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,