Since our last newsletter, we have seen the markets grind higher on the news of the country re-opening, historic level of stimulus/liquidity provided from the Federal Reserve and continued fiscal stimulus assistance from the government. The main driver has been the Federal Reserve who has increased the money supply exponentially and has not just become the lender of last resort but also the buyer of many different credit assets. This has created an environment where the worst financial case scenario was likely taken off the table. The speed and the size of their stimulus was unprecedented. If you consider that back in the Great Recession of 2008-2009, it took the Fed more than a year to finish their rounds of stimulus which ended up being less in total value than what the Fed completed in 1 month in 2020. We have seen a slow decrease in jobless/unemployment claims, an increase in mobility and consumer spending coming off the historic low levels we saw in March and April with all states now reopened partially and an increase in economic activity has continued. That is all necessary news for the economy to start to normalize. However, as COVID cases and hospitalizations continue to rise in several warmer-weather states then this should bring some thought as to what the future will hold. With hospital beds filling up with COVID patients again, and more asymptomatic people being diagnosed with the disease, the recovery will likely be bumpy and uneven. We should expect a push and pull between the country wanting to re-open versus the realization of the health data. Restaurants, Travel & Leisure will be obviously more affected then other industries as it will take quite some time before normalization take place in those fields. While certain tech names have flourished in this new world as profitability and market share has actually increased in specific industries(I’m looking at you Amazon!).
The new cases and hospitalizations from some of these big, southern states need to be monitored closely. Until then, if the market continues to make new highs it will need to look past the health data and focus on the Fed’s stimulus and buying of credit bonanza. An important point to make about our portfolios is because of this deficit spending spree continuing this should create a tremendous tailwind for our Gold holdings. Gold should thrive in this global currency debasement that is proceeding around the world. This is being confirmed in real time as Gold is at a 8 year high.
One last aspect of note during the run up has been a clear case of speculation in a “dash for trash” in some of the beaten down areas of the market. In addition, some bits of FOMO (fear of missing out) in parts of the market. This stems from the rise of Robinhood and retail traders who no longer have an outlet of sports betting or casinos to frequent that also have far more time on their hands. For example, the buying of Hertz Rental Car up to $6 per share even though they declared bankruptcy and was trading for pennies days earlier. There are other examples of this and it has only added to day to day volatiltiy swings. These momentum swings have also been exacerbated by the algorithmic trading programs which track momentum and price action and then deploy its own strategic orders. It is yet another reason why focusing on fundamentals is an essential in a long-term investment thesis and why we are adamant about owning quality assets and ones that are non correlated to the markets to assist with the reduction of the day to day noise.
Let’s now tackle some incredibly important charts in this chapter of Chart(s) of the Month:
More COVID testing has resulted in more cases of the virus…
However, it doesn’t tell the whole story.
Unfortunately, as we investigate the data from the Florida Department of Health, the level of testing has stayed elevated yet constant over the last couple of weeks. However, we clearly have seen a rise in new cases that more testing doesn’t explain.
If cases were going up and the percentage of positive tests were remaining stable that would be good news. However, the data is going in the wrong direction .
Again, per the Florida Department of Health, we are seeing an age shift lower in the cases being identified, which is a positive for the overall death rate. However, it may not be great news for community spread as the younger are more likely to congregate and be asymptomatic.
2020 Election Update: Democrats Surging
Dems gain the edge, but long road to Election Day. Still many unanswered questions.
Let’s turn our attention to politics. If the election were held today, Biden would likely win given the recent polling; However, the campaign has largely not started because of the virus and still much time until November for things to change. Here is a list of the many important questions that will be answered over time.
A LOOK AT 2020: ALL EYES ON BATTLEGROUND STATES
It is not just the Presidential election that is important as both the Senate and House have the potential for changes. Here are how the odds are stacked up in the current day.
Here are the 2 most likely scenarios (80% probability of one of these 2):
Here are the 3 most unlikely (only 20% probability of one of these 3):
Some Final Notes about all 3 races
Any opinions are those of Scott Verlangieri & Margaux Fiori and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.