Investing in Normal

With the election winding down the Man on the Move is not waiting for long, drawn out court battles. It’s time to gear up for a Biden presidency…

Where Do We Stand?

Last week, ahead of the election, I considered Societal Norms:

  • Government spending and taxation are no longer correlated. Fiscal and monetary policy have diverged.
  • Debt is normal and even encouraged. It’s to the point where those who do not use debt are considered rubes.
  • Bailouts are a common occurrence even in the face of malfeasance. It’s to the point where if you didn’t take a PPP Loan that was forgiven, you “missed out” on the money.
  • Lastly, “fair share” is a nebulous target that no one will dare define. I still continue to ask, I have yet to have anyone answer.

In 2021 we’ll be transferring power from the ultimate non-politically correct, non-politician in Trump to the quintessential career, politically correct politician in Biden. As a former 8-year vice-president with a job history spanning 40 years in politics that gives us something to go on – something beyond Corn Pop and creepy hair sniffing. Now… Joe probably can’t remember what he had for breakfast yesterday, but I can remember 2008-2016…

Biden has always championed himself as a proponent of the middle class. “Working Class” Joe made Scranton, his Norman Rockwell middle-class hometown neighborhood, a central theme for his presidential campaign. How will this play out in real time politics? Let’s take a look.

The Obama/Biden Administration

The O/B administration provides good context and recent data on Biden’s political want. He did, after all, run on his record as VP in his pitch to “heal America”. His central theme was the economy and recovery for all. As he normally does, he laid out an enticing offer to the lower and middle class – Follow Joe toward a trove of money, wealth, and better ways of life.

Biden loves to point to the stock market performance during the O/B tenure as proof of their successfully handling the economy and its recovery from The Great Recession. Like most liberals, however, Joe gets caught in circular logic here. He loves to excoriate America’s wealthiest 1% as well. The rich getting richer is supposedly a pure play in Republican impropriety. Orange man bad.

The fact is, the wealthiest 1% own 50% of the stocks in America. It only stands to reason they will benefit most from a rising stock market. However, it is a rising stock market that Biden uses to point to as success in the O/B years. See what I mean? Suffice to say, under O/B, the rich got richer as a result of the policies they point to as proof of their success.

What does that success look like? The O/B administration piled up $9T in federal debt while in office – almost as much debt in eight years of O/B than in the entire 232-year history of the country!

In addition, O/B piled $4.5T in debt onto the Federal Reserve’s balance sheet. At the end of the O/B tenure, the Feds used this massive leverage to accumulate almost $2.5 Trillion worth of US government securities almost $2 Trillion worth of mortgage-backed securities. Staggering.

With this massive federal leverage and a money printer purring 24/7, the stock market skyrocketed under O/B. The S&P 500 increased 166% during the O/B tenure, corporate profits increased 55%, and publicly held federal debt increased 128% []. I will leave the correlation parts to you, but they are not hard to tabulate, as you can see in the graph below.

Graph from St. Louis Federal Reserve

Keep an eye on the forthcoming B/H administration’s monetary policies versus fiscal policies in 2021 and beyond. There is a difference.

Who Really Benefitted?

Who benefited under the O/B polices? As you can see from the chart below, the 90-100 percentile (that’s the rich people) did very well. The middle class and below took a kick to the balls. Remember, Biden points to the stock market as success…

Chart from Federal Reserve Board via PolitiFact

The middle class shed wealth partly because of the O/B administration’s Zero Interest Rate Policy (ZIRP). ZIRP does two things that hurt: One – it punishes savers and those holding cash (non-stock holders). Holding cash with no interest paid is essentially a 2% tax per year (the cost of inflation). Two, it entices people to take on debt with low interest teasers, and debt destroys wealth. It’s that simple.

So now we see how the O/B administration played their hand in their 8 years. How does 2021 differ than when Biden last held office? Not by much. Covid-19 is the stress test of 2020, just like the housing/debt crisis in 2007. As history repeats we see unemployment high, the economy begging for relief, mortgage defaults high, interest rates low, consumer debt high, and jobs being shed. Biden himself talks of a “Long Dark Winter” that is coming.

The New Normal (Societal Norms)

Four days after Biden seemed to secure victory we saw AOC publicly claiming she is keeping a list of Trump supporters and a record of what they are saying. She promised retribution by blacklisting them from jobs, corporate boards, and public sector work. It seems very un-American.

We also had Chuck Schumer coming in right behind her wanting student loan relief up to $50,000 on day one of Biden’s first term. Who saw that coming?

This is definitely a foreshadowing of things to come, from both House & Senate – threats if you don’t fall in line with the endorsed way of thinking (see my last post’s thoughts on language), plus free money to pay off your contractual debt obligations (see my last post’s analysis on debt you don’t have to pay). These are both current societal norms that fall right in line with my analysis from just 2 weeks ago.

Look for another stimulus round to deliver sooner rather than later. I predict $3T+. Where will the money come from? Two hints – not from taxation, and not from spending cuts. No… it will come from the money printer. Here we go again…

What Will Do Well?

I wrote about gold in Feb 2017 and we’ve seen it march upwards of 50% since then. In that same article I covered some bond funds that have done very well to date as well. I wrote an article recommending bitcoin in August of 2017 and it’s up 354% as of today. Look for assets that do well under debt, stress, inflation, and uncertainty… (Ideas: $GLD, $SLV, $CEF, $TLT, $BTC)

If the Sanders / Warren / Schumer student loan relief happens, house prices could build on current momentum… (ideas: $WOOD, $HD, $SHW)

Under O/B, handgun production increased over 200%. With continued, and worsening civil unrest coupled with its complicit government endorsement, look at this for a 2021 trend and beyond. As physical violence continues unchecked, gun & ammo sales will likely pop… (Ideas: $RGR, $SWBI, $VSTO, $OLN)

One-third of America now lives in an area where the recreational use of marijuana is legal. I wrote about this a few years ago with an update in late 2018. Hopefully you are partaking. Canopy has gone from $7.89/share when I wrote about grass to $30.59 today, representing a gain of 288% or annualized gain exceeding 50% per year – incredible! Kamala Harris, despite her very problematic record as a DA and the AG in California, has stated she and Joe will legalize marijuana at the federal level. If that happens, pot stocks may catch fire… (Ideas: $CGC, $ACB, $TLRY, $CURLF)

Wind & Solar companies did well under O/B. There is no secret why. The industry saw an uptick of almost 400% under O/B and remains strong today. Joe says, “When I hear the words climate change, I hear the word ‘jobs.’ Good paying, union jobs.” Kamala Harris co-sponsored AOC’s Green New Deal, one of the most laughable pieces of legislation in history. That being said, B/H will use “green energy” as a means of economic stimulus, repaying political favors, and wealth transfer. Green energy stocks may heat up… (Ideas: $IDRV, $GRID, $TAN, $PBD, $FAN)

Conclusion (Normal)

Today we see Joe Sixpack decimated by the effects of Covid-19 who is told he is not essential. Faced with a loss/decrease of income, he is told he does not have to make his rent payments. Now his landlord is on the hook with a mortgage at a major bank, and without the forecasted cashflow is told he/she does not have to make the mortgage payments. The bank, without the forecasted cashflow, begins to choke on its obligations and turns to the government for a bailout before it fails. The government prints money to give to the bank and takes the risky asset off its hands, parking it on the Federal Reserve Balance Sheet where it stays until all of this can be “unwound” at a later date. All of this has macro-economic effects that leads back around to Joe Sixpack who still can’t make rent his payments… Meanwhile we are left to figure out where we want to invest in this cycle.

The O/B administration piled up more total debt over eight years than in the entire 232-year history of the country. Biden remains convinced, however, that the O/B response to the housing crisis was too small. Position yourself accordingly.

How does your coffee taste this morning? Normal? Good… Thanks for reading.

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