Are You Scared About the Market? Jobs? Economy?

Now that we have elected an adult, what can we expect…

1. What changes to expect…

Finally. After four years of an economy and a country run by your preschool bully and his Big Wheels gang, the teacher is back and an adult is at the front of the class.

We know that Biden-Harris will govern very differently than what we’ve just seen for the longest and most disastrous four years on record. Without sounding too enamored of the new administration (must… remain… impartial), we can expect mature, systematic, and broad policies focused on what is best for the country as a whole (I Love Joe and Kamala!!!).

Sorry. I’m back.

Biden and Harris are all about service to the country. Not about personal-enrichment and self-aggrandizement like the Trumpkins.

The first order of business is to control the COVID-19 pandemic. This is because we know, and Biden-Harris and their team know, that the health of all the people is the same as the health of the economy.

Just to put the pandemic in perspective, here are the current daily cases of coronavirus in the US thanks to Trump’s negligence:

Compare that with a couple of weeks ago:

This is the single most important and over-riding context for what will happen going forward.

Let’s spitball what we might expect going forward. These are my thoughts and opinions — I’d love to hear yours.

2. Market manipulation…

A few weeks ago, I presented evidence for Trump’s manipulation causing the stock market to skyrocket despite the economy ravaged by the coronavirus pandemic. Check it out here and let me know if you agree or not:

The key point is the insane amount of cash dumped into the economy in 2020. Recall over a decade ago during the highly contentious hair-pulling, shin-kicking school-yard brawl over the Federal Reserve’s Quantitative Easing (QE). Remember that? The amount of cash put into the economy by QE are those two tiny steps near the gray bar representing the Housing Recession around 2008–9 and after the recession. Let me show one of those graphs again:

Note by comparison the amount of cash released into the economy during 2020. That huuuge step up in cash.

That cash released into the market is what is artificially propping up the stock market — all to placate Trump.

Meanwhile during the presidential campaign, Trump repeatedly “predicted” that if Biden won the presidency, the stock market would crash (as if that were really the thing we needed to worry most about).:

Trump ordered his hand-picked Federal Reserve chairman Jerome Powell to do something to prop up the stock market:

So, what do you think Trump will do, now that Biden did indeed win?

That’s right. The Federal Reserve, on Trump’s order, will reverse the cash-infusion. Less cash in the economy means the price of money (interest rates) will go up. Investors will move their funds from the stock market into higher-interest cash investments, CDs, MMFs, etc., and stock prices will finally crash. As they were supposed to do this year.

But listen. That is not a bad thing. The stock market is way over-priced and does not deserve to be at these levels given the pandemic.

This price inflation is temporary, as will be the much-needed correction. For long-term investors, the wiggles up and down have no real consequences. I have no intention of making rash investment decisions based on the manipulations of Trump and his cronies.

3. What about the vaccine…

If anyone believed Trump’s claims that a vaccine was about to hit the streets in time for his coronation, I mean election, I have a bridge I’d like to sell you. As expected, no vaccine was released, and none will be soon. Any vaccine released by the Trump administration should be avoided at all costs.

Any vaccine released by the FDA headed by a trustworthy public servant appointed by Biden is one I will take. In addition to a Biden-appointed FDA chief, Fauci is another person I would pay attention to:

Coronavirus vaccines are particularly challenging. The scientific and medical community have been working hard on coronavirus vaccines for decades with little to show for their efforts. Part of the problem was lack of funding once the previous SARS pandemic receded (and points to the need to keep funding constant even during periods free of infections). But the technical challenges are significant, and there is no guarantee that more funding would have given us a safe and effective SARS vaccine by now. The multi-decade struggles for an HIV vaccine are a relevant cautionary tale.

4. How to control the pandemic then…

Although the specifics of Biden’s pandemic control are still evolving, along with the rapidly-changing pandemic itself (see sky-rocketing cases graph above), there are some key points we know already as reported in the journal, Science:

• stand up a 100,000-person contact tracing corps;
• increase testing by “orders of magnitude,” in part by doubling the number of drive-through test sites;
• use the full power of the Defense Production Act (DPA) to replenish depleted stocks of personal protective equipment;
• establish a task force to monitor racial and ethnic disparities in the response;
• provide funds to help state and local governments as well as businesses cope with the pandemic; and
• call on Congress to provide financial aid to schools.

Tracing all contacts of an infected patient and immediately quarantining them is essential to any successful pandemic control. That is the first order of business, and why the 100,000-person contact tracing force is essential.

Regular testing is another essential piece of any successful pandemic control, especially when the virus can be spread by non-symptomatic carriers of the virus. So increasing testing by “orders of magnitude” (meaning 10x, 100x, or more) is also must-have.

Masks and distancing are mandatory to minimize the spread of this highly contagious virus. Every effort must be made to produce enough masks for everyone to wear, and for hospital supplies to handle the skyrocketing cases.

Any government must be a government for all the people. Especially those most vulnerable. For this pandemic, that means minorities, which we have seen are most severely hit by the virus.

Due to an abdication of responsibility by the Trump administration, state and local governments have struggled to take the lead. This has decimated local and state budgets, with layoffs resulting and many more to come. Schools, for example, are struggling to hire the additional personnel needed to keep students distancing, and the resulting smaller class sizes. The pandemic is hitting many other school functions and more resources are still needed (like bus drivers) to make schools safe.

5. “It’s the economy, stupid”…

But the bottom line is the economy, as Clinton’s campaign strategist noted in his pithy quote, right? Ultimately, once we start to get a handle on the pandemic, we need to slowly get the economy up and running. People need to buy supplies, pay the rent or mortgage, buy cars, go out to eat, travel, see movies… in other words, people’s cash is the blood flowing through the economy. That’s why without healthy people, we don’t have an economy anyway. Priorities, folks.

The sooner the pandemic controls discussed above gain traction, the sooner the economy can start humming again. The jobs that have been decimated can start to come back once people have confidence. Confidence that there are enough tests to verify that they are virus-free, that there are enough masks to keep everyone safe, that there are enough contact-tracers to find infected people and quarantine them, and that there is funding for government and business to operate.

But this year, without those controls, no one had the confidence to go out. And therefore, with a lack of individual buyers like you and me, corporate profits collapsed this year as you can see in the next chart:

With no profits, which is how stocks are valued, how on earth can we expect the stock market to soar in direct opposition to that profit chart? Here is the S&P500 stock chart for the same 5-year period of time:

So yes, as much as I hate to say it, Trump is right that the stock market will crash. But that is not a reflection of Trump’s special powers of foresight and intelligence. That is because Trump has been manipulating the stock market to elevate it in a farcical delusion that it would help re-elect him.

But now that he has lost, he has no motivation to keep elevating the stock market. And it will indeed crash. As it rightly should have all along in a normally functioning stock market.

The crash we saw with the low-point around March 23 was the correct market response, despite Trump’s temper tantrum at the time.

I personally expect the stock market to crash (who knows if it actually will) — but we are now in a better position with Biden and Harris because we will get the pandemic under control. Then this devastated economy will be in the rear-view mirror. Things will get better — with a lot of hard work and some angst (quarantine will not be fun for those unlucky ones). I will not be panic-selling, or changing my long-term investment methods due to the stupidity of a past president. I am long-term optimistic now that we have all elected a much better one.

That is what we need to focus on.

That, and getting our country back together again.