The Technical Take
Technically, the markets remain in a bullish pattern through the early part of October. However, as flu activity builds into the fall and winter there is fear of a second wave of COVID-19 cases. Canada and the northern Midwest are already beginning to see a spike in new cases in conjunction with colder weather.
Offsetting these outbreak concerns is hope for a vaccine. For now, however, sweeping lockdowns appear to be abating. A nuanced local approach to COVID-19 is underway. Much of this may be due to improvements in testing and the public’s willingness to comply with social distancing as daily case counts rise.
Until we have a vaccine testing is helping business. It now takes an hour or less to obtain test results. Two months ago it took 5-10 days to obtain results. A growing number of businesses, churches, and entertainment venues are able to reopen on a limited basis. All of this is great progress in the face of the upcoming fall and winter weather and flu season. Last year the worst of flu season occurred between mid-December and March. With distancing behavior underway, even without a vaccine, things should improve this year and into 2021. We shall see.
The Fundamental Take
Fundamentally, despite the ongoing concern over a second wave of COVID-19 cases, the Bloomberg Consumer Comfort Survey Index remains very positive. According to Bloomberg, Americans rate the economy, buying climate, and household finances better than almost 77% of the time back to 1987. This is very strange for recession.
Refinancing activity due to low mortgage rates is helping expand consumer individual disposable income by hundreds of dollars a month. Low mortgage rates are also fostering an acceleration in home prices, a trend that is likely to continue for at least two more years. Moreover, while borrowing rates may flatten out as they move into the rarified world of 1-2+%, we’ve just begun to see the ballooning up impact of fiscal policy initiatives.
Even as I write this, there is growing expectation that a second bi-partisan stimulus bill will be approved soon to reduce the suffering of the unemployed, the airlines, small businesses, renters, landlords and state governments.
You may be wondering how stock prices can hold up in the midst of a pandemic, with a vaccine still months away from delivery and unknown public acceptance, with tens of thousands of restaurants filing for bankruptcy, state governors limiting commerce and with fiscal spending packages uncertain. The answer(s) may be twofold. First, it’s now estimated that some $90 trillion (that’s trillion) of worldwide liquidity is now sloshing around the planet looking for safety and appreciation net of currency deflation, taxes and inflation. Money goes where it’s treated best in a world of deflation.
In order to offset asset deflation world central banks are lowering interest rates to “reflate” asset prices. The hope is that this reflation strategy may stave off mass rebellion from both young and old. After all, it was just 6 months ago when the government’s shutdown of the economy caused asset prices to decline as much as 30-40%. This lower interest rate strategy is in play worldwide now.
In the United States, the Federal Reserve Board’s strategy is working. As evidence of this a recent Bloomberg Consumer Comfort Survey shows Americans rate the economy, buying climate, and household finances better than almost 77% of the time going back to 1987.
That’s the good news. People with assets are experiencing asset appreciation. The problem is you must own assets to benefit. The have-nots find themselves further behind-even as student debt grows, layoffs leave millions unemployed, divorces spike, and starting-over pressures after bankruptcy are tied to when state governors fully reopen state commerce.
Such a world requires an extra helping of kindness, even to those who wish to destroy the government. And if regimes are toppled and new opportunities do not arise, you can expect still more unrest. In many ways, that’s what I love about the U.S. People want what they want, and they want it now. Patience only goes so far in a society that gives citizens the right to assemble and protest. Elections restore hope. Elections also pressure political parties to solve problems. So with monetary policy largely spent, you can expect fiscal policy decisions to lead congressional decision making for years to come.
Meanwhile, publicly corporations which provide products and services that meet growing consumer needs grow. Investor measure the better growers, for safety sake according to a number of metrics which include: financial strength or liquidity, profitability as measured by return on invested capital, margin expansion, predictability, debt levels, interest coverage, operating and net margin expansion, working average cost of capital, inventory turnover in days, management experience, cash flows, competition, dividend and dividend history, domestic and international political support, and innovation.
These fundamentals, which investors value over technical measurements, are supported by government funding initiatives, government compliance rules, tax deduction laws, demographic data, supply and demand basics and the amazing capacity of employees at individual firms (often thousands per firm) to drive and codify the growth strategies of management.
Again, thank you for you continued support and trust in all we do for you. I trust this letter finds you and your family healthy and safe. We all have so much to be thankful for this October, inclusive of the recognition this year of viricidal and political drama will soon end and 2021 begins -a year of new hope and expectations.
Vaughn Woods Financial Group, Inc.
2226 Avenida De La Playa
La Jolla, CA 92037
Investors should be aware that there are risks inherent in all investments such as fluctuations in investment principal. Past performance is not a guarantee of future results. Asset allocation cannot assure a profit nor protect against loss. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this newsletter may not reflect the views of Bolton Global Capital or Bolton Global Asset Management. The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. VW1/VWA0254
Douglas Harter, CFA, et all, Mortgage Finance Weekly, Sept 28,2020, Credit Suisse
The Bulls Are On Main, And the Bears Are on Wall?, Sept. 28, 2020, Paulsen
Gurufocus.com, Marketedge.com, briefing.com, finance.yahoo.com, markesmith.investors.com