07.22.20

the economy, and biden’s challenge

Posted in Uncategorized at 9:36 pm by Administrator

i have to admit that it sometimes makes me angry when i see the nasdaq breaking records on a daily basis. that might have a little to do with missing out on this tech bull run; but it mostly has to do with the incredible disparity between the experiences of the rich and the poor of our country. while people are afraid for their lives and their livelihoods, investors are piling in to an overcrowded tech sector and developing a ponzi scheme of escalating valuations. the optics look bad for the investors and also for the companies that are benefiting from this wanton speculation. that’s not going to bode well for the tech industry when the economic slow-down persists and the heavily indebted federal government begins to turn its regulatory attentions toward recession profiteers.

that being said, like i wrote in a prior entry, i understand that what’s fueling this tech bubble is fear more than greed. it strikes me as terribly ironic that tech is being viewed as the defensive sector of choice, when tech (and growth in general) has been historically contingent upon a bullish macro milieu. to me, this simply magnifies the short-medium term risks in biotech and information technology. when (not if) the market as a whole reacts to the headwinds of this rapidly evolving healthcare crisis, the sell-off in tech stocks will be fueled not only by a flight to cash but also by unsustainably high valuations.

the single most important metric i’m following as a bellwether of this economy is the price of gold. gold isn’t the speculator’s choice; it produces no returns, and it functions purely as a store of value. investors go into gold when they see immediate risk of currency devaluation; investors pile into gold when there is imminent risk of significant inflation. right now, investors are piling into gold, because the one thing that seems relatively certain is that massive debt and federal stimulus will devalue the dollar and accelerate inflation.

back in march, i predicted that one of these three things would precipitate the second downswing in market valuations: renewed state lockdowns, trade wars with the EU or Europe, and spiking inflation. i actually believe that all three are in play right now. as a result, i’m still predicting a stock market crash before october and quite possibly within the next four weeks. the financials will be the leading indicator; a pull-back of 10 percent or more will trigger a correction in consumer discretionary and industrial valuations that will ultimately spill over into a massive sell-off in tech stocks. the mega-cap staples may be the last to fall, but i don’t even see apple or amazon escaping this next leg of the downturn. my S&P target remains at 2000, and as unlikely as this might seem right now, i am finding this outcome more and more inevitable.

donald trump’s best shot at getting reelected was a decisive coronavirus response and a V-shaped bounce-back for the american economy. had he nailed it by banning international travel and closing our borders in early february, he would have had this election in the bag. now, biden’s victory seems to be a near certainty. there’s no question in my mind that this election will be a referendum on trump’s handling of the covid crisis; biden’s fitness for duty or his value proposition will be mostly irrelevant. and that’s too bad, because the biden administration will enter office with no clear mandate to do anything except to end the chaos of the trump presidency.

in fact, our collective expectations for a biden administration need to be particularly specific and high. as low as the bar will be at the end of trump’s term, we need to make sure that biden and his team are held accountable to executing a sensible plan for the nation’s economic recovery. open-ended fiscal stimulus is not acceptable. vague promises of a return to environmental protection cannot be tolerated. cheap slogans like “made in america” simply mimic trumpism without addressing america’s real need to realign and deepen its international partnerships. first and foremost, the biden administration needs to put forward a federal fiscal plan that stimulates growth, maximizes employment, and averts stagflation. simply taxing the rich and spending on infrastructure isn’t going to work. we need to rebuild global supply chains, reduce labor costs, avert pension crises, contain key costs (i.e. prescription drug prices), and protect small businesses. talking up socialism is fine, and there’s room for more socialism over the long term; but making capitalism work in america is what we need right now. that’s a tall order, and it requires more than big ideas; it requires an educated strategy and disciplined tactics

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