KOMMONSENTSJANE – ROSS RANT – 12/05/2020

Pay attention to what he says regarding the election in the first paragraph. Mike

For the moment it appears the market will continue to float around where it is unless there is an agreement on stimulus in the next week, or so in which case there may be another leg up. Just be aware the S&P is at a very high PE and it seems possible that the valuations are so high now that 3700 may be the limit on the S&P for a while. On the other hand, if the vaccines can be widely administered quickly as planned, and things reopen across the country by late spring, then industries like hotels, restaurants, cruise, airlines etc will fully reopen, and that will juice the market. The virus surge seems not to be impacting the forecasts of a strong economic recovery by mid-2021 due to the vaccine. The Dems continue to shut down things again, and FL stays fully open and doing well, with no worse outbreak than shut down states. Biden saying everybody has to wear a mask for 100 days is going nowhere. Every person in the US knows it is best to wear a mask and distance,. But obviously tens of millions don’t care what Biden says, and will not comply. In a week the vaccine will begin to be administered, and if they get to most nursing homes and health workers fast as planned, the cases will decline quickly and deaths even faster. If Fauci is first to get it on camera, then there will be major compliance. Then a bunch of other health officials also need to be shown to receive the shots. If Fauci does not, and delays, it will cause a huge fear. Also by end of next week there should be some resolution to the charges of voter fraud. Unless something comes from DOJ, or another similar credible source, it is unlikely the courts are going to rule for Trump. But this being 2020, you never know. In October, one of my tennis buddies in the Hamptons, who is a very credible senior Wall St guy, was giving lectures to 300 major Wall St execs on the exact scenario we see playing out now. So far it is almost exactly as he laid it out. His end game was it goes to the House for a final vote, and there the Republicans have a majority since each state gets one vote only. I doubt if he will be right about the end game, but it is interesting to observe his predictions play out after we all thought he was a bit nuts. Be aware there is an ability for Pelosi to try to overturn two Republican congressional wins. There is a clause which allows the House to vote on whether a newly elected person should be seated if the race is very close. This is the case in Iowa and upstate NY. The Republican candidate in the NY case says Cuomo signed an executive order before the election that allowed several things to be allowed that decreased the integrity of the vote in NY State. We had a mess in the Carolyn Maloney primary in Manhattan, and now in the upstate congressional election. What happened to election integrity. Is the whole country now Chicago in 1960.

It remains very hard to know where the market will go. On one hand GDP in Q4 may be up as much as 10%, and there are $3.5 trillion in cash sitting on the sidelines while interest rates remain near zero, which means the equity markets are one of the only places to put that money to work and get a good return. That pool of cash is almost an underlying base under the values of stocks. like the Fed being the stop for the debt markets. On the other hand we are about to get an administration that is determined to raise taxes and regulations, and destroy the increases in profits the market has benefited from. If the Dems take both seats on Jan 5, it will wreck the stock market. On the other hand, the vaccines mean we potentially will have beaten the virus, and the latter half of 21 should be an excellent economic growth period for the markets unless the Dems do get to pass the tax and spend programs, and do put in massive new regulations. Lastly, Iran is going to do something to retaliate for killing Soleimani and the nuke scientist, and that could become very messy. We just do not know when and what, nor what that may lead to next. China continues to be an existential threat, and now we have a foreign policy team that has never understood how to deal with Iran or China, and is likely to cut defense spending to use the money for more wasteful welfare spending. They never understood the Regan rule, peace through strength. They are going back to the lead from behind policies of Obama era. That is a major risk for the next 4 years. January 5 remains the key date.

The jobs report was not the disaster Biden claims. In fact there were 468,000 jobs added in November, but a lot of census workers were terminated as the census ended, so the net number looked worse than it is. In addition, new applications for unemployment actually declined by 75,000 last week suggesting things are not so bad as Biden says. The level was just 1000 off of the lowest level since March. The jobs market is recovering, so if we ignore the big shut down states like CA, it is likely that things continue to improve. It has been revealed that the unemployment numbers are not accurate across the country and the methodology is being modified. The problem is reporting by states is not accurate,. and there are apparently a number of fraudulent claims. The actual numbers are not hugely off, but do apparently vary from what is being reported. The lockdowns in CA, NY, and other large states like NJ are clearly causing a loss of jobs along with teachers unions refusing to let schools in LA county, and other places, reopen, making it impossible for many low income women to go back to work. Labor participation is very low now partially due to the schools closed, partly due to large lockdowns, and partly due to people over 65 deciding to just retire and not try to go back to work. Once the vaccines are in full mode in the spring, this should change dramatically, and by June be back to more normal levels. The new lockdowns will kill a lot of small businesses that managed to stay afloat with PPP.

At the same time October retail sales continued to rise, and the housing market continued at near record levels. Spending likely will slow now with new lockdowns, but recovery continues and is way ahead of where most economists and the CBO were predicting. The ISM report on services said services and manufacturing both improved in November for the sixth straight month with the services index now at 58.5. Services is the main driver of jobs in the US. The number for services like restaurants and hotels was slightly lower, but still at 55.5. Over 12 million jobs have been added back since the April bottom. Continuing claims also declined by 568,000 in November. You can count on Biden taking sudden credit for the recovery by March when the vaccine will be administered to many, and things will be getting back to more normal. None of which will be due to anything Biden does. He will claim the dark Trump winter is now the bright Biden spring. It will be complete BS. In the EU the numbers have gotten worse due to much more stringent lockdowns. Asia and India continued to expand and loosen restrictions. One can conclude that the CA and NY lockdowns do much more harm than good. Something a substantial amount of research has now proven.

One thing to keep in mind is that Brexit is coming to a conclusion on Dec 31. It is likely the parties will come to an agreement, but that is not yet certain. At the moment neither the UK nor the EU can afford a big fight over trade, so some compromise is likely. Another big problem for the EU is that Merkel is leaving shortly. There is nobody of her stature to replace her. Germany has driven the EU for all these years, but it is now unclear what will happen. I continue to believe investing in the EU Is not where you want to be. Likewise, it is very unclear that the oil industry will be a good place to invest in the near term. While prices are up, and will continue to rise as the vaccines are administered, the industry has many problems and has just taken huge write downs. Maybe from here those stocks recover, but it is seemingly risky given the big push for electric cars worldwide and other measures to reduce fossil fuel use. It seems to me there are better places to invest right now as the world is on the verge of stopping the virus.

For a long time I have said China is an existential threat to the US. Now the DNI, Ratcliffe has said the same only worse. He suggests the Chinese are blackmailing some Congressmen and others in government. They continue to steal intellectual property although Trump has forced an end to a lot of what was happening in academia. 1000 Chinese “student researchers” fled this year. The worry is Biden and his Obama retreads think it better to find ways to cooperate with China, get the WTO court back in action which never was helpful to stopping China, and joining TPP which will subject the US to abide by group think and not in our own best interests. These are the exact same people who allowed China to become so powerful and to steal IP for all those years. China has to be thrilled Biden won. Likely Taiwan will not get any more US arms, making the invasion of Taiwan that much more likely.

Iran will wait for Joe to take office, but there is no way they will not retaliate for the two assassinations. Trump made it clear to them not to try, but Joe wants to do a deal and play nice, so will not take the same position. I am concerned that the markets are ignoring this coming black swan, and when whatever happens, could result in a very ugly war, and a major upset to the markets sometime in the first half of 21.

The press has been playing up the line that climate change has spawned a major uptick in hurricanes. Here is reality. Until the 1970’s there was no way to know about all of the storms in the ocean that never hit land, or just lasted two days, unless a ship spotted it. Now we have satellite coverage of the whole ocean. In addition the former head of hurricane reporting and tracking, who has retired, said there are two day storms that today are labeled as tropical storms, that in the eighties, and prior, they were not even reported because they were classified as just bad storms, or were not even noticed due to no satellite coverage in those days. Since the 1880’s when records began to be kept, there has been no increase in frequency of major storms, just more naming of them and highlighted news about them. In 1950 there were 8 storms labeled as major hurricanes, in 1961 it was 7 and in 2020 it was 6. In summary, there has been no consistent recording of storms over the past 140 years, and no consistent terminology to identify severity of storms, so to try to claim now there are more major storms due to climate change is nonsense, and propaganda by the climate change press and politicians. It is simply that today every big storm is suddenly a name storm and makes the national news. Climate change has spawned a whole industry, and just look at the Biden focus on it. Be careful what you read, and are told about the effects of climate change. Some is true, but some, like hurricanes, is not.

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kommonsentsjane

About kommonsentsjane

Enjoys sports and all kinds of music, especially dance music. Playing the keyboard and piano are favorites. Family and friends are very important.
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