‘The Times, They Are A Changin’- Bob Dylan
As the world ushered in a new year, change is in the air. In the midst of a once in a decade pandemic, the United States is burdened with crowded hospitals and populations weary of accelerating infections, along with the terrible tragedy of mortalities. With the pandemic has come the inevitable government overreach and mismanagement of economic restrictions and vaccine distribution. It seems pretty clear the country is divided in how it sees the virus and the way it has been handled in the various states. Economically, after the closure last March, a vast majority of industries have rebounded nicely, with tremendous weakness persisting in the service area (bars, restaurants, travel, hotels, events). As part of the theme of change, the political situation has changed in a big way, so let’s take a look at that, hard as it may be.
On Tuesday, the worst case scenario for Republicans came to pass as Georgia, long a reliable red state, voted in both Democrats to the United States Senate. The races were very close, with Democrats following the same modus operandi they tried in the November election, led by Wall Street, Hollywood, and Silicon Valley, as they out raised Republicans by nearly a third. With changing demographics, a short window of two months, and poor messaging by candidates emphasizing negative consequences of Democratic senate control, divisive rhetoric by high profile lawyers and President Trump led to some erosion in reliable voting areas, and that was all it took. The Senate is now split 50-50, with Kamala the deciding vote. In terms of the context for the Congress, Democrats now control both the House, Senate, and Presidency, although in both the House and Senate, the majority is minimal (House- 4 votes, and tied-Senate). The king makers in both parts of Congress are moderates, specifically Democrat moderates. In the House there are not many, and in the Senate it is Susan Collins (R) of Maine and Joe Manchin (D) of West Virginia. We will get back to that in a minute. Let’s look at the immediate affects in the market, shall we?
Investors reacted by believing that another stimulus package will get adopted rather quickly once the transition of power takes place. Bond yields jumped in anticipation of a weaker dollar, along with higher inflation, and the 10 yr broke 1%. Energy stocks and the financials rallied hard, along with Bitcoin, which broke 30k and is up dramatically in a few short days into 2021. It was a light week for earnings as Jeffrey’s, Walgreen’s, and Micron all beat estimates. The December jobs report came in quite weak as the economy saw job losses of 140k, well short of the estimate for a gain of fifty thousand. The job weakness will be pointed at by Democrats as a reason for more stimulus. On Wednesday, President Trump imploded as his rally to protest the election irregularities (fraud?) went remarkably bad when thousands of his supporters overwhelmed the capital building and broke up the electoral college meeting by members of Congress. The last time anything like this happened was when Andrew Jackson was elected President and his supporters nearly burned down the White House. Democrats used the problems at the capital as an opportunity to call for Trump’s resignation, and the large media properties like Facebook, Twitter, and Youtube shut down his account. The uniter, President elect Biden, made comments comparing Black Lives Matter with the Trump supporters and how the treatment was unfair, forgetting about the riots and destruction of businesses over the summer. Panderer is probably a more accurate description than uniter. Consistent with that, Senator Cruz of Texas and Senator Hawley of Missouri were compared to Joseph Goebels, the propaganda director during Nazi Germany, because they voted not to accept the individual electoral college votes from contested states like Arizona, Pennsylvania, and Michigan (the source of the voter fraud controversy). Nice way to get ready for the inauguration, huh?
As for President Trump and Republicans, if you knew anything about the Donald, it was inevitable that Republicans would have their hearts broken. Still, with 75 million supporters, Mr. Trump remains enormously popular, regardless of what Democrats think of him. The Donald never came to grips with an understanding that politics is more than being about one person, that being him. The loss of the Senate races, while not totally devastating, was an unforced error and very much hurts Republicans for at least the next few years. Trump spent the last two months grousing about how he was cheated instead of putting everything into the Georgia runoffs. Now, as the panderer in chief takes office in ten days, Democratic rhetoric seems quite ominous. Republicans have strengths in the individual state legislatures, and taking back the House in a few years is a distinct possibility. The bigger issue is determining how big a role the Donald will have in the party, if one at all, and if he is not the leader of the Republicans, who will be? In terms of the moderates, Senator Manchin, the supposed middle of the roader, was so level headed about Wednesday’s events he called for Trump to be impeached again, like now. Not a guy Republicans can even think about having faith in. Now let’s turn to a brighter topic, the one of Davey day trader.
I am referring to Dave Portnoy, the head of Barstool sports. In case you haven’t been paying attention to his journey, he seems to have lost enthusiasm on the investing front, which is probably understandable. Barstool took an investment from Penn Gaming for nearly 400 million bucks, and since then Penn Gaming has branded an app for the stoolies which allows them to use mobile sports betting at each of the states Penn is licensed in. Since the depths of the selloff in March, Penn Gaming’s stock has appreciated from 5 to nearly 100 (93.75 to be exact). Meanwhile, Mr. Portnoy recently started a fund to help raise money for the many small businesses that are struggling with the economy and government restrictions. Mr. Portnoy has raised nearly 21 million so far, and apparently he nabbed the biggest fish around, Elan Musk, to help. Musk, after all, is now the world’s richest man, whether justified or not. Mr. Portnoy needs to be commended for his efforts at a time when many small businesses really need help. I have included a clip of him calling a small business owner for your viewing pleasure. On that note, stay healthy and I hope you are well.
Thank you for reading the blog this week, and if you have any questions about investing, please email me at firstname.lastname@example.org.
Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation. The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.