These Four Things Can’t All Be True, Who is Lying?
We are now less than 3-months from the U.S. presidential elections, and we thought we would take a macro view of the political and financial landscape to better understand the state of play. The choice before the American people is a stark and a pivotal one that gives two very different visions for the world.
We present four specific points that we are being told are real today and can be relatively accurately measured – at least as the mainstream media organizations are telling us. Many are staking not only their financial futures on this vision but also the very direction of the country from a historical viewpoint. We ask the question – can all these points be true? Or are we being lied to? We present our four points as follows:
1) Equity markets near all-time highs – Seeking Alpha writes: Several stock market indexes made historical highs recently, including the widely watched S&P 500. The fact that stocks are trading at all-time highs is understandably generating some fears among investors. A healthy dose of caution and skepticism does not hurt at all, and a market pullback in the short term is to be expected with prices reaching overbought levels.
However, only the fact that stocks are trading at all-time highs is no reason to stay away from the market. Buying on strength can produce mediocre returns in some years, but strong markets tend to continue delivering superior returns over the middle term more often than not. Up, up, up, what could go wrong?
2) Global GDP heading to a global recession – Many have little doubt that we’re heading for a global recession or already in one. Check out what these top Federal Reserve and IMF representatives say that confirm this belief. The IMF says that global growth is projected at -4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. However, recovery is considered inevitable – certainly, the markets think so. See the IMF’s Global GDP forecast chart:
3) Joe Biden leading in the polls by nearly 10 points – With less than three months to go before the U.S. presidential election, former vice-president Joe Biden, the Democratic party’s nominee, is polling ahead of incumbent Republican President Donald Trump. In the key battleground states, Florida, Biden leads Trump by six percentage points. Similarly, Biden has narrow leads in Pennsylvania, Michigan, and Wisconsin. The swing state polling did not capture the hidden Trump voter in 2016 and recently the same question is being asked today. Are there secret Trump voters lurking?
The point here is that the polls at this time show Joe Biden looks to be a sure win, both in the popular vote and the Electoral College. We know that people’s eyes roll when one mentions political polls. Nevertheless, there is a lot of supposed professional organizations working on the polling data, and it is the best data that both the public and markets have to work with.
4) Joe Biden supports and will implement the Black Lives Matter Progressive agenda – Biden has given tacit approval of the Black Lives Matter agenda, but his running mate Kamala Harris supports them wholeheartedly. Many believe the vice president may eventually need to take over the presidency, due to Biden’s failing health. Act Blue is the activist arm for raising money for the Democrat Party. The Black Lives Matter Movement, George Floyd protests, raised an ungodly sum which was funneled directly into the DNC coffers and presumably Biden’s campaign. The Democratic party has a whole battery of Progressive policies. Biden is not always clear on his proposals, but he certainly gives the impression to his voting base that he will deliver on their Black Lives Matter Progressive agenda. Here are some of the more expensive ones:
Here is a basic chart from the Heritage Foundation of what the 10-year costs would be for the Progressive agenda. Note that it doesn’t really include the New Green Deal:
Current U.S. government spending is $4.746 trillion, but the full Progressive agenda would easily double this U.S. spending. Just think of the taxes and/or deficit spending that would be required to pay for it. We are sure that certainly not all of these initiatives would ever come into reality, and most likely, Biden would say he would support them all. However, see here in a recent Cardi B interview (especially the last minute) with Joe. Joe certainly left Cardi B with the vision that a vote for Joe will give Cardi B all she asked for – the Progressive agenda.
As asked before, can all four of these points be true? All four of these points are related, but let’s break them down further between the financial points (one and two) and political points (three and four). We then can reassemble all four points to understand better what may happen in the future in summary.
Financial points (one and two) – Is it possible that both equity markets can climb higher with dismal outlooks toward any current advancements in GDP? Obviously, yes – these are the real statistics being reported by the markets and by major financial institutions. These points are being driven by basically two reasons. The first is the belief that the current outlook of negative GDP is transient and will soon recover. However, not all GDP is the same. Many smaller businesses are being hit harder due to COVID19 and may never reopen. This gives larger players an advantage to pick up this difference and can thereby increase their market share. Tech monopolies account for just how much of GDP? Turns out it depends on who is reporting the number.
Secondly, is the idea here that, with trillions of ongoing global stimulus packages offered by many governmental bodies as well as asset purchases of central banks, the newly created money will debase currencies and create asset inflation. Equities are one of the best inflation hedges for investors. Additionally, these monies will end up in purchases boosting many companies’ earnings and hence boost equity prices.
Many investors are purchasing equities in this anticipation. But what if the GDP estimates are wrong? If GDP growth expectations wane, clearly equities are in an asset bubble. Global markets operate predicated on a reasonably safe political environment. This means there would need to be reasonable certainty in tax legislation, regulations, and the rule of law. Without this confidence, business outlooks will suffer. This is why one must look at future political environments as well.
Political points (three and four) – Politics can be fickle. Politicians have always had a dubious record in telling the truth. Right now, Biden is said to be a sure win – if you believe current polling. As stated before, Biden promises the world a Progressive agenda to his benefactors. Is Biden lying? Is Biden really a centrist candidate, that is merely paying lip service to their demands? Will Biden be the one in control?
The market is basically saying that a mere fraction of the Progressive agenda will be implemented by Biden, and the markets will soon be back in business as usual once he is in office. Or perhaps some are not believing the polls and Trump will pull another 2016 upset. If Trump wins, the markets get back on the Trump train with a more business-oriented administration. Either way, markets can go up.
Clearly, these two points can be true. Are the Progressives being lied to? Are the polls lying to us? But what if Biden is telling the truth? Will America really double (or at least significantly increase) its budget with a new Progressive agenda? If so, the markets are lying to us.
Summary – Remember, business needs a reasonably safe political environment. What if there is no safe political environment? Does this mean global GDP estimates of recovery (even if slow) are a lie too?
Rewind the timeline 6-months. Who could have imagined that we would have a global pandemic that would literally lock us in our homes, that would make even going to the grocery store to get food problematic? As the pandemic has now become highly political, it may mean that this could be the state of play going forward to control unrest in populations. Then came the Black Lives Matter inspired global riots that have burned in many of our major cities. With the bright idea of defunding police, lawless violence is seen every day now. Trillion-dollar stimulus packages, massive Fed interventions, and potentially chaotic government policies, all have contributed to the massive fall in global GDP. Conspiracy theories aside, it almost feels by design, but to what end? May we suggest history reveals out of chaos comes change and revolutionary change at that. Could a global economic reset be in play?
Ah … but this November, when we finally get direction with the U.S. presidential elections, perhaps stability to society (and business) will come. Or perhaps not. A Trump win in November could put the Black Lives Matter Progressive movement on steroids. The Democrat resistance will be intensive, and increased revolutionary violence continues. Trump will be left with the decision to become more authoritarian to stop it or let it burn out – if even possible. But if a political movement is utilizing criminal tactics threatening life and property to force change is that not a fascist-authoritarian exercise? Ending such an event in a constitutional republic would be both lawful and necessary.
If the polls are correct and Biden wins, can Biden really deliver or even want to deliver the Black Lives Matter Progressive agenda? How long will the Black Lives Matter Progressive wait until they get what they want? Perhaps the Black Lives Matter Progressives will maintain their resistive violence under a Biden presidency until he does delivery. For sure, Biden will give lip service to the agenda (or deliver a mere fraction of the agenda), but in the end, he can not or will not deliver. What then?
Does this sound like a safe political environment?
Again, not all of these points we discussed can be true. One or more is a lie. One does have to wonder if markets have fully priced in any of these potential lies (risks), let alone what these lies might mean in our society and in our own personal lives.
