote and we get to where we are today.  He said, “the problem with the world is that the intelligent people are full of doubt, while the stupid people are full of confidence.”

Our overall view of the market remains solidly bullish for 2021, and while we anticipate MAJOR pockets of turbulence, we believe looking back and staying with current equity allocations makes the most sense…for now.

– Adam

Happy New Year!  It’s 2021, which means it’s more shocking that you’re still physically writing checks than it is that you’re still writing 2020 on them. 

Our outlook for 2021 is a positive one.  The inertia created by fiscal and monetary authorities, combined with well-founded optimism and pent-up demand could create a very strong US economy (especially in the back half of 2021).  In our opinion, it’s not a year to be cautious, it’s a year to think less and let the massive trends set in place over the last 9 months of 2020 show themselves through the corporate earnings and stock market performance of 2021.

We’re going to take a mulligan on the first week of 2021 and pretend that still belongs in 2020, but as always, there are always a few potential headwinds which could change our minds along the way.

1. COVID – This one doesn’t need too much explaining, but I think everyone agrees that we’re not out the woods yet.  There is enough uncertainty to go around with this one, but I will urge people that everything we KNOW, is already built into the market (potential uptick in cases, future potential lockdowns, etc.).  The market rarely discounts the same risk twice, so it’s going to have to be something from left field to have an outsized impact in our opinion.
2. Interest Rates – The Federal Reserve could not have been clearer during 2020.  They will not raise interest rates until inflation starts to move.  This is the playbook from the 1950s, and it’s much better for the Fed to be one step behind than one step ahead (their tools work better fighting inflation, not deflation).  We believe the market is pricing in a Federal Reserve who will let the market run hot (whether they do or not will be another story), but a potential story shaping up for 2021 is whether or not the tantrums will begin if the Fed begins to signal that tapering/raising interests is getting closer in coming years.  
3. Inflation – If the Fed is successful and there is a sustainable increase in the price of commodities, the average consumer may start feeling a little pressure at the grocery store and the filling station.  This may cause the consumer to pull the purse strings back a bit.  The strength of the American spender has been the solid footing needed to jettison to all-time highs, so any change here could be noteworthy.

Now the fun stuff.

Themes We Like Going Into 2021

Disclaimer:  It’s not lost on us that the allure of taking a shot on a few concentrated bets is enjoyable.  In our minds, if this is what it takes to allow the majority of your assets to work their magic over time in low-cost index funds, that’s a small price to pay for “staying the course” with some added garlic.  But my compliance department tells me that I can’t make a recommendation to purchase individual names without assessing the suitability of each person’s individual situation. Sounds logical to me and I would rather be safe than sorry.  

So here are some themes that might be of interest (if you want to know the individual names, don’t hesitate to give us a call).

• • • • Telemedicine/Healthcare Technology –  We believe the proliferation of telemedicine is the next logical stopgap to try and halt the rising cost of healthcare.  If Warren Buffett, Jamie Dimon, and Jeff Bezos’ joint venture to lower the cost of healthcare folded after three years, good luck to Congress.  Lower co-pays, quicker access for non life threatening issues, and potential decrease of emergency room usage are all major societal benefits.    
      • Lasting effects of COVID – To go along with the first theme, we believe some of the digital transformation which has occurred over the previous year will be here to stay, long after the virus is contained (whenever that is).  One of our themes from last year was eSignatures, which is a great example of this, but other parts of our COVID-infused life will remain.  Think more about work from anywhere vs. work from home…
      • State Tax Generators – The individual states have been in a fiscal mess for most of the last 20 years and with pension deficits continuing to climb across the country, there are only two ways to put more money in the state’s coffers.  Decrease expenses (at a time where 10 million Americans are unemployed and countless others are struggling) or increase revenue.  How does a state increase revenue?  More taxes.  Here’s where state sales tax revenue on cannabis and online gambling come in.  This trend has already been very hot in 2020, and for us, we believe it is likely to continue in 2021.
      • eSports –  This one is going to be tough for the older crowd, but in 2020 more screen time from virtual learning became the gateway to video games rather than additional curiosity about their school subjects (who knew?).  According to Twitch, the average user spends 95 minutes per day watching live gaming (yes, watching other people play video games). This is longer than the daily time spent on the typical social network. Instagram claims that its younger users average 32 minutes a day on its app, while the average mobile viewing session on YouTube is just over 40 minutes.  As parents of younger children, we don’t see these numbers decreasing anytime soon.
      • Frontier Tech –  In a low growth (low interest rate?) environment, the growth that does exist, typically garners a much higher price than when the entire economy is growing robustly.  As investors start to search for the next e-commerce or electric vehicle manufacturer, we believe there are pockets and individual names throughout the emerging world that offer a decent change to gain exit velocity and become sustainable and true market leaders in their respective countries.   

As with all individual stocks, they are a gamble, but we’re still going to be watching how each sector performs to possibly become part of our overall client models moving forward.

Looking forward to a great 2021!

– Adam

Good riddance to 2020.  A year we won’t soon forget, but one we are glad to put in the rear view mirror.

The first and last posts of each year are always my favorite.  It’s fun to look back on what we thought was going to happen and be astonished at how different reality looks versus our predictions (which are destined to be wrong).  So let’s jump into it.  A few points from our post at the end of 2019 are in italics below.

• Over the past 70 years (since 1950), the S&P 500’s yearly performance has been above 20% 18 times.  In the year following those 20%+ gains, the market has been higher 15 times (83.3%) with an average return the following year of 11.2%.
  • As of the last week of the year, the SPY (the ETF proxy for the S&P 500) is up about 15%, without including dividends.  Looks like history will look back and see we’re now up 16 out of the last 19 years following a 20% year.  The takeaways for us continue to be that strength begets strength, and history as a guide for the future remains a solid tool for planning.

• We love not getting too smart about this market.  This market has been more resilient than anyone expected, and until that changes, the trend remains our friend.  “It’s expensive.” “It can’t keep going up forever.” “Eventually we WILL have a recession.”  All these things and many more are true.  But the economy and the year-to-year stock market changes have very little to do with each other.
  • Boy, does this one sound familiar?  This one could have been written last week, but after a year in which we saw the Dow Jones dip below 19k, and is likely finish to the year over 30K, it appears we are right back where we started.  The same tailwinds we had at the end of 2019 remain, and with the Federal Reserve and US government working in tandem (better late than never) to stimulate the economy and hopefully get the vast majority of the 10 million unemployed Americans back to work, there is reason for optimism.  This belief has been the fuel pushing equity prices to all-time highs, and possibly much higher for 2021 (but we will discuss our view for 2021 in the next post).

•    Themes to watch in 2020 – eSignatures, Biotechnology, 5G Technology, Digital Payments, Cannabis, Master Limited Partnerships
  • Second Level Capital went 5 for 6 this year with theme selections, with 4 of the individual stocks rising over 100% this year.  The energy sector remains the rented mule of the equity markets, although oil prices appear to have stabilized for the time being.  And what was the downside of watching a few individual names skyrocket 100%+ this year?  You had to watch 5 out of the 6 decline by over 50% during the March low (ouch).

This year was a huge test, which you passed with flying colors.  We’d rather not do that again, but we know better.  History tells us that during the next 10-20 years, our guess is something similar will happen another 2-3 times.  No matter which box you check on a client account form telling us your “risk tolerance”, no one really knows how they will react until they find themselves in a 2020 situation.

While we’ve learned a lot about ourselves this year, my own personal resolution for 2021 will be to help more people.  The middle class in this country is being pulled into oblivion, and it’s going to be the job of every American to lend a hand to his or her neighbor, whether they are in immediate trouble or not.  Next time, it might be you.  The old saying goes that a recession is when your neighbor loses his job, a depression is when you lose yours.  For 10 million Americans, they are living in depression right now.

Lastly, we’d like to say thank you.  The overwhelming majority of our clients trusted in us enough to stick with the program through the worst monthly decline of our lifetime.  I’d like to believe your resolve was due, in part, to the trust we strive everyday to build and keep.  Investing is simple, but never easy.

From the bottom of our hearts, thank you for reading, listening, and putting your faith in us.  Our promise remains to keep your investing advice individual and tailored to your specific needs.  We are amazed and grateful that our business continues to grow and if there is any way we can help others (whether it be financial advice or otherwise), we would love the opportunity.

Here’s to hoping 2021 is at least a little calmer than 2020.

– Adam

Our September 24th post entitled, When It Comes Time to Buy, You Won’t Want To“, we viewed the small dip that was occurring as a healthy pullback as well as detailed a couple reasons why it was a good buying opportunity (even going as far as mentioning 3600 as a possible year-end price for the S&P 500).

As we sit today, since 9/24, the Dow Jones and the S&P 500 are both up almost 12%, while the sentiment in the marketplace has completely flipped since prior to the general election.  Obviously with the prospects of highly effective vaccines coming in Q1 or Q2 of 2021, as well as the most accommodating financial conditions of the past decade, there is great reason for optimism.  Per Evercore ISI, in a survey of 303 institutional investors, 63% now believe the next 10% move in stocks will be up.

According to the AAII Sentiment Survey in mid-November, bulls had reached the highest percentage since January of 2018 (56%)

An oft quoted measure from previous blog posts is the CNN Fear and Greed index.  The index was 25 just before the election.  Today it’s 91.

When conditions look as though the stock market can only go in one direction, we start to get this feeling like things aren’t “too hot or too cold”.  This gives rise to the “Goldilocks” moniker.  From a financial standpoint, the base case appears to be

• A Biden Presidency
• A Republican Senate (Divided Congress)
• No Massive Spending to Spook the Bond Markets
• No Major Tax Hikes
• A Ton of Liquidity and Near Zero Interest Rates from the Fed
• Effective Vaccines
• Return to Normalcy for Government

We are here to bring you back to earth.  We don’t think the next great depression is starting, but to ignore the sentiment froth in the marketplace right now would be a mistake.   If you’re looking to devote additional capital we would be very skeptical at this point.  If you’re thinking of additional capital needs over the next several months, we feel now would be a decent time to take advantage of the recent run-up, until fear starts to come back into the market.

As always, if you are curious about how this information affects your individual situation, please give us a call.

Be safe, be thankful, and be well,

Adam

“The stock market hates uncertainty”.

Probably one of my most hated stock market axioms.  Everyone hates uncertainty but it exists at all times whether you believe it or not (like science).  If it’s clear to you what’s going to happen next, please give me a call.  I’ve been waiting almost 15 years now, and have yet to see it. 

As I told a client yesterday, the most fascinating thing to me about this particular stock market is that even if you told me the outcome of the election, I’m not sure you could make money off the information.  What this tells me is that the uncertainty surrounding the economy is multi-faceted, and in my opinion the virus trumps all (no pun intended).  When you find yourself in an emergency, whatever must be done eventually, should be undertaken immediately.  The unfortunate part about treatment and vaccines is that they are months away at BEST.  The stock market (and humanity) will cheer when the positive data is released, but this will just be step one in the eventual process of getting America back on its feet.  At present 7 million people are out of work.  This number will not go down in a substantial way until people FEEL it is safe to return and employers know they can protect their workers, vaccine or not.

For me, there are several checkpoints here that will lead to less uncertainty and this is what I’m watching:

1. Election decision – I truly believe that the market will not care as long as the decision by the country is clear and accepted (but even that is in question these days)
2. Vaccine and Treatment Data –  Regeneron and Gilead will likely both have emergency use authorization in the coming days/weeks ahead for their respective drugs.  To me, the Regeneron data appears to be more exciting because of its seeming ability to reduce the mortality risk.  There are still issues with the production capacity of this particular cocktail, but if it works, they will find a way.
3. Fiscal Stimulus –  The agreement on both sides of the aisle that the American people need some help to bridge the gap during the virus is clear.  The lack of an agreement by this time, after acting so quickly and swiftly earlier this year, is disheartening, to say the least.  The inability for our government to compromise on something so pivotal to the literal and figurative health of our country speaks volumes about the dysfunction currently existing in DC.  While I understand the political calculus, I find myself growing even more cynical about our current state of affairs.  I choose to blame everyone.  Others may feel differently.  So be it.  

So how does this relate to you and your money?  I find the task of trying to navigate this particular market a fool’s errand.  But luckily there is another option…do nothing.  In this month’s edition of The 10th Man, by Jared Dillian, he outlines what I find to be the most pragmatic and simple explanation for how to accurately view what’s in front of us and how to prepare.  I would urge everyone to give it a read.

The 10th Man

The only thing I think I know for certain right now is that everyone is sick of this election cycle and hopefully things will get better after it’s over…but no one really knows that for sure either.

– Adam