“Let them eat cake!”
Whether or not Marie Antoinette actually said these words in 1789 is historically open to question, although the quote is often attributed to her. 1789 was a year during the reign of her husband, Louis XVI. The French Revolution was in full swing, and there a major famine in the country. The story goes that when Marie Antoinette was informed that the peasants did not have enough bread to eat, she stated that they should eat cake. The problem was that not only was there no grain for bread, but none of the other ingredients to bake a cake were available either. This showed either ignorance of the problem, or, more likely, a disdain for the residents of her country.
It’s 231 years later, and I believe our leaders in Federal government are sending the same message. The Coronavirus epidemic is seeing new daily highs in positive tests, hospitalizations, and deaths. At the present rate, there may be roughly 250,000 casualties by Election Day in early November. This past Friday, the additional $600 in unemployment benefits ceased for over 20 million Americans who are jobless. Friday also marked the end of the ban on landlords being unable to evict tenants that are behind in their rent payments. What was the reaction in Washington? Most members of Congress went home for the weekend, leaving a few emissaries to try to continue stimulus talks. President Trump spent Saturday and Sunday playing golf in New Jersey.
The impasse on the Federal level shows continued dysfunction. Why did Congress wait until the end of this round of stimulus to begin discussing continuation of benefits? What will happen to families evicted from their homes? What about businesses that are either still unable to open their doors or are forced to operate at half capacity or less? Will there be another round of PPP loans to create a bridge between now and the implementation of a COVID-19 vaccine on a large level? The daily angst that inaction on these matters creates is profound. Americans are hurting physically, emotionally, and economically. The pandemic should not be cause for partisan bickering in Washington. Perhaps some of our elected officials are ignorant of the problems they are causing. Perhaps some of them just don’t care and are more concerned with saving their own jobs in November. Giving a bipartisan message to Americans to eat cake is not the solution that is immediately needed.
Now that I’ve gotten that off my chest, let’s talk about what’s happening in the markets. July continued the mildly positive trend for assets. Stocks and bonds both performed decently, and precious metals had outsized gains. Major technology companies in particular reported earnings that exceeded expectations. If anything, the disconnect between Wall Street and Main Street got worse. According to CNBC, the restaurant, hospitality, travel, and gaming industries saw their increased activity plateau last month as the pandemic reduced people’s desire to go out in public.
One of the interesting things about the age of COVID is that the savings rate of Americans is increasing dramatically. It makes sense since we’re spending less on travel and entertainment. This can be interpreted as a future positive for the market. The pent-up desire that most of us are experiencing is becoming like a stretched out rubber band. When a vaccine (or even an effective prophylactic) is implemented, the snap back should be nothing short of amazing. My feeling is that this is a big part of Wall Street’s optimism. As I’ve stated before, science will eventually win, and we’ll return to some semblance of former normalcy.
In the meantime, I’m asking you to stay prepared for volatility and even a short-term correction. I remain cautiously optimistic for the longer-term but my short-term crystal ball is quite cloudy. There’s simply too much uncertainty out there. The combination of COVID-19, the upcoming election, racial and economic inequality in the US, and an active hurricane season might end up being toxic. If there is a silver lining, we’ll hopefully have a vaccine soon, the election will be over in three months, and hurricanes will wait until next year. The aforementioned issues of inequality sadly won’t be going away any time soon, particularly if our elected officials continue to channel their inner Marie Antoinette.
The next 90 days should be interesting, to say the least. We will be bombarded with political advertising which promises to be overwhelmingly negative. The pandemic is on an upward curve that needs to be immediately flattened and then lessened. Our elected officials will hopefully end the impasse soon, but the amount of damage between now and then could be substantial on many levels.
As always, I welcome your thoughts. We continue to monitor your portfolios on a daily basis and are trying to keep things in as much perspective as possible. Our companion newsletter that stresses the positive side of life is being well received. If you haven’t gotten it for some reason, let us know… we just put out our fourth installment late last week. RC and I are in the process of finishing our first video that discusses investing during the time of pandemic. It’s four minutes of timely information, and you’ll be receiving a link for it soon. We’re simply trying to communicate in different ways since we’re not seeing anyone face-to-face.
Most importantly, stay safe and stay sane. RC, Christie, Ruth, and I look forward to hearing you soon.
The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.
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