Subject: Ross Rant – 12/01/2020
It is now official. Libor ends on June 30 2023 but there will be no further Libor contracts allowed after December 31, 2021. The replacement SOFR has been tested and is working. There should be no noticeable difference to the regular borrower, and comparable rates should be similar. For most it will make no real difference.
Adding Tesla to the S&P Index will skew it out of line and make the usual metrics when including Tesla slightly non-comparable. It will be 1.75% of the value of the index, and it has a 900 trailing PE which skews the index P/E per Bloomberg, and will push up the SPX forward index P/E by 2.1 pts. It was likely not the best idea to include Tesla for that reason, but be aware that going forward the metrics of the S&P will not be exactly comparable.
It is looking like the market will probably continue to trade around the 3600-3700 level through year end, unless some other things happen, although it is quite possible that the euphoria now gripping the market related to the virus may drive it higher than 3700. Not something I thought would happen, especially with Biden wining. We could see the market setting up for a big drop in January if the Republicans lose on Jan 5. The VIX, which is the volatility index, is at a low level. Biden made me and others wrong about the market by appointing Yellen. Now we have the unanticipated GA election. There could be a lot of selling prior to year end as funds, money managers, and investors try to lock in big profits to be able to report good results for year- end for marketing purposes, and to also take gains for tax purposes before there is risk of a major tax increase in 2021 in case the R’s lose both seats in GA. There may be a lot of sellers before year end if the general view becomes that the Dems will win both seats. However the underlying economy continues to grow due to the huge savings built up, low rates and low gas prices, other than in blue states with major lockdowns. We have to presume that the vaccine will get released for health workers in about two weeks, and that will start the process of ending the virus over the next year. That seems to be what is driving the market now, along with the assumption that the GA elections will go to the Republicans. The Dems are going all out to harvest votes, and do whatever they can to win. We have to assume that whatever fraud they can commit, they will, so the Republicans need to win by a lot. It is possible the market has gotten ahead of itself, or it is making a reasonable bet that the Republicans hold the Senate and Biden will be constrained from doing the worst of his ideas until 22 when the R’s have a very good chance to retake the House and shut down the radicals. It is especially notable how many House seats were flipped in CA. Newsome and Garcetti have pushed things over the edge.
It seems clear there was a lot of ticket splitting by moderates and independents voting for Biden, but then voting Republican down ballot, and a major rejection of the left. We now need to see who Biden picks for other positions, and if he goes for ability, or for skin color. Who he picks as AG, EPA and energy will be critical. His economic team, other than Yellen, are a very bad omen for what to expect. They are all left, or very liberal, and seem to have been selected based on race and gender and not on merit. They all believe in more spending and more regulation, and lots of government intervention. The choice for Labor will be important to see how far he goes to eliminate right to work, and to force unionization on industries. I expect the choice will be far left and labor costs will start to increase in 21. He is also going to push hard for a corporate tax increase which will not get passed in a Republican Senate. None of these policies are good for the stock market nor for fiscal responsibility. He already made a very bad choice for immigration. Expect a flood of illegals now. Watch the Mideast, and a potential for real war at any moment when Iran retaliates. Israel will hit back, and the US has a lot of force now in the area, so it could easily pull in US attacks on Iran if Trump is still in office. That will set back the market. It is highly likely Iran will wait for Joe to take office before launching an attack knowing he will not do anything, and will blame Israel for starting the whole thing. So far, other than Yellen, his choices are all going back to the bad days of Obama Biden, and a slow economic recovery with far too much regulation. In short, much higher costs and red tape. There will be a massive pressure to hire and promote blacks regardless of ability. Corporations will do just that as they think they need to be racially sensitive instead of maximizing profit and efficiency. Expect a lot of pressure on the Fed to do things for blacks, but they will not likely do much of anything different. Not only is it outside their agenda, but there is little they could really do.
While more government spending will boost the economy for a while, only the private sector creates real, long term jobs. Raising spending means raising taxes, and that means jobs go offshore as they had done until 2017. While we do need a short term small targeted stimulus package of maybe $700 billion, or so, the massive spend and tax policies of the Biden team are the exact opposite of what we need. Pelosi is still pushing for wish list of unrelated gifts to her favorite non-profits and to states and cities to bail out their massive pension problem. Wall St seems enamored of the prospect of a massive increase in spend, but that is utter nonsense. Classic short term thinking vs long term reality of massive deficits that inhibit economic growth, and the inevitable tax increases that accompany the spending. If they do pass a public private major infrastructure spending plan, that does help economic growth since it raises productivity when you make material improvements to roads, water, telecom and similar things. The problem, as I prior pointed out, is the Dems will load that program with massive new regulation and demands for racial preferences in hiring, and unionization, which will delay projects by years, and will raise costs unnecessarily. They will undo all of the major deregulation Trump was doing to materially speed up infrastructure projects. Don’t expect infrastructure spend to make much difference in the next couple of years. It will be a rerun of the Obama shovel ready waste.
Helping the stock market for 21 will be the continuation of ultra-low rates for at least a while. The ten year is very unlikely to rise above 1.5% next year, and even that is far from certain it will go that high, even if the economy is growing well, since rates and the dollar are connected, and Yellen will be in charge along with Powell. If rates were to rise much more than that, the dollar would rise too far and crimp exports, and hurt reported corporate earnings from offshore locations. Plus there would be a flood of capital coming here for the higher rates which would then push them back down. Predicting interest rates is always just a wild guess. It is almost certain rates will remain very low, but at what exact level nobody knows. We don’t know when enough people will get vaccinated to allow life to return to normal, and the economy to recoup fully. Hopefully by early 22. Vaccinating 320 million people is a vast logistics problem, as well as a PR issue to get acceptance. Fauci needs to get one of the first shots along with Biden. That will determine how many get vaccinated how quickly. We need to see what happens in GA before we go predicting anything. It will determine American history and economic performance for many years.
The economy would do even better if Dem governors and mayors would allow reasonable reopening, as in FL now. There is extensive research that shows kids very rarely contract nor transmit the virus, and school closings are being pushed by the unions to let the teachers work from home, or not at all, yet get paid. They simply do not care about the kids, and do not care that poor minority kids will suffer the worst, as will their parents who will not be able to go to work. The Dems can say whatever they wish about Trump and Covid, and how they care about the poor, but truth is exactly the opposite based on school closures and other lockdowns. The Dems just want to continue massive welfare programs and the dependance of blacks that creates, and the last thing they want is for blacks to develop a self-reliant successful culture that embraces education and nuclear families..
Retail is undergoing a vast shift this holiday season, with online shopping exceeding brick and mortar. The big names AMZN, WMT, TAR, HD will all do very well and exceed expectations. There is a massive pent up demand, and after being locked down, it is likely consumers will spend some of that big savings they have accumulated. The Holiday season will be excellent for retailers who are online. Even small shops that use Shopify are doing very well. Unfortunately, 30% of all small retailers and restaurants will close completely, devasting some neighborhoods and millions of jobs that did not need to be sacrificed to the “experts”. The worst hit will be minorities in major urban areas.
Reality now is the Covid numbers we get fed by the media and health officials are not valid at all. As I have said since April, we need to keep the data in perspective and proportionality. CDC counted any death where there was Covid infection present, as a Covid death, even where there were other causes more likely to be the real cause. There is a new research paper released by a senior professor at Johns Hopkins who runs the Applied Economics program, so she is a highly credible, non-partisan data geek professor, and deals with complex statistics every day. What she determined is, the number of Covid deaths about equals the sudden unexplained 2020 decline in deaths reported for major diseases like heart, cancer, diabetes etc., but the total US deaths did not vary from trend in the past year despite Covid. It is clear now that around 40% of all Covid deaths are in nursing homes, or similar facilities, where the patients were on death’s doorstep anyway. 54% of all deaths in the US are people over 75. The vast majority of Covid deaths are in the over 80 range because the vast majority of all deaths are in that age range anyway. So it gets murky- did he die of heart failure anyway, or from Covid. In the week ending April 25, deaths in the US from other diseases declined by 1605, and deaths from Covid increased by 1651. This pattern was discernable for other weeks. It is also well reported now that many other deaths in hospitals are assigned to Covid, but were more likely from other underlying causes which may have been accelerated, or made more deadly by the virus. No autopsies are performed to know what really caused death. So the press and politicians grabbed this false data and used it to promulgate fear, and to attack Trump. One report from a health official, which could be true, is that more kids died in 2020 from jelly fish stings than from Covid. I don’t know if that is true, but almost no kids have died from the virus alone, so there is no reason to not have opened all schools fully as they have done in most of the world. Teachers can take precautions, but we cannot destroy a whole generation of kids, which is what the teachers union is doing. The report from this Hopkins professor was later censored and removed from the net by the university as it was in direct conflict with what the university has been saying. How is that for transparency, and they claim Trump covered up the disease. Copies of the report were saved by others and has been circulated on the net. Truth is we will never know the true deaths from Covid, nor the extent of the damage caused to individuals and businesses by the shutdowns. What is fact is that the death numbers are wrong, and the complete lockdown was a preventable disaster for health reasons and for the economy. Experts like Fauci just look at the immediate heath problem, but fail completely to understand the collateral damage they cause by the fear they create and edicts they issue.
In Fl, which has been loose about reopening, there is a population of around 22 million. There have been 979,021 reported cases. There have been however, only 54,467 hospitalizations due to Covid, about 5.5%. That is only about .25% of the population. Of all cases, only 1.9% resulted in reported death from the virus, but as we know from above, that is an inflated number. A total of 39% were in nursing homes. So of all the cases only, 11,204 people were reported to have died from the virus who were not already dying from other causes in a nursing home. That is 1.14% of cases and only .05% of the total population of FL. And as shown above, many of those were already suffering some sort of co-morbidity. Conclusion: while nobody wants to get Covid, and we all need to wear masks and take precautions on distancing, reality is what I have said since spring, if you are a healthy white person below age 65, and you take precautions, the chance of you getting sick from the virus is minimal, and of dying almost zero, especially now with better treatment. Only 28% of deaths from all causes are people under 65. While Covid is a pandemic, the hysteria caused by the “experts’ and the press and politicians, is disastrous. Having a complete lockdown was a horrible decision, and did massive damage to people, kids and the economy. And new lockdowns now in cities, and as pushed by Biden, are just extending the damage. Far too many people did not see a doctor when they needed to for other diseases and have died or become very sick, who might have been saved. Business owners in many areas have been crushed, and lost their life savings and their passion for no good reason. Had it not been for PPP the devastation would have been crippling. It is now pretty clear from the data that Trump was right, and the “experts” were horribly wrong, and the press was irresponsible to a degree that is unforgivable.
The press has given no tribute to Trump for pulling off what is the most spectacular medical event in history. The docs who are directly involved, and are pure scientists, and not political appointees, have said it was a “spectacular” accomplishment to have pulled together the drug companies, FDA, the military, and the logistics companies, and the drug distributors, to make this happen so quickly. All say there has never been anything like it in history. Had the events of the past two weeks taken place two weeks before the election, Trump would have won. To get perspective, there is a very sophisticated system in place already to distribute flu and other vaccines, so they did not reinvent the wheel. They made it turn ten times faster than anyone thought possible. Getting the vaccine developed and distributed to 320 million people is a massive feat and will change history, and it was done mainly in America, by major US corporations that the left wants to attack as villainous. Without those terrible drug companies, the economy, and all of us would have withered away. The Chinese and Russian vaccines have not been rigorously tested, and so are of unknown efficacy. .
Israel killed the father of Iran’s nuke program. Don’t believe the wild stories Iran put out about robot guns and satellites. They are likely not true. It is very possible they did it now because they know Biden would have had a huge objection, as he did object to killing Bin Laden and Soleimani. He and his new foreign policy team think killing these terrible people is a bad policy that might result in shooting, as does the EU who condemned it. The EU also condemned killing Soleimani. They all think you are supposed to play nice in the sandbox of geopolitics, and we can appease Iran, China and N Korea with disastrous multilateral agreements like the Iran deal, and the bad guys can be convinced to behave. That is a massively flawed policy that failed miserably, and should be very apparent to anyone who looks objectively at the result of leading from behind as we did under Obama Biden. Iran chants Death To America and wipe Israel off the map, and Biden and his retreads think that is just idle rhetoric. They seem not to understand they really mean it. Iran cheated from day one on the nuke deal as the Israelis have proven with the hoard of stolen documents they somehow got out of Iran in 2018. When Obama did not enforce his red line on chemical weapons, the world knew he was a chicken, and would not act decisively against the bad guys. That was an invitation to the bad actors to go for it, which they all did. China has taken advantage of the WTO and the Paris Accord. Yet Biden and his team are unable to see it in plain sight. They want to go back to those same concepts and policies immediately. Clearly the US knew about the killing of the Iranian and sent a fleet of B 52s plus a carrier battle group to the area suddenly to help protect Israel and US bases. Israel is on top alert for the blowback. Biden has sent word to Iran to wait until he is in office, and then they can “talk” about the problem. Translation, I will send over Kerry and Blinken and we will lift the sanctions and chastise those bad guys in Israel. The world is in a very dangerous place once Biden takes over. There will very likely be a major black swan event in the Mideast in early 2021, and some attempt by Iran to assassinate an American general, or ambassador. Then the world will see if Biden and his resurrected team act, or fold like Obama did after Syria, ISIS, and Benghazi.
I know from some emails that some readers think I should be ranting about the election fraud. I try to be a realist. I don’t know what is true, or not, anymore on this topic. I am sure there was some fraud, and maybe a lot of fraud, but by who and how widespread is completely unclear. And likely never will be. There was a reason the Dems pushed so hard for mail-in ballots, but proving massive fraud has not happened in court yet, and might never be proven. For the moment, Biden will be president. Unless there is a SCOTUS decision to change that, I need to remain with that fact. Reality. One thing to be aware of is that when Trump was in the private sector, he sued everyone as a business tactic. He mostly lost. He even once sued a major developer named Julius Trump, claiming he owned the name Trump for use on projects, even though the other guy was really named Trump. He used lawsuits as a way to pressure people to settle for less than he owed them. It is a very common and frequently used tactic in the real estate development world. I had several developers try that with me, nine times, except I always sued them, and always won what was owed me. Trump just did it more than most. So the stream of lawsuits now would be his normal busines practice. It is what he knows.
If you are in a giving mood please remember the USO.. These days they run food banks for people in the military who struggle to pay their bills in high cost places they might get based, like San Diego.
I hope you like the revised more readable format.
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