vaccine and insurrection: two stray thoughts

–As of this morning, I qualify to receive the coronavirus vaccine, along with every other 65+ person in the US. The biggest problem with my new status: there is no vaccine in the hands of the shot-givers in NJ and may not be any for months. What I find interesting about this is that it’s an illustration of the importance the views of the person in charge have in influencing, consciously or not, everyone who works for him/her.

The Trump narrative is that the coronavirus is a hoax. Because of this, any subordinate who works on, say, creating a well-oiled distribution machine for vaccine is not just wasting time but visibly asking for trouble. The result is at best what I’m experiencing now–a medical potemkin village. A viable distribution system will only start to be built next month, when the incoming president signals that working on this is ok.

A similar kind of hardening of the arteries happens with companies, as/when early-stage entrepreneurship is replaced by professional bureaucracy. Intel is a current example, in my view. GM and Ford are others. Pre-Iger Disney is a fourth–although DIS is also a great example of how having the right person at the top can revitalize a sleeping giant in short order.

–the story of the Trump-incited riot in the Capitol building continues to develop. Annapolis graduate and former prosecutor Rep. Mikie Sherrill reports that the day before Trump incited the attack Republican Congresspeople led rioters on a “reconnaissance” tour of the Capitol. Also, a Republican representative appears to have texted rioters updates on the location of Congresspeople during the attack. Trump’s toneless, my-lawyers-made-me-do-this reading of a statement asking for an end to violence implies that he had further riots planned, if needed, for MLK weekend and the inauguration.

What strikes me is that the US is almost blase about Trump’s continuing attempts to subvert the election, including using violence. We figure it’s just another day of Trump being Trump. The rest of the world, in contrast, is horrified by what’s happening. It smacks of the 1991 (or 1993) Soviet coup attempt. My sense is that’s the image Europeans have, as well. China is chortling, while the rest of the Pacific is appalled.

Purely as investors, we’ve got to assess how badly Trump-as-Putin-wannabe damages the desire of the rest of the world to acquire goods and services from US companies, or to visit, work or go to school in the US itself. This can’t be a good thing. The question is how bad, and for how long. I don’t think we have enough information yet. As I see it, Wall Street is so far doing what it usually does–trying to find areas where this doesn’t make much difference.

since the election…

I was watching CNBC yesterday afternoon.

Regular readers know I think the presenters there are by and large actors pretending to be market analysts. On the other hand, there’s the weird thing for investment managers that potential (and actual) clients regard an appearance in what is in effect a soap opera as a powerful endorsement of their professional competence. So CNBC often has surprisingly good guests.

That wasn’t the case while I was watching yesterday. But there were graphics that illustrated the (surprising to me) strong performance of big car companies since the election and the fact that retail stocks are up about 12% so far in January.

I did some poking around and this is what I found. Since the day after the November election through the close on January 12:

Tesla +92.7%

Russell 2000 +31.8%

GM +27.7%

Target +24.7%

Ford +21.7%

S&P 500 +12.8%

NASDAQ +10.3%

Walmart +3.8%

Dollar General +1.0%.

Over the past 52 weeks, Ford is up less than a percent and only Tesla (+748%) and Target (+57%) have outpaced the +42% gain of NASDAQ.

How do I read what’s going on?

–there’s been a dramatic shift in the market since the election away from multinationals and toward domestic names, as the upturn of the Russell 2000 vs. the S&P for the first time in three years shows

–left-by-the-wayside names like GM and Ford are suddenly showing some life. This is startling. Over the past five years, the S&P is up by 137% and the R2000 by 111%. In contrast, GM is up by 52%, or less than half either index, and F is down by 22%. So, yes, the R2000 is dragging these two up with it. But I also see this as an indicator of sky-high valuations elsewhere if domestic carmakers look like attractive investments

–Walmart & DG vs. Target. The least affluent Americans typically go to local stores that aren’t on the stock market map. The dollar stores are one level above that. WMT is another level higher, with something like a third of its customers low-income. TGT is somewhere between WMT and traditional department stores.

When time are bad, consumers spend less and shift to lower-price alternatives; when times are good, they gradually reverse this behavior.

Personally, I’ve begun to notice that consumer electronics items and photography gear is sometimes cheaper from WMT than either AMZN or B&H. So I’ve begun to use WMT more. My guess, though, is that I’m way, way in the minority on this.

The way I interpret the price action of these three big retailers is that the market is figuring that pandemic help is on the way under Biden and anticipating a cyclical shift to more upscale that is yet to occur.

my bottom line

I think the retail stores are signaling that the market thinks better economic times are in store under Biden.

The domestic autos, on the other hand, are sending the worrisome valuation signal that for some professionals they’re all that’s left that’s buyable.

a bang and a whimper

The death toll from the Trump-incited riot on Wednesday is now five: one rioter shot to death, three apparent rioters dead from heart attack/stroke, and one policeman dead from being bludgeoned with a fire extinguisher by rioters. The Capitol police chief whose department ignored social media discussion of plans for a violent attack on the Congress has resigned. No explanation yet for why the administration initially refused police requests for National Guard reinforcements. Bizarre tweets by Republican legislators blaming the riot on antifa and BLM, which serve only to underscore the narrative of Two Americas. An occasion for fund-raising by Josh Hawley.

Yesterday Trump made a grudging public statement, which the Wall Street Journal called too little, too late. It was more revealing for how little was said. No acknowledgment that Biden had won the election–only admission that due to the Congressional action he was unsuccessful in disrupting, a new administration would take office in two weeks. To my mind Trump said the minimum necessary to avoid being removed from office by his cabinet, a number of whom have already resigned, apparently in order to avoid having to vote on whether to remove him.

What a mess. A huge black eye for America throughout the world.

Putting on our investor hats, however, the salient fact is that the coup attempt failed, thanks in large part to Mitch McConnell and Mike Pence.

The immediate market reaction in stock prices, as I read it: a shift in interest away from the Russell 2000, Industrials and Consumer discretionary toward health care–genomics firms in particular–and financials. It’s hard to know how long this will last, but the move seems to me to be a new hesitation to bet that Trump’s growth-inhibiting economic policies will disappear once he leaves office. I don’t get the logic–my guess is that Trump loses a lot of influence once he’s not The President–but that’s what yesterday’s prices are saying to me. Let’s see what today brings.

the morning after the insurrection

Yesterday a mob organized and incited by Trump broke into the Capitol in Washington with the supposed aim of somehow compelling Congress to overturn the results of the November election and declare Trump the winner. Trump’s earlier efforts to achieve the same goal, through 60+ lawsuits and arm-twisting legislatures in battleground states, had all failed to establish anything other than that the original outcome was examined again in detail and found to be correct–a victory for Biden of the same magnitude as Trump’s defeat of Hillary four years ago.

My question: what did Trump think he had to gain from the assault? I can understand the bogus fraud claim. It was/is a fund-raising scam in which supporters send him money to “fight the steal,” while not noticing the fine print in the solicitation reveals the lion’s share of the funds go into Trump’s PAC for his future use instead. He also had graduates of elite universities and law schools like Cruz and Hawley already eager to inject his craziness into Congressional debate. Trump clearly wanted the disruption that occurred, since he refused both to try to defuse the situation and to send law enforcement support to outnumbered police on the scene (Pence did the second).

On Wall Street, home to many wealthy Trump supporters, the reaction, as far as I can see, is embarrassed silence.

The reaction of the stock market, in contrast, is relief. The focus is on the fact that Trump’s attempt to subvert the election and remain in office has lost most of its support and that Biden will be president in two weeks. At the very least this means that after close to a year and what will likely be 400,000+ US deaths from the pandemic, Washington will finally begin to fight it rather than spread it. It also means the 30% or so that Trump’s looney-tunes economic policies have clipped off the GDP growth rate will begin to be restored.

The main thrust of today’s trading so far, though, has been on the surprising double Democratic senate win in Georgia. To the market, this implies higher deficit spending from Congress, which implies higher interest rates–which is good for bank profits.

securities analysis and NASDAQ vs. Russell 2000

Three related thoughts:

–Securities analysis, at least as I do it, has something in common with the scientific method. That is, you make up a story (form a hypothesis) about the future possibilities for a company with a publicly-traded stock. You identify the most important points and forecast as best you can future earnings growth. Then you look for evidence that will either strengthen or weaken your belief that your story is true.

Where this process differs from science is not only that lab coast are optional but that by and large it’s observation of events outside of your control–earnings reports, industry or government data…–rather than experiments you carry out, and whose timing you control, that develop the confirming/falsifying evidence. Yes, you can buy and use a company’s products–I used to bring home video games made by publicly-traded firms and leave them on tables to see what my kids would do with them, for example–but if so you have to be aware not to bet the farm on this.

–my most important made up story of the past few years has been that the now-outgoing administration had adopted early on a set of destructive economic and social policies–bad beyond the craziest hopes of Beijing or Moscow–that would slow domestic growth significantly and disadvantage US-based multinational firms enough to cause them to begin to make plans to relocate. I thought of this being a milder version of the capital flight that happens in failing third-world countries. I also thought one very general way to measure the right or wrong of this would be to compare the NASDAQ, chock full of non-US earners, vs. the Russell 2000, comprised of mid-cap domestic firms. Since early 2018, this indicator has been signaling capital flight.

Then came the pandemic. The President of the United States, the ultimate influencer in the land, told us, in effect, that it was unpatriotic to listen to medical advice to avoid exposure to the virus. The result of this horrible misstep has been a second, much more visible, economic and social disaster–and a second wave of flight by investors from the domestic economy.

–we’ve entered year four since the beginning of this dynamic. That’s an extremely long time for any idea to work so One of my main underlying ideas has been that the motive force behind all has been Trump just being what his real estate past showed him to be. If so, this would mean Trump’s losing the election last November could mark the end of the capital flight trade. Certainly, from the day after the election, the R2000 has been outperforming NASDAQ–although smaller tech/biotech companies have continued to show relative strength.

In the aftermarket last night, NASDAQ futures began to weaken, and R2000 futures to strengthen, when early Georgia senate election results indicated strong showings by both Democratic challengers. That has continued through my writing this at around 10am est.

I interpret this as a further indicator that the pro-NASDAQ/anti-R2000 trade has actually been a product of Trump’s bungling.

I also think this year’s market action will be much more complex than in 2018-20. The thing that’s clearest to me is that names whose main attraction has been their usefulness during the pandemic are now a big question mark. My guess is also that once the official federal government position changes from pandemic denial, anti-pandemic public health measures will be more effective. For us as investors, this means thinking harder about what the post-pandemic travel world will look like.

There are longer-term issues about interest rates and the currency, The knee-jerk reaction from the Georgia election has been rates up, $US down. Whether that’s right or not is open to question, I think,