REFLECTIONS OF THE CURRENT ENVIRONMENT

Equities slumped as fresh restrictions to curtail the spread of COVID overshadowed signs that scientists are making fast progress towards a vaccine. The dollar sank to a two-year low, a decline that at this juncture is not a market event.  However, a strong case can be made if the decline continues it may become an issue.

As discussed many times money supply and Treasury issuance is surging, a major reason for the current decline of the greenback.

Radically changing topics, I was asked yesterday what is the ultimate black swan event of 2020.  Negative interest rates?  The concentration of monies in five names?  The implosion of “risk free” quantitative models?  The massive outperformance of passive indexing? The shutdown?  I remarked the overturning of the election.

Like most I do believe Biden will become the forty sixth president.  President Trump has made some incredible accusations, accusations that if true would equate the US electoral process is similar to the electoral process of faux democracies.

I ask even if you are ardent Trump supporter, what is worse—a Biden Presidency or the collapse of the integrity within the voting mechanics?  I would argue the latter.  It strikes at the heart of our democracy.

I rhetorically place the odds Trump overturning the election is around 1% to 2%.  If such does occur, the potential ramifications are infinite.

The person who asked me the question as to what is the ultimate black swan event responded by reiterating data I have recently cited such as the odds of negative interest rates is 0.00006%.  The odds of negative real interest rates are 0.007%. According to quant firm Great Lake Advisors the current quantitative shock that is/has occurring from growth to value is once in every  5,944,505,321,905,660,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 days.  He commented based upon the events of 2020 he would bet the house the election will be overturned.

After reflection, I fully realized the enormity of today’s environment.  The unexpected is occurring at a rate and at a speed no one had ever suggested.

What will happen next?  Will value stocks become as overvalued as many growth issues?  Will inflation increase at a pace greater than forecasted?  Will monies gravitate into the real economy vs. Wall Street creating an unprecedented boom?

Life is stranger than fiction.  All the above does have a probability of occurring.

What will happen today?

Last night the foreign markets were down.   London was down 0.77%, Paris down 0.69% and Frankfurt down 0.87%.  China was up 0.47%, Japan down 0.36% and Hang Sang down 0.71%.

The Dow should open moderately lower on lockdown fears.  At this juncture, the markets are ignoring more positive vaccine news, a vaccine that produces a stronger immune response in older adults. The 10-year is up 4/32 to yield 0.86%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.