Entries from September 2020 ↓

The choice

“So,” she said, “what did your little rabble think of the debate?”

Dorothy rarely cares what happens on this pathetic site, for which I am uncommonly thankful. But sometimes she asks. I cannot lie to the woman, since she (like most long-term partners), has brain-piercing powers. Deception is futile.

“They hated it,” I said. And a barometer of that was the flow of comments Tuesday night after the slugfest in Cleveland turned from presidential to puerile. They ceased. The Trumpers lost their voice. The lefties stayed silent. There was not enough pride for anyone to lift a finger and type.

It was interesting that as the event rolled, stock futures took a dive – down hundreds of points. Mr. Market looked at what was unfolding and concluded, (a) Trump was blowing it, (b) Biden was unremarkable, (c) the election will be probably close and (d) if Biden wins, Trump will not leave easily, quietly, peacefully or at all and (e) the ensuing chaos could take months to sort out.

Of course, that gloom was erased hours later when it appeared Republicans and Democrats were finally close to agreeing on a $1.5 trillion Covid relief package and the latest jobs numbers showed more economic revival. Up she went – a trough-to-peak trip, for a while, of 800 points. What a ride.

The best strategy (again) is to have a balanced portfolio and seriously resist the urge to diddle with it, especially because of politics. The next few weeks will be completely stupid, followed by a period of utter insanity. In the end, the market only cares about two things – the economy and what the central bank’s doing. The president is a sideshow.

Of course the debate was a debasing embarrassment. You know that. Trump’s strategy was to bully, badger, interrupt and taunt Biden so much that he’d become disoriented and overwhelmed. That would prove the 77-year-old career pol had lost it. Unfit to government. Best-before date expired.

But that didn’t happen, so the president just looked like a nasty, egocentric, insulting and unpresidential person. After setting expectations for Biden so low, it was Trump who had the most to lose. And he did. It’s hard to understand now why there would be two more of these awful debates scheduled. What more is there to add?

It’s interesting to note that some Wall Street analysts say if the Democrats win that the tech guys – the FAANG stocks – will do well. If the Republicans triumph, then it’s value stocks which will benefit. So (naturally) why not own both with an ETF than embraces the entire market?

Also interesting Tuesday night was the moment when futures turned negative. That came as Trump raised doubts, again, that he’d accept the results of the election. There’s nothing new about his allegations (unfounded, according to the head of the FBI) that mail-in ballots will ‘rig’ the vote in favour of Biden, but every time he makes them the market responds.

This adds another element of risk and uncertainty to the recession, unemployment, the virus and corporate earnings. . “What we’ve seen from the debate is the reinforcement that if Biden wins, Trump is not going to accept that,” Bloomberg reported. “People positioned for an ugly contest afterwards have been validated.” And this fund manager comment: “The debate just added to the confusion about how the election will run.”

Says my corporate analyst buddy Jason Castelli:

“The option market is pricing in greater volatility not only in November, but December as well. This is atypical during the election cycle as implied volatility typically declines once the election is done. In order words, the market is expecting the election results to drag on for weeks after November 3…. Regardless of who wins there will be protests and potentially some social unrest, so expect this as your base case.”

Meanwhile listen to the tone that veteran New York Times columnist Thomas Friedman has adopted. After Tuesday night’s debate and Trump’s words, it could be 1863 all over again (he says):

Trump’s motives could not be more transparent. If he does not win the Electoral College, he’ll muddy the results so that the outcome can be decided only by the Supreme Court or the House of Representatives (where each state delegation gets one vote). Trump has advantages in both right now, which he has boasted about for the past week.

I can’t say this any more clearly: Our democracy is in terrible danger — more danger than it has been since the Civil War, more danger than after Pearl Harbor, more danger than during the Cuban missile crisis and more danger than during Watergate.

Okay, so why did the Dow end up gaining ground (300 points) the day after? Well, because Trump doesn’t really matter as much as he think he does. Nor does Joe Biden. More consequential are the employment figures, the progress of vaccines, central bank bond-buying and oodles of extra government cash unleashed into the economy.

Oh yeah, and this. If there must be an ugly election, Mr. Market says, please let it be decisive.

The protest

Note to readers: If you come here to leave a comment trying to influence the US election, ah, go away. I warned weeks ago that mindlessly partisan posts would be deleted. You know who you are. The social media world is polluted, corrupted, invaded, twisted and polarized enough without that swill slopping over our gunwales.

None of us know the outcome of November 3rd nor the extent of the ensuing chaos. There’s likely no good outcome. The focus of this blog is not the next American president, but the impact on the economy, taxes, central banks, rates, housing, jobs, assets and financial markets. If you think in black-and-white, you’re part of the problem. Take a hike. Come back in January.

Got it? Good.

Now, about tonight. The debate in Cleveland. Many think it will be the political spectacle of a generation. Despite that, Mr. Market has been chugging along after a recent correction from record levels. In the face of all the crap 2020 has bestowed upon us – millions out of work, a recession and lots of crippled industries – investors who are (a) balanced and (b) have ignored everything, retained that 15% gain they enjoyed last year. And now with 2021 looming, with a  vaccine inching closer and that damn election soon to be in the rear view, no need to change course – regardless of what happens between now and Christmas (if they let us have it).

“This is the most crucial debate ever,” analyst Ed Pennock wrote yesterday. “Unlikely there’s a clear winner. Certainly could be a clear loser. Markets like certainty.”

Exactly. It will come. What you think of the orange monster or the drooling guy is irrelevant. That big, hairy (and manly) delete finger is ready. Make my day.

Arnie’s pain: ‘You really stung me’

Days ago we eviscerated a dude we called Arnie who wrote asking if he and his mat-leave wife (three month-old in arms) should blow their $80,000 in savings on a $800,000 semi in the distant burbs. You may recall they earn a collective two hundred grand and now rent in the city for $2,500.

Why buy in the midst of a real estate boom, a recession and a global pandemic, we gently asked? Are you just all hopped up on baby hormones and house lust? Owning would suck away liquid wealth, increase housing costs by over 70%, create $745,000 in debt and you’d still only own half a house a long commute away from work. Why do it?

In fairness, here is his subsequent lament:

“I saw you featured my email on your blog today. I must say I laughed when you did this to others, but it really stung when you did it to me.

“We don’t have just 80k in assets. We have a bit  more, but this is what we’re prepared to spend on a down payment, because we want a reserve fund and would like to try and be balanced.

“We don’t have a balanced portfolio yet, but we’re immigrants and moved to this country just 3 years ago. And yes, FOMO and kid are the reasons we want to buy. When you put it that way, it sucks.

“Anyway, I’d like to ask you to be nicer to people who email you, but your incisive comments are the reason we’re drawn to reading your blog. By the way, you didn’t answer my question.  Do you think prices of 800k houses will be lower than 650k in a few years? Let me know.

“Like I mentioned, it looks like the government is prepared to sell the country in order to keep RE prices up. Every single financial analyst who predicted the crash is right about the fundamentals, but wrong about the lengths to which the system will go to decouple values from fundamentals. I haven’t decided whether I’m going to buy or not, but I was hoping for perspective on how low the crash may go, and how long it will stay down.”

Arnie’s big mistake: trying to justify risky personal actions based on macroeconomics. The question is not where house prices or government policy are going, but if an action is correct based on personal circumstances. How is that not a simple and clear criterion?

If you need a home (a baby doesn’t cut it) and can afford one (increasing living costs by 70% is plain unwise) without draining your net worth (sorry, Arnie, the RESP and a nestegg come first) then go ahead and buy. But not now.

Ever been to Huntsville? Take warm undies.

Blog dog Joe has come across a weird situation. Actually it’s Joe’s brother-in-law which has been left shaking his head, wondering what the blazes is goin’ on down there in the GTA.

Hi Garth. My brother-in-law in Huntsville and he had his 3 year renter leave when the renter bought his own house. He put an advertisement on Kijiji for a 2 bedroom apartment to rent in Huntsville and received 344 applications for this.

It took awhile to go through everyone as he wanted the best applicant. It was quite the shock to receive so many for this place which is about two hours North of Toronto.

So I responded, asking J where all these apps were coming from. People in the area, maybe, whose igloos had melted over the summer or wanted to move into some kind of habitable shelter before the six months of darkness and roaming bears began? That would make sense.

“No, he said. “None of the applications were local. The Huntsville population is tiny and the Kijiji advertisement went provincial. It was just a surprise to have that many applications for this one apartment.”

And this is the topic for today’s comment section: what the heck?