the Pfizer vaccine

There’s concept and reality. The stock market is being driven by concept right now, the idea that in, say, six months a vaccine that will likely prevent the user from contracting covid will be widely available.

At some point, but not now, messy details will surface. We don’t know, for example, the cost (the vaccine was apparently financed by Germany, not the US–as Pence claimed it was yesterday). It needs to be stored in a super-cold refrigerator, not the regular ones in drug stores, so distribution is an issue. And the US, land of conspiracy theories, has larger contingent of anti-vaxxers that most other countries on the planet. So there’s an issue of how many people will take it.

Trump visibly losing it…

…in several senses:

–Late last week, Fox News-owner Rupert Murdoch seems to have decided that the risks of continuing to support Trump’s bizarre alternate version of reality outweigh the benefits. So Fox appears to be ceasing its role as the principal megaphone for Trump’s lies.

–According to Bloomberg, a source I trust, the Pennsylvania voting “fraud” case that Trump/Giuliani are trying to bring to the Supreme Court involves the validity of 7,800 ballots. This is far short of Biden’s 46,000+ vote winning margin, so it won’t change the result in PA. Nor does it address Biden’s wins in NV and AZ, which brought him to the 270 electoral vote finish line. The appeal is being financed by contributions being solicited from supporters online. A vintage Trump touch–a fine-print disclosure reveals that half the money raised goes to repaying campaign debt, not to funding court action.

a decisive shift in market sentiment

I think so, anyway. Typically, these are not one-day affairs. As I’m writing this before the Wall Street open, there’s a 3.6% spread between rising Russell 2000 futures and a falling NASDAQ. That’s not as wide as yesterday’s pre-market spread, but it’s still big and it’s still there.

Yesterday’s market played out more or less in the broad-brush style I’d thought. Stocks whose major attraction is that they benefit from continuation of the pandemic fell especially sharply. Economically-sensitive stocks left for dead over the past three quarters bounced even more emphatically.

I think, however, that between these two poles there are stocks that benefit from the pandemic but are the wave of the future anyway, and businesses for whom sunset is still coming, only much sooner because of it. The first group went down anyway, the second went up. At some point, however–but probably not today–individual investors will begin to look for value in the former; professional short-sellers will comb through the latter.

A secondary point: what may be being lost in the positive vaccine news is that over the weekend it became clear that Trump lost his bid for reelection. Although economics is traditionally not the Democrats’ strong suit, I think this means an end to the large-scale damage Trump’s loony economic policies have inflicted on the country. Because most of these losses were initiated by executive order, healing should start relatively rapidly as Biden uses similar orders to nullify Trump’s. This should be a factor in stock market action this week, but my impression is that it isn’t. The bottom line: the domestic economy should be healthier, sooner under Biden–although there won’t be much evidence of that until mid-2021.

When Asian trading of US stock futures ended very early this morning, the results were as follows:

S&P 500 +1.35%

NASDAQ +1.72%

Russell 2000 +1.21%

Dow +1.32% (as regular readers will know, I think the Dow has about as much relevance today as buggy whips and blocks of ice to use for refrigeration have in our daily life–less, actually …but it can serve as an indicator of how stocks of the past are moving. And its use identifies commentators as being totally clueless)

Anyway, the Pfizer announcement of a successful trial of a covid vaccine (90% effective in preventing the disease, with few side effects, according to the announcement) after Pacific trading closed has made those prices irrelevant. As I’m writing this at 8:15am est, the index numbers are:

S&P 500 +4.07%

NASDAQ +0.05%

Russell 2000 +7.00%

Dow +5.61%

European stock markets that I’ve checked are all up by about 5%.

This is not 100% covid, of course. Over the weekend, it became clear that Trump, his economic idiocy and his nazification of American life, have been voted out of office. Also the year-to-date performance difference between multinational growth stocks, +40%-ish, and the Russell 2000, flat, has been so extreme that it was inevitable that sooner or later the latter would have its day in the sun. All that said,

my thoughts

It’s hard to know how large or long-lasting this rally will be. So I’m mostly going to watch.

I’m most interested what economically sensitive stocks go up the most; and what high-fliers crash the hardest. If past form holds true, the best performers will be firms that Wall Street has left for dead. All the former stars will likely go down, but there might/should be a difference between names that are radically dependent on the pandemic continuing (these are the main targets for culling, I think) and plain old multinational secular growth stocks.

I also want to see if/how the pre-market view is sustained as the day progresses

At the very least today we’ll a glimpse into how our portfolios might fare in a post-covid, post-Trump world. For me, the picture is probably not going to be particularly pretty. I’ve been inching away from my all-in pro-covid portfolio for a number of months. I have a 10% position in a Russell 2000 etf, for example. But experience tells me that this won’t be anywhere near enough to prevent me from having a bad relative performance day.

That, however, is life as a portfolio manager.

As I began to write this just before 9 am est, news came in that Biden has pulled ahead of Trump in PA, after also showing a miniscule lead over Trump in Georgia earlier in the day.

This presumably explains why Trump sounds even more detached from reality than usual, why Fox News and other enablers are slowly distancing themselves from him and why Democrats are radiating confidence despite the fact that I personally don’t see support for any of this in the vote numbers. This last is most likely because I know very little about the way political information flows.

The stock market doesn’t stand still while I’m scratching my head, however. Two approaches: believe what amounts to the technical analysis of political insiders without really having any edge, or try to figure out how to make the election results not be a key variable in my investment decisions. So I take off my hat as a human being and put on my hat as an investor.

A decades-long business career plus the past four years amply demonstrate that Trump’s economic IQ is as close to zero as one can get. The pandemic in the US will likely be more deeply economically damaging, and for longer, than elsewhere. A second term for the self-described “very stable genius” would imply the economy continues to get worse, with no chance of bounceback. If Biden wins, he inherits the gigantic economic mess Trump has created. The pertinent questions, I think, are: what can Biden do to repair the numerous holes in the bottom of the boat, and what he will do, given Democrats’ chronic lack of focus on economic health.

My only partly formed thoughts:

–Trump’s immigration policies have clipped about at least a third off domestic GDP growth potential. Reversing them should be easy, suggesting GDP may surprise on the upside as soon as mid-2021

–eliminating/reducing tariffs. I have no problem with economic policies that advance the US national interest. But Trump’s strategy, if that’s the right word, of turning the clock back to the 1950s damages the US beyond the dreams of Beijing or Moscow. Since they’re imposed mostly/entirely? by executive order, reversing the worst of them should also be easy. This would imply pain for sunset industries, a plus for structural change beneficiaries

–anti-infrastructure/anti-science/anti-education bias. Barring foreign, full-tuition-paying university students is easy to reverse. But there seems to me to be a deeper cultural/political divide about the rest.

My conclusion, so far: under Trump there’s no hope for a GDP rebound soon. Under Biden, investors have to entertain the question of when to begin to play the idea of positive GDP surprise. I’ve already begun to shift slightly away from IT (stocks whose strength depends on continuing pandemic) toward retail and toward Hong Kong-traded China. More on this last topic next week.

The election still isn’t decided. Nevertheless, the stock market appears to want to put Trump’s idea of restoring the world of the 1950s in the US into the rear view mirror as quickly as possible.

Day 1 seemed to me to express three ideas:

–the pandemic will continue to have negative effects on the US economy for some time to come. Therefore look for structural change beneficiaries rather than GDP-sensitives. Get exposure abroad, where government pandemic strategy has been more competent

–Washington will be gridlocked. As a work colleague put it thirty years ago, Democrats have a cultural program but no economic one (he also said Republicans don’t believe in much of anything other than their then budding alliance with evangelicals). I find it hard to see what an administration change will do other than end Trump’s dismantling of the American economic growth engine. Therefore, look to companies with international exposure

–the biggest beneficiaries of Trump’s four years, as I see it, have been Russia, China, heavy domestic polluters and natural resource miners. Under Biden, that all would likely change. The last two groups would likely be the biggest losers.

Although I’m happy to ride the current wave, which is at least partly a rebound from the pre-election selloff based on fear of a “Blue Wave” Democrat sweep, an awful lot of the current enthusiasm seems to hinge on developments in Pennsylvania and Nevada/

About the time it became clear that Florida had voted to reelect Trump, and by a more comfortable margin than is usual in the Sunshine State, both betting markets and stock index futures reversed course. Nasdaq surged; the Russell 2000 sagged in relative terms. They remained that way until Trump claimed victory and tried to bully battleground states into stopping counting ballots. That promptly sent world markets into brief decline. We’re in better shape in premarket trading, maybe because both Republicans and Democrats condemned Trump.

Where do we stand now?

–the markets have begun to factor back into prices the possibility that Trump will be reelected. This would imply continuation of his GDP-suppressing economic policies (hence the decline in the R2000), lots more unnecessary pandemic deaths and the beginning in earnest of flight of human and corporate capital from the US (hence the rise in NASDAQ multinationals). Ironically, brain drain will be limited by the unwillingness of other countries to admit possibly-infected Americans. The image of American brands abroad would continue to be tarnished by his white racism, his embrace of QAnon and his general super-unsmartness.

I suspect this mood will last at least until the presidential result is decided. If Trump ends up winning, the pro-NASDAQ/anti-R2000 trade probably has looong legs.

When I began investing in the UK in the late 1980s, the word that immediately came to mind was “quaint.” London was like Vienna writ large–a city focused on the past, half-expecting that one morning it would wake up and the nineteenth century would be back and Britain would once again the global waves. Securities analysts knew lots about palm oil, rubber gold and oil. They knew the suppliers to the Queen and the pedigree of every corporate leader. They were aware of electricity and home appliances. But they didn’t have a clue about semiconductors or computer hardware/software.

My initial reaction to the overall election results is that it underlines that the US as a country has adopted the mindset of the UK of 35 years ago.