November 19, 2020
Cue the pessimism!
It’s going to be a “very dark winter,” promises Associated Press’ President-Elect Joe Biden.
Just what you wanted to hear, right?
Let’s just say, the expected 46th President of the United States isn’t exactly striking a tone of optimism… Instead, Joe Biden wants to prepare us for plenty of doom and gloom.
With the number of coronavirus-contagious Americans now at 3 million and counting, and threats of a lockdown on the way (and already in place in many states)… I’m unfortunately ready to believe him.
So, why then, is the market on fire? Is this some kind of last-minute rush before Biden takes office?
It’s clear investors are betting on the expectation for something (anything) better… a light at the end of the tunnel. The question now, however, is will we get it? I have my serious doubts. But, let’s start today’s analysis with the good news…
We learned this week of not one, but two promising vaccines.
Both Moderna and Pfizer have completed Phase III trials for their prospective vaccines, and both companies have seen positive results. (94.5% effectiveness for Moderna, and 95% for Pfizer.) Pfizer announced yesterday that it plans to apply for FDA approval and expects to have its vaccines distributed a couple of weeks from now.
The market approves… so much so that we’re now in striking distance of hitting 30,000 on the Dow Jones Industrial Average.
Remember, the market is trying to anticipate how things will look six to nine months from now. So clearly, it’s expecting good things. Current levels suggest that by the summer of 2021, the most significant concerns about the virus will have waned, and things will be back to normal.
But what exactly will be the new normal? And is it really that much better than the economy we saw in the three years preceding the onset of the coronavirus?
Do This BEFORE Biden Takes the White House
Surprisingly, only roughly 10% of people in the U.S. have made this move… yet it’s already created tens of thousands of millionaires. And with Biden and company about to occupy the White House, this could prove to be the #1 most important financial step you take between now and the end of this year. Get the details here.
The New Normal
With a market now trading at roughly double its historic levels of 14 times earnings, there’s obviously plenty of optimism on Wall Street. But is it justified? I don’t believe so. I suspect this may be a situation where investors have gotten out ahead of their skis.
Keep in mind that the downturn in the markets last March was quite brief… We’ve been powering higher ever since… and as we hover near 30k on the Dow, it’s important to pause and ask – WHY?
Granted, I’m impressed with the 33.1% GDP growth in the third quarter, but it’s highly doubtful we’ll revisit that in the fourth quarter given the growing number of states already in shutdown mode.
This week, we learned that October’s increase of 0.3% in retail sales was the slowest since May. And it’s highly doubtful that this number will improve in November and December, as we look at the increasing prospects of a nationwide lockdown. As I detailed in my e-mail to you last week, the newly minted member of Joe Biden’s COVID-19 task force, Dr. Michael Osterholm, is calling for a mandatory, nationwide six-week lockdown to help fight this virus.
And states are already trying to do their part…
Consider New York, where Gov. Andrew Cuomo has imposed a 10 p.m. curfew on bars and restaurants, while also limiting the number of people one can have in an individual home to no more than 10. Philadelphia and Chicago have instituted similar measures. Meanwhile, in California, they’re studying the use of curfews to help curb the spread of the virus.
In Illinois, the governor slashed capacity limits for retailers and ordered casinos and other indoor entertainment venues to shut down entirely, effective tomorrow.
Meanwhile, in Michigan, Gov. Gretchen Whitmer, who has proven to be one of the most pro-active lockdown governors (even going so far last spring as to prevent people from traveling to their in-state vacation homes), just instituted a series of new limitations on residents, effective yesterday. The order will run through December and requires the shutdown of schools, as well as indoor dining at bars and restaurants. She is also mandating that people work from home unless it’s impossible to do so.
Joe Biden is promising a long, dark winter. And, judging by the uptick in cases (as I mentioned earlier, an estimated 3 million Americans now are considered contagious) – and the promise of a six-week lockdown come January 20 (assuming he takes office) – then he may be right.
If so, then I would argue the 30k level on the Dow is premature.
Even if the markets are planning on a better summer in 2021, won’t coronavirus have changed how we operate? Will it not affect the economy in some significant ways?
Structural Change Ahead
There are industries that will likely look quite different in the future… including travel and apparel sectors.
Don’t get me wrong… People will still long to go on trips. And they’ll even still travel internationally. However, I suspect there will be drastically reduced numbers of people doing so. Coronavirus has given us a new appreciation for staying at home… and more thought will go into planning vacations. Do I want to stay in a hotel where I might be exposed to people in elevators? Do I want to travel on a long flight somewhere, again where I might be exposed? Even with a working vaccine in the future, this pandemic has shifted how we think about crowds and small spaces.
Meanwhile, the business travel industry has been decimated and forever changed. While the value of in-person, face-to-face meetings will always remain high, businesses have learned that Zoom meetings can also accomplish a lot… and for much less money. Consider all the last-minute travel for meetings that cost businesses exorbitant amounts of money… That’s all gone. And though it will come back, it will return at a much-diminished rate.
As for apparel? The retail business has always been vulnerable to the ups and downs in the economy, but it’ll be affected even more so in post-COVID times. If most folks can work from home, there is a real shift in the kind of clothing needed. So much for suits and ties for men, and high heels for women… People will invest in less expensive, comfortable leisurewear and sneakers.
But it’s not just specific sectors that will continue to struggle… There could be an argument to be made for a long-term economic malaise that will affect our economy in fundamental ways.
What will power our growth? What justifies the market trading at double its historical average?
There’s plenty of talk of stimulus… Biden would like to see an additional $3 trillion package to help Americans manage through his proposed “dark winter.” Yet that’s money that will eventually need to be paid back. Not to mention, can he even get the approval from Congress for something so massive, given that the Republicans are expected to maintain control of the Senate?
There’s talk of a “green-energy boom.” I don’t buy that one… And again, let’s consider the reality of a Republican-led Senate that won’t authorize insane spending on pet projects.
The Road Ahead… Dark Winter and Gloomy Spring
With all this in mind, and the assumption for a greater increase in regulation, perhaps at the stroke of the executive pen… thereby reversing much of the freedom the Trump administration afforded businesses — there’s a recipe in front of us… not for growth… but stagnation at best.
Though I’m an optimist who’s willing to give anyone, including politicians with whom I don’t agree with their policies, a chance… I’m beginning to take Joe Biden at his word.
Yes, it may be a very dark winter. And unfortunately, a very gloomy spring.
Episode 10: The Biden Economy & Venezuelan Style Voter Difficulties
- Trish answers the question: Are we on the path toward Socialism?
- Debbie D’Souza shares similarities between the Biden election and past elections in Venezuela.
- Neil Grossman breaks down Biden’s COVID-19 plans.
- Will the Fed create a false economy and artificial market gains?
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Executive Editor, American Consequences
With P.J. O’Rourke and the Editorial Staff
November 19, 2020