Please note: this is not personal investment advice; just my ramblings so seek professional advice if you need it. It is also not a political standpoint but investment options if the energy flows a certain way.
The transition to greatness may have stalled. The blue wave is picking up in amplitude and looks to swamp the orange glow of the Trumpeters hair.
If this pans out what could it mean for your dollars and the equity markets?
Well a likely scenario is what is summed up in the Financial Times about a Democrats win — a big new Democrat-led stimulus package fuelling economic recovery and a bull market.
A hint of this is showing up in bond yields which have crept up in recent times (see graph) which goes some way in explaining recent stock market strength. The 10-year bond yield is at his highest point since June.
Morgan Stanley talks of an “interest rate scare” in which rates creep up and therefore the price of bonds fall — this is very good for the stock market as money flips from bonds into equities. Good for the $US dollar also as people align with strength.
And with signs of economic recovery (and maybe even a vaccine) rates could go further and the switch to equities would gather pace. Could this be a major trend? Marcus Padley leans this way. He gives some points on the bull market case:
- A Democratic sweep
- A bigger and better stimulus package.
- A new economic optimism.
- Global GDP upgrades.
- A peak in unemployment.
- A rise in inflation.
- Higher interest rates (Morgan Stanley’s interest rate scare).
- Bond prices falling.
- A bond to equities switch.
Marcus goes on to say: “Throw in a ‘Trumps gone’ relief rally; an end to trade wars and protectionism; collaboration with China and Mexico (who account for 19.6% of US exports and 29.6% of US imports), a return to foreign policy with integrity; and a stock-market that doesn’t have to put up with the risk, volatility and unpredictability of midnight tweets and suddenly you don’t want to be short the equity market”.
Also some are talking of a Biden Blue Portfolio: railroads, home builders and building contractors, manufacturers and material suppliers, telecoms, utilities, autos, medical suppliers and innovative technologies.
If this crystal ball gazing aligns with your reasoning then investment themes would be changing — a switch from tech and online retail (which have benefited from the rampaging virus) to more cyclical recovery stocks such as energy, financials, travel and tourism.
Of course this Blue Wave precludes Sleepy Joe catching Covid-19 and fading out for a few weeks (or not catching it and fading out); or the onset of a severe second/third wave around the world — of which the early stages look to be transpiring, so that’s a bit of a worry.
Also the Trumpeter could make a miraculous come from behind win and get another Mussolini moment on the White House balcony. Or yet another possibility is that the Trumpeter loses and in a petulant fit digs himself in at the White House and they can’t evict him as his ‘stand back and stand by‘ supporters take to the streets with their AR15s.
In the latter case you certainly wouldn’t want to be long equities (except maybe gold stocks); you would hopefully have added to your stockpile of real gold — lots of it.
What am I doing? I am following my two gurus of investment and finance: Marcus Padley and Alan Kholer. I believe they are no nonsense advisors whom don’t take it all too seriously so they are kind of refreshing to hang out with it. (Note that much of their info relates to Australia and is behind a paywall but they do have some free stuff).
I understand nobody really knows what is going to happen. You can only be looking at options and act accordingly. If I was a betting man I would say the Blue Wave is looking increasingly likely. It seems the Republican establishment is giving up on the Trumpeter as they position themselves for what they believe is coming.