a reply to two recent comments

The first is from Russ, who has an important investment point. His suggestion is to take a long view rather than compete directly with the herds of Wall Streeters trying to beat the S&P, and invest in areas of secular significance that are not yet at the center of professionals’ attention. His examples are clean energy and infrastructure (I’d add fintech and genomics to that).

Two possible approaches: one would be to have, say, 85% of total equity exposure in S&P funds/etfs (or at least in index-ish things), aimed at delivering the index return +/-, say, 2%, and the rest in longer-term/higher risk/reward areas. The second would be to make the latter the centerpiece of the portfolio, with passive products adding a little ballast. The difference between the two, as I see it, is that deviations from market returns from using the second approach, both positive and negative, could be large. So this is only for someone with a high tolerance for risk.

The second comment is a question about the election. I have no informed idea about the outcome.

There are two narratives around the lack of accuracy in the political polls from 2016. One is that voting for Trump seemed so socially unacceptable that his supporters were reluctant to reveal their intentions. The second is that in reweighting responses gathered in order to get them to mirror the structure of the overall voting population pollsters mistakenly gave too little weight to respondents without college degrees. That error has supposedly been fixed in current polling.

As regular readers will know, I think the harm caused by Washington’s long and severe neglect of the parts of the country hurt most by the decline of heavy industry over the past half-century is at the basis of Trump’s appeal. He says he cares. Unfortunately, Trump is showing the same form he exhibited in his unsuccessful real estate career–his supporters are bearing the brunt of the economic damage harm he is doing. As president, there’s health damage as well. My sense, from seeing the small size of Trump boat/car parades in eastern Pennsylvania, is that at least some people are figuring out that they’ve been duped. But how they will vote? …again, I have no clue.

Economically, how a Biden administration would play out is unclear. A second Trump term would presumably be a copy of the first–GDP stagnation at best, and a continuing reorientation away from cutting-edge science and industries of the future (where the US has a comparative advantage) toward Third World-competing ones where we do not. Likely consequences would ultimately be a blowout in federal debt, capital flight and currency deprecation. To the degree that the initial stage of flight would be through buying stocks with intellectual property and/or international exposure, the NASDAQ might continue to boom while the Russell 2000 lags badly.

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