Disclaimer: This blog and our Weekly Market Insights YouTube video were written and filmed prior to the events that happened at the U.S. Capitol on January 6, 2021. Be on the lookout for relevant updates on the matter via social media.

Georgia Senate

The Georgia Senate was quite active this week. The re-election was on January 5th and the runoff with the certification, January 6th. Democrats officially swept both seats in the Senate. There are many Republicans that disagree with the results of the presidential election, which Democrats also won.

What’s going on in 2021?

Similar to our approach to Weekly Market Insights in 2020, we’ll consistently speak to a handful of themes in our weekly broadcasts. Feel free to share feedback on what we can do better and/or what you would like more of.

In general, these themes will include COVID-19 Updates, Policy & Politics, and Economic Headlines.

COVID-19

Let’s look back at two states were considered big COVID-19 hotspots over thes ummer: Florida and Texas. At the time, we thought they might be hotspots simply due to the summer season and their location. But now, California is by far the most strict on mandates and lockdowns, yet we’re still seeing a rise in cases in the state. This is a situation where I don’t think they would be doing worse or better if they didn’t have lockdowns. We’re just seeing this flow through, no matter what the States are doing. What’s likely to happen is that we’re going to get back to what it was like in June and July of 2020. It seems as if the virus is going to do its thing.

What if there were no pandemic?

If there were no pandemic, how many of those who passed from COVID-19 would have passed away this past year? We decided to investigate this one based off of your request. We were surprised whenever we started to look in this.

If you look at the graphic above, on the left you see 2014 to 2019. We are looking at weekly total deaths. You can see that there is a cyclical component to the amount, and in January, there is a spike. Therefore, it is worse than flu season. We can see that in 2014 to 2019 there was a general steady trend increasing by about 1.8% each year.

The population in 2014 is actually younger than the population in 2019. So you see an increase in that regression line. It was about 1.7-1.8% increase year over year. Now we’re adding 2020 and the increase jumps to a 3.3%.

There is a difference between each graph, showing the pandemic really did have an impact on the amount of deaths. As we get into the spring one of the things that we talked about is that there’s probably going to be a third wave. But we should expect those waves to slowly decrease and especially now that the vaccine is out.

Policy & Politics

How are politics going to impact viruses? On January 5 we watched an election, looking like the Democrats will maintain the seat as well. What is very interesting is tha Raphael Warnock is very much on the left, while the state of Georgia is not. So how was he able to really win this election?

We had 4.4 million voters come out on January 5 compared to 4.95 on November 3. So about a half a million people less, a huge turnout for a runoff election, but the stakes were very high for it.

I don’t think the libertarian showed up for the election whatsoever. So what is happening? If we look at the votes that came in and then look at what happened relative to November, there’s a shift to Democrats, especially in the suburban counties. This means that Trump voters did not show up for this runoff, especially in the suburban counties and rural areas.

Hawley vs. Walmart

Senator Hawley announced he was going to be the first Senator to contest to the election. Walmart had an employee tweet out a personal statement, not logging out of the right account.

Haweley responded back accusing Walmart of using slave labor of pain on individuals by low wages and importing goods. This is a Republican U.S. Senator from the state of Missouri using Elizabeth Warren type language. That’s the change that we’re dealing with and seeing in politics.

Domestic Economy

Bolstering our domestic money supply was one of 2020’s most significant policy changes. Money supply has been continuing to grow to the point that we’re a little bit more in the bullish camp going into the market. In the graphs below, M2 is trying to measure the entire money supply. M1 represents what the federal reserve created in the system.

China: The New Superpower

China might be considered an economic superpower, but that doesn’t seem to protect its richest citizens. Jack Ma, the wealthiest person in China, is now missing. Many people are saying he’s just remaining low, considering his last tweet was on October 10th.

CNBC reporter David Faber has a different take on the matter. Alibaba and Ant Group founder Jack Ma is not missing as was speculated, he says. Rather, Ma is being forced to hide out from the government, due to his stance on protecting the planet from climate change.

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For real-time updates, be sure to tune in on Tuesday – Thursday on Facebook and YouTube Live for our “Daily 3×3” livestreams and Wednesday for “Market Insights.” Follow GWS on Facebook and YouTube so you never miss a broadcast!

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Listeners of our weekly GWS market insights are accustomed to hearing Founder & CEO John Gatewood and me hash out our views on the economy and financial markets. This week I had the pleasure of interviewing Thaddeus (Ted) McDonald, an outside consultant for Gatewood Wealth Solutions’ Investment Strategy.

Ted’s Interest in Investment

Ted started to get into investing when he was in high school, more than 70 years ago. It all began with a very good teacher that taught algebra and calculus. He worked well with her direction and discipline, leading him to get an Engineering degree from the University of Notre Dame.

Ted thought that a manufacturing career would be the way to go, but analysis is what appealed to him the most. During his years working in the investment industry, he learned a lot. Ted stated, “I think each little segment of my life has added to the whole of the investment strategy that Gatewood Wealth Solutions is applying today.”

Profit Magic of Stock

Ted began developing his investment strategy while in Wichita from reading three influential books he kept on his shelf, one being the Profit Magic of Stock. He studied cycles and models that helped him observe how order always comes out of chaos. A pattern always exists, but it never tells you how to predict the next movement.

Similarly, there is the Fibonacci Ratio that Ted and I have discussed in the past, which is derived right out of nature. There is a unique cycle that we, as humans, observe when we walk into a movie theater. “Chances are we will sit 62% from the front of the screen. Once a person sits at the 62% mark, the next person tends to sit either 62% further up or 38% further back,” said Ted. This phenomenon had a significant influence on Ted over the years in building his investment strategy.

Ted doesn’t remember when he started to apply this investment strategy. Looking back to when he took the CFP® exam, and he was already developing technical analysis for investments utilizing the phenomenon he observed and theories he learned. Ted’s strategy encompassed two core technical indicators: quantitative and qualitative. He began by measuring price changes over time, which is the foundation of the book Profit Magic of Stock.

He then began combining what he learned through this quantitative process with how it related to income statements in order to assess his decisions. As Ted refined his research and investment process, he was asked to teach an investment course at Newman College in Wichita on the fundamentals of his developing investment strategy and theories.

Fundamental Analysis of an Investment Strategy

Fundamental analysis explores the characteristics of a company’s balance sheet income statement. It considers things such as earnings per share, the amount of debt held, the price per share, and how these values change over various periods of time, both long and short.

In Ted’s view, “By combining fundamental and technical analysis, one then has the tools to create investment management strategy that captures both company quality and its price change trend.” Good money management s first and foremost about company quality.

Investors sometimes find themselves in what’s called a “Value Trap”. While they seek quality companies to buy, they also want to buy them “cheap”, i.e., buy low.

Value traps are investments that are trading at such low levels that they appear to be buying opportunities for investors. The investment may be low priced and is often accompanied by extended periods of low multiples. A value trap is a poor investment when the company’s low price and low multiple is due to financial instability and or little growth potential.

Investors may seem eager to buy low priced stocks, hoping to buy low and sell high. Remember, company fundamentals are key to determining quality. Don’t get caught buying an unloved stock as it may result in a buy low – sell low situation.

Modifications to the Strategy

Overtime Ted made modifications to his investment strategy. Incorporating better interpretations of price changes was vital as this was also reflective of the supply and demand for a stock. Tying this price variability with fundamental analysis formed the foundation for the rules and technical indicator measures that are utilized to determine whether a security has momentum going up in price or down. Investors use many techniques for trading determine when to buy or sell a security. These include charting trend lines, channels, tops, bottoms, ranges, and more, all of which can be combined to traders to create strategies which they believe will best meet their risk-return expectation.

While GWS already employed strategies for its model portfolios, Ted consulted to add his insights in hopes of improved risk-return and benchmarked performance. Back to the motion model. Ted worked to incorporate his findings into the existing strategies to better separate noise from the signal. Through targeted time periods and logic, Ted’s help helped the GWS strategies better reflect where trends appear as the “signal”, while blocking out the noise of short-term volatility.

Greed and fear are the two elephants in the room when individuals make investment decisions. Ted says, “It is better to formulate rules based upon indicators flowing through the technical analysis, which then removes the emotions from trading decisions. This takes the guesswork and emotions out of trading decisions, which is especially important when the market experiences extreme volatility as we saw in 2020. While no system is perfect and cannot guarantee a positive result, rules-based investment strategies tend to do better than judgement based.

It is not enough to know the rules and read the signals, execution on these is also critical. Ted modified his approach over the years by tweaking the rules to buy or sell based on price change compared over specific time periods to determine whether securities were gaining or losing momentum. These technical indicators compare short, intermediate and long-term periods of price change.

The GWS Investment Strategy

We have expanded the strategy to uniquely compare like-kind securities with each other – mutual funds and ETF’s against their peers. We also compare these securities against their respective market benchmarks and the portfolio models. The GWS strategy measures the performance of asset classes through proprietary rules to determine the allocation tilts for client portfolios.

Our goal at GWS is to earn enough excess return to cover client fees and add some excess return above the comparative benchmark.

As John Gatewood always says, “Every investor should first start with a financial plan”. Establishing a financial plan that reflects each individual or family’s financial and other personal goals that includes quantifiable trackable metrics is key to helping them achieve their desired outcomes. How do you know if your making progress without something to measure?

While investment performance is important, success is not measured by whether one’s investments beat a benchmark but whether one achieved the outcomes set out in his or her financial plan. Together with understanding one’s ability and willingness to take risk, these goals then become the basis for the portfolio strategies and allocation targets selected for growing and preserving one’s wealth.

The Year of 2020

Our strategy signals pushed us into technology in early 2020. Then came the pandemic, the lockdowns, and a steep market selloff. No one panicked. While it didn’t feel good watching portfolio values decline, our rules-based strategy kept our team confident in its portfolio management decisions. We certainly did not anticipate this past year’s recession, but we know they happen from time-to-time, and our strategy worked as designed.

We followed the signals and executed upon the rules. We could not have known the market would have responded the way it did, especially with the S&P 500 down almost 35% in March, only to end the year up more than 15%. Even Ted says he never experienced a market quite like this in his more than fifty years working in the investment industry.

During the year, changes were made to the portfolio when security price were depressed. It doesn’t matter whether or not an investor harvests a loss, but if there is an opportunity that may outperform that security going forward? Our strategy is designed to push us into the things that are working and out of the ones that are not.

The Strategy Going Forward

Ted believes John Gatewood and his partners have invested significant resources into creating an infrastructure to deliver high touch hyper-personalized service. They attracted a superior team of highly credentialed young professional able to successfully operate this investment strategy for years to come. He said, “Today, GWS has the scale to efficiently and effectively deliver its investment management and financial planning services to a wider client base nationally.”

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For real-time updates, be sure to tune in on Tuesday – Thursday on Facebook for our “Daily 3×3” livestreams and Wednesday for “Market Insights.” Follow GWS on Facebook and YouTube so you never miss a broadcast!

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

The December 8th Safe Harbor date came and went, and the political sphere has been abuzz ever since. We know Texas filed a suit again the four states challenging the constitutionality of the election results, and we just heard Missouri has joined in that crusade, too. Let’s dive into the idea that we have a contested election. It’s a Hail Mary type of strategy, but it still falls in the realm of contested election given the legal proceedings involved.

The Trump legal team actually has not put forth many technical legal arguments. Most of their attempts have been thrown out due to a lack of “standing.”

What is standing? From a legal standpoint, it means that there has to be some type of legitimacy or remedy within the court. Usually to have standing, you have to have three things:

1. There has actually been harm. You can’t sue somebody unless you can show harm actually happened.

2. It has to be you brining the suit. I can’t sue about John’s car getting hit.

3. The court has to actually be able to address it. If God sends a meteor that crushes my house, the court has no jurisdiction.

The next big step is whether or not the Supreme Court accepts this case. It seems they are putting all their chips behind the Texas lawsuit at the moment. My bet is that this is the Trump legal team’s last-ditch effort. There may be other components if they don’t get this standing, but this is where their focus is for now.

Below is a review of the election legal challenges by state:

Wisconsin:

• Trump v. The Wisconsin Election Commission: Alleging “Unlawful and unconstitutional acts.

• Wisconsin Voters Alliance v. WI Elections Commission.

Michigan:

• Amistad Project: alleging unlawful conduct around unsolicited absentee ballots.

• Sidney Powell alleging ballot stuffing. Donald Trump’s legal team is probing nearly two dozen electronic voting machines in Michigan’s Antrim County on Sunday.

Pennsylvania:

• Republican Party of PA versus Boockvar. The U.S. Supreme Court Justice Samuel Alito issued a temporary order in the Supreme Court case requiring Pennsylvania to segregate ballots that arrived after Election Day.

• Donald J. Trump for President, Inc. v. Boockvar. Supreme Court Justice, Samuel Alito, changes the date of the hearing before December 8th.

Georgia

• Trump v. Raffensperger: violations of election code by abonnement of Georgia law.

• Boland v. Raffensperger: 20,312 ballots were cast by out of state residents.

• Wood v. Raffensperger was denied and must be appealed to the US Supreme Court.

• Pearson v. Kemp: Alleges massive fraud via dominion voting system. This case was dismissed because the court does not have jurisdiction to hear case. The hearing was due December 7th.

Nevada

• Law et al v. Whitmer: alleging irregularities, improprieties and fraud. This case was dismissed by Carson City judge and is appealing to NV Supreme Court.

Arizona

• Ward v. Jackson, et al. This case was denied and will appeal to the Supreme Court.

• The leaders of the Arizona State Legislature demands forensic exam of Dominion machines due to a belief of voter fraud occurring.

United States Politics

There are two items of contention in Congress that are the reason we haven’t seen a stimulus package pass yet. Mitch McConnell and the Republicans want liability protection so companies can’t be sued if they open and an employee gets coronavirus. The Democrats want additional aid sent to state and local governments.

Still, Senate Majority Leader Mitch McConnell says a $908 billion coronavirus stimulus package compromise is within reach. This package is believed to have the most bipartisan support of the multiple packages in the past regarding the COVID-19 pandemic.

In California, the Republican Party, GOP, picked up 4 congressional seats in California since 2018 midterm election, because Christy Smith concedes to incumbent Republican Mike Garcia.

In Georgia, there is a runoff as some Wall Street Democrats are sitting out Georgia Senate races because they would like a split government.

COVID-19

For the first time in the United States, Florida will require a polymerase chain reaction test, PCR, which can detect a sample of the COVID-19 virus.

Also, mask mandates may not be a factor in slowing the curve. Florida has also removed capacity restrictions and is “open” with no legal mask mandate. However, they are also in more mild temperatures and most are still wearing masks.

On the opposite side of the world in the Eurozone, Sweden enacts restrictions because its pandemic experiment failed after new surges came about regarding infections.

Lockdowns are causing tremendous downwards spiral all around our world as well. The World Food Program Director stated that “270 million people now are marching toward starvation in the wake of COVID-19” and next year is going to be “catastrophic based on what we’re seeing at this stage of the game.”

However, vaccines are already starting to be released in Europe and will be soon in the U.S.

The Economy

Weekly jobless claims fall, while initial claims for state unemployment benefits dropped 75,000 to a seasonally adjusted 712,000 for the week ended on November 28th. That is two straight weekly increases, but jobless benefits remain high.

The U.S. job growth slowed sharply in November. Employers added just 245,000 jobs last month, down from 610,000 jobs in October, the Labor Department reports. This is probably the combination of stricter lockdowns and employers that are just being cautious.

The Market- Yield Curve

The yield spread between the 10-year Treasury bond and the 2-year Treasury note is now at its highest since the start of the Great Money Pump. This means there is more incentive then ever for banks to put money into the system via loans, which is added upside pressure on money growth.

The most common investment themes lately are inflation, the debt bubble (equity over fixed), the U.S. focus on small cap and automation, and people moving away from urban areas.

Money Supply

Annualized Growth Change: For the third week in a row, the 13-week money supply (M2NSA) annualized growth increased. The latest numbers show a climb from 11.3% to 11.8%. To provide more perspective on how massive the money pump has been, here is the change in money supply on a weekly basis since 1981 (see second image below).

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For real-time updates, be sure to tune in on Tuesday – Thursday on Facebook and YouTube Live for our “Daily 3×3” livestreams and Wednesday for “Market Insights.” Follow GWS on Facebook and YouTube so you never miss a broadcast!

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

State of Election

The General Services Administration, GSA, officially approved funding for President-elect Joe Biden to begin his transition toward presidency. However, there are many legal challenges upon us.

One hurdle takes the form of state legislature “hearings.” Republican-controlled state legislatures have been holding hearings to review evidence in of voter fraud presented by the Trump legal team. Meanwhile, many media companies are either not covering the hearings or challenging the term “hearings,” arguing the terminology is irrelevant. The point of the hearingsis to sway state legislatures to reclaim their constitutional authority and NOT post Electoral College voters to the Senate or post a republican slate instead. The claim of “no evidence” is no longer accurate, as the Trump team has provided evidence. Whether that evidence is proven valid remains to be seen. So, the new term is that the evidence is “baseless.”

Also, the argument that courts do not find the evidence compelling is not accurate. The court cases, often from individuals not on the Trump Legal Team, are being dismissed because they lack standing or the item is moot. You do not deny a legal challenge based on evidence. Rather, it is the legal process in court that decides the merit of evidence. Here is a 2-minute video from a popular video blog on legal matters.

State “hearings” have been conducted over the course of this past week, along with court cases. The Republicans are controlling the majority of State Delegations.

The FBI may have requested data alleging voter Fraud from Matt Braynard, a former data chief and strategist for the Trump campaign. Here is the best statistical analysis on election presented as of yet. This does NOT prove fraud. It only demonstrates significant irregularities.

Also, here is a long video on transferring votes. We would need to pull the data ourselves to verify, but if this is true and found elsewhere, it would be a “smoking gun.”

Perception is Reality

When the Republicans lost in the past, they thought the election was free and fair. So what makes it different this time?

The Trump administration is saying if the GOP does not act against the “fraud,” it will never win another election. We believe this is grandstanding. It may be the GOP is surging and the demographics are shifting in their favor. Rumors are Trump will begin 2024 Campaign on January 20th if he does not secure a 2nd term.

COVID-19

Adherence to the CDC guidelines continue to decrease. Many feared Thanksgiving travel on Wednesday thinking it could be super spreader event. However, Europe may have broken the 2nd wave and the US is seeing a drop in the seven-day average.

A John Hopkins student posted a detail analysis of deaths in the United States compared to previous years and noted there has NOT been a statistical increase in total deaths. John Hopkins pulled the article and said it was a student project; however, the source is irrelevant if the data is correct. She posted a video on her findings and how to replicate (a requirement of the scientific method).

The Economy

You’ve likely seen the headlines: “Home Prices Climb the Most on Record.” With record-low mortgage rates fueling demand for housing, prices jumped 3.1% compared to the prior quarter. That was the biggest gain in records dating to 1991, according to FHFA. Joseph Carson, former Chief Economist at Alliance Bernsteing, CPI would have registered a 3% gain in the past year if it was based off of house prices versus rents.

Other economic headlines this week included:

• Illinois plans to borrow another $2 billion from federal reserve in an effort to prop up its already-struggling finances as the state’s bills rise amid the pandemic.

• President Elect, Joe Biden, nominated Janet Yellen as our next Treasury Secretary.

The latest weekly total for initial jobless benefit claims rose sharply to 778,000, currently stuck in a pandemic purgatory.

The Market

Economist Dambisa Moyo, who serves on the boards of Chevron Corporation and the 3M Company and worked for two years at the World Bank and eight years at Goldman Sachs, warned in a Foreign Policy essay about the developing global debt crisis. Here is a key snippet:

Also, twenty states have not taken out loans to pay their unemployed.

Automation

KFC launched autonomous 5G food trucks in China and White Castle to automate kitchens, as contactless shift will accelerate job loss. The United States needs automation to increase manufacturing. Also, Boston dynamics’ robot dog starts new work on the BP Oil Rig, accelerating how robots take over humans in the workforce.

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For real-time updates, be sure to tune in on Tuesday – Thursday on Facebook and YouTube live for our “Daily 3×3” livestreams and Wednesday for “Market Insights.” Follow GWS on Facebook and YouTube so you never miss a broadcast!

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Irregularities within the election results made headlines this week. They may or may not be a concern. As always, our goal at GWS is to be data driven and share just the facts.

The Trump administration is challenging the election result. There are several paths to a Trump victory, some of which would be underhanded, but they do exist. We are going to report on the situation and the data and do our best to not be partisan. HOWEVER, it is likely going to come across one-sided since many people feel like the election is over, but this could go the other way.

State of Election

For President-Elect Joe Biden, cabinet picks will be coming. Wall Street and Silicon Valley poured an enormous amount of money into his campaign. However, he needs a handful of Republicans to confirm the seats.

Rumors and Concerns

Richard Stengel is leading the Biden Transition Team and has written op-eds to limit free speech.

Lael Brainard for Secretary of Treasury is considered a moderate, and it is not Elizabeth Warren.

Philip Washington is in charge of the Department of Transportation and Amtrack. He tends to favor making driving more difficult to shift people to mass transit.

Bernie Sanders is speculated to join Biden cabinet as Labor Secretary. This could lead to higher minimum wage laws and could help with inroads President Trump made into the union base. However, it could reclassify Uber and Lift drivers as employees going against tech companies.

President-elect Joe Biden appears ready to shift things in the opposite direction. Wall Street has benefited from the Trump administration’s push to loosen bank rules and weaken post-crisis financial regulation. Christopher E. Campbell, assistant secretary of the Treasury for financial institutions from 2017-18 stated, “from my perspective, the landing teams were folks that appeared to be more activist than centrist.”

Pending Lawsuits

All states have greater than 98% of the vote counted and the Election Results have Biden with 306 EV and Trump at 232. As exhausting as it is, let’s look at what states have either legal cases or recounts. Many of the legal challenges are not making it through the court systems; however, this fits into the Trump administrative narrative of “deep state corruption,” so it is not effective at challenging the belief for many President Trump voters.

There are irregularities in the polling numbers, but irregularities are not proof of fraud. There are always irregularities in election data. Rasmussen (right leaning polling agency) has tweeted about them. It is also not a new political tactic to bring doubt in elections (though I would say this time is many magnitudes higher).

Compounding the problem is the media ignoring the reality of election fraud. A former judge of election and Democratic committeeperson from South Philadelphia has pleaded guilty to accepting thousands of dollars in bribes to inflate the vote totals for three Democratic candidates. Matt Barnyard, who worked for the Trump campaign, has been analyzing the data. It is difficult, costly, and time consuming. He has NOT found significant evidence or anything that is actionable. Keep this in mind when people saying there is no evidence of fraudulent votes.

Legal Cases

Pay attention to Sidney Powell; she does not play around. Sidney has made very direct accusations with strong language regarding voter fraud. She says they will present the evidence this week. The FEC Chairman, a Trump appointment, also says he believes there is voter fraud in key states.

Alan Dershowitz, a democrat constitutional scholar from Harvard, said the Trump has the best chance with PA lawsuit — which is a different take compared to other analyses.

Moving from Centralization to Decentralization

Faith in the election process is down. People are urging democrats to move to Georgia. However, it is likely unconstitutional, Georgia Law for Runoff Elections: GA Constitution, Article 2, Section 1, Paragraph 2 states that only those residents who were eligible to vote in the general election will be eligible to vote in the runoff.

No matter the outcome, there is going to 70+ million people who will feel the election was illegitimate and stolen. Seven in 10 Republicans say the 2020 election was not free and fair. This is expediting a move away from mainstream media and social media technology companies, and this is only going to exacerbate the current echo chambers. Combine this with “work from anywhere” and the ability for people to more easily create their own communities, and we can expect the polarization to move from the virtual world to the real one.

COVID-19

Cases globally continue to climb. The United States is still in the process of peaking and death cases are trending up. Europe is beginning to peak as well.

Mass Society vs. Network Society

The WFA is gaining traction and concerns about COVID in populated areas and large cities are seeing an exodus. More than 300,000 New Yorkers have bailed from the Big Apple in the last eight months, new stats show. If this trend continues, there are going to be serious issues on raising taxes. We have already seen suggestion of WFH taxes. Deutsche Bank Proposes A 5% “Work from Home” Privilege Tax.

A divided government likely means a reduced stimulus package and a Biden presidency is unable to move his “plan” forward. The CPI came in at 1.5%. This is below the 2% target, but there is a lot of money in the system. We continue to watch for concerns. The latest inflation data, just in today, shows the Producer Price Index up 0.5% for the 12 months ended in October.

The Market & Money Supply

A sudden default by AAA-Rated Chinese state-owned coal miner sent shockwaves across markets. Also, Apple abandoned an iPhone assembler in China after labor abuses were uncovered in violation of Apple’s Supplier Code of Conduct.

For the first time in 18 weeks, money supply growth has not declined. Normally, 10.7% money growth as very strong. However, given the spectacular growth in money supply over the summer which peaked at 61.7% in early July makes the market vulnerable.

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For real-time updates, be sure to tune in on Tuesday – Thursday on Facebook and YouTube live for our “Daily 3×3” livestreams and Wednesday for “Market Updates.” Follow GWS on Facebook and YouTube so you never miss a broadcast!

If you have any questions, please contact your Lead Advisor or any other member of our team.

We are here for you.

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

As of this writing, the election is not over. It may be that Joe Biden will be the next president, but the election process is still moving forward. What is unusual with this election is that we are not certain the outcome as of this time. There is a potential path for President Trump. This is why he has not conceded. DO NOT MISTAKE THIS AS A STATEMENT OF PRESIDENT TRUMP IS GOING TO WIN. This is just trying to understand where we are in the process so we can make data dependent decisions.

Voter Fraud

The following are examples of the most egregious, widely observed and reported examples of election-day fraud on November 21, 2004 from the U.S. on Ukraine elections:

• Illegal Use of Absentee Ballots.

• Opposition Observers Ejected.

• North Korean-Style Turnout in the East: Turnout in the pro-Yanukovych eastern oblasts was unnaturally high.

• Mobile Ballot Box Fraud: In the second round of the election, the number of voters who supposedly cast ballots at home using mobile ballot boxes was double that of the first round.

• Computer Data Allegedly Altered to Favor Yanukovych.

• Reports of Opposition Fraud.

Remember, this has to go to court to determine if it is an indicator of fraud. This is not settled by fact checkers or tweets.

Election Process

Recounting ballots is not a partisan issue. Jasper County vote count error, now corrected, gives Hart lead in unsettled U.S. House race. The razor-thin margin in Iowa’s 2nd District U.S. House race flipped in favor of Democrat Rita Hart on Friday after Jasper County corrected what the county auditor and secretary of state said in a joint news conference was human error in reporting the vote total.

President Trump has not gave up and is going to go all out to prove that he is the winner of the 2020 U.S. election. What does he have to lose? Emily Murphy, the administrator of the General Services Administration (GSA), must make an “ascertainment” that Biden has won the presidency before the transition can contact federal agencies or access the millions of dollars set aside for the team. While the Associated Press and POLITICO have determined that Biden has won the election, President Donald Trump has not conceded, and recounts are ongoing. “The simple fact is this election is far from over,” Trump said in a statement Saturday. “Legal votes decide who is president, not the news media.”

Also, President Bush says Trump has the right to request election recount, while Mexico’s president refuses to congratulate Joe Biden. The Mexican president had an election stolen from him. This is unlikely a claim of a stolen election, but just a caution. There is also nothing improper by congratulating a projected winner.

The Constitution

Lawsuits can flip votes and electors can choose the candidate. If 1+ 2 fail, vote goes to the House of Representatives and each state gets 1 vote, there are more Red states than Blue.

• Art. I, ¬ß4, cl. 1, which states “The Times, Places and Manner of holding Elections for Senators and Representatives, shall be prescribed in each State by the Legislature thereof.”

• Art. II, ¬ß1, cl. 2, which states “Each State shall appoint, in such Manner as the Legislature thereof may direct, a Number of Electors, equal to the whole Number of Senators and Representatives to which the State may be entitled in the Congress: but no Senator or Representative, or Person holding an Office of Trust or Profit under the United States, shall be appointed an Elector.”

Contested States

Pennsylvania– 20 electoral votes, 45K vote difference, recount margin, and a lawsuit pending.

Nevada– 6 electoral votes, 35K vote difference, recount margin, and a lawsuit pending.

Wisconsin– 10 electoral votes, 20K vote difference, recount margin, and a lawsuit pending.

Michigan- 16 electoral votes, 148K vote difference, recount margin, and a lawsuit pending.

Georgia- Software glitch causes delay counting thousands of votes in Gwinnett County and

Georgia Secretary of State Dispatches Investigators to Atlanta Arena After Fulton County Discovers Election “Reporting Issue.”

Arizona- 10 electoral votes, 17K vote difference, recount margin, and a lawsuit pending.

COVID-19

Pfizer has come out with a vaccine regarding COVID-19 and states the COVID-19 vaccine is more than 90% effective.

The United States continues to see a rise in COVID cases, but still the highest numbers are in rural counties, specifically in the Midwest. However, the European Union recently surpassed the U.S. in cases and is quickly gaining relative to deaths. Sweden is also climbing and Europe is back in lockdown mode.

Economy, Market & Money Supply

The unemployment numbers fall to 6.9% as jobs grew for the sixth straight month, the Labor Department reports. Employers added 638,000 jobs, but job growth was down from September’s figure of 672,000 new jobs and far below the totals for June, July and August. In other words, we are likely at the tail end of the jobless gains.

Extreme strength last week is a sling shot for stocks.

The S&P 500 added more than 1% on four consecutive days last week. Since World War II, this is only the fourth time that has happened—the others were April 1970, October 1974, and October 1982. Future returns after those three instances were all quite bullish, up more than 20% on average a year later, which we will discuss later today on the LPL Research blog | LPL 11/9/2020 email, attached.

This is liked because of a log-jammed market and sideline cash plowing into the market as the election wrapped. 

1. It may not be over, but a log-jammed government is still the most likely

2. GA and Projected winner to an actual President-Elect Biden with GA senate race runoffs could derail this.

3. The money supply is troubling

Thirteen-week annualized from money supply (M2NSA) fell this week from 10.9% to 10.7%. In normal times, this would remain fairly strong growth, but it is an absolute collapse from the money supply growth we saw this summer which peaked at 62.7%. The current growth rate is not enough to support the stock market at present levels given that it was pushed higher by so much earlier money growth. That said, 10% plus money growth is plenty to keep upward pressure on prices.

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For real-time updates, be sure to tune in Tuesday – Thursday on Facebook and YouTube live for our “Daily 3×3” livestreams and Wednesday “Market Updates.” Follow GWS on Facebook and YouTube so you never miss a broadcast!

If you have any questions, please contact your Lead Advisor or any other member of our team.

We are here for you.

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Pre-Election Polls

FiveThirtyEight, sometimes rendered as 538—predicts a 90% chance Biden will win. It predicted a 71% chance Hilary would win in 2016. Many polling establishments say they have adjusted for 2016.

The Democracy Institute and Trafalgar predicted the 2016 Election correctly. Was this luck or skill? The Democracy Institute has the following predictions:

• National Popular Vote: Trump (Republican) = 48% | Biden (Democrat) = 47%

• Electoral College Vote Projection Trump = 326 | Biden = 212

• Trump picks-up Minnesota, New Hampshire, and Nevada

Below is a summary of the Trafalgar Group predictions.

However, Morgan Stanley suggests the election result predictions could be uncertain due to:

• Getting a clear sense of who is winning will be difficult, given the large amount of early voting by mail and absentee ballots and different rules around processing ballots, which we discuss below.

• President: If Trump appears to have lost Florida, markets may quickly conclude he has probably lost the presidency.

• Senate: If the North Carolina race is won by Cal Cunningham (the Democratic candidate), then Morgan Stanley believes there will be an indicator to markets that Democrats have taken control of the Senate. Democrats have also won seats in other close races, such as Colorado and Arizona, where polls close later in the night.

• Key Demographics: Keep an eye on results coming out of suburban areas such as Maricopa County in Arizona and Peach County in Georgia, as well as older leaning regions such as Sumter County and Pinellas County in Florida. Results in these regions could prove to be a canary in the coalmine.

J.P. Morgan asks, “What if Trump Wins?” Well, the Financial and Industrials were the best assets in 2016. However, if money supply does not improve due to fiscal stimulus, we would likely sell into such strength. And if Biden would win, we would maintain our current portfolio, since technology will likely continue to do well.

COVID-19

New U.S. daily COVID cases begin to rise, but we see a drop in the 14-week growth rate. The hotspots remain in the Northern Mid-West and other colder regions. Daily death rates remain low relative to the case growth, but there were several days in the past week at or around 1,000 daily deaths.

The EuroZone continues to outpace the U.S. in daily new cases and deaths:

• The EU has over 200,000 COVID cases per day.

• Their daily deaths are near 1,600 per day.

Sweden continues to drop giving support for a low “herd immunity.” They are at two deaths per day.

Shutdown or No Shutdown?

As long as the medical system is not a burden, meaning deaths remain low relative to new cases, we should not shut down. The World Health Organization (WHO) is officially urging world leaders to stop using lockdowns as primary virus control method. This is not a reversal by the WHO, but is a change based on the current situation.

With the idea of work from home/work from anywhere, we are seeing a massive movement of people away from cities. People are moving due to fear of others or restrictions by the Government, but most likely both. Also, working from home will limit the ability of states and cities from raising taxes to close their budget deficits. Eventually, it will likely include nations as well, since you only need an Internet connection to work remotely.

Thousands of citizens in Paris were stuck in a gridlock on the highway trying to escape ahead of the France lockdown.

The vast migration of over 14 million Americans is coming due to a rise in remote work, studies show. Companies of all sizes are adopting a remote work policy, and this widening the talent pool for SMBs.

The Economy

Real gross domestic product (GDP) increased an annual rate of 33.1% in the 3rd quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. But this is just an indication of some of the economy starting up again as lockdowns ease. In the 2nd quarter, real GDP decreased 31.4%.

Paul Krugman has the right take on the number, as follows:

1. Everyone knew it would be a big number.

2. It’s telling us about the rapid, but partial snapback of late spring/early summer; growth has slowed a lot since then.

3. We’re still far from full recovery.

4. Nobody cares.

Personal Compensation Expenditures soar. It appears the hardest hit sectors have finally bottomed. From a decline in prices in Quarter 2, we are not seeing a very strong spike upward in prices. The BEA reported that its third-quarter price index rose by 3.4% on an annualized basis, after having fallen by 1.4% in the second quarter. The Fed is going to consider this spike simply catch-up, but prices don’t need to “catch-up” after a lockdown.

Movement: New Data Reveals just how many Americans Temporarily Moved to Escape the Pandemic.

The Market

U.S. Weekly Recap: Dow (6.47%), S&P 500 (5.64%), Nasdaq (5.51%), Russell 2000 (6.22%). U.S. equities sold off sharply this week. The S&P suffered its biggest weekly pullback since the depths of the coronavirus crisis in late March. The selloff was largely blamed on worsening coronavirus trends in the United States and Europe, with the latter imposing new lockdown measures. Election uncertainty, the fiscal stimulus stalemate, and a high bar for big tech earnings were also cited as overhangs. This is why it’s dangerous to pay attention to the media; the reason the market is choppy is because of the money supply.

U.S. monthly (October 2020) Recap: Dow (4.61%), S&P (2.77%), Nasdaq (2.29%), Russell 2000 +2.04%. U.S. equities were mostly lower in October, with the S&P 500 logging its second straight monthly decline and ending nearly 9% below its all-time high on September 2nd. A resurgent coronavirus pandemic in Europe and America made for a downbeat backdrop as the market’s hopes for pre-election fiscal stimulus were dashed. Treasuries were weaker with the curve steepening. The dollar was better against the euro, but weaker on the yen cross. Gold finished the month down 0.8%, its third consecutive monthly decline. Oil gave up a lot of ground, with WTI dropping 11.0% in October amid concerns about increasing supplies and rising demand COVID-related threats. This brings up a similar question as presented above. If these risks were the reason for the sell off, why is the curve steeping? Investors should be piling into long term bonds. 

Value rotation happened earlier this year, but we saw this as an inevitable reversion to the mean and did not chase it. Let’s be patient and see what our signals tell us to do. 

Money Supply

The latest numbers show M2NSA 13-week annualized money growth falling to 10.9% from 11.5% last week —way off the peak money growth of early July, when growth hit 62.7%. In normal times, 10.9% growth would be very strong, but this kind of growth cannot sustain a stock market rally that was fueled by 62.7% peak growth. At the same time, 10.9% growth does add to the upward pressure on prices. The stagflation scenario continues to be developing. Early 2021 could see continued acceleration in prices with a stagnant economy.

For real-time updates, be sure to tune in Tuesday – Thursday on Facebook and YouTube live for our “Daily 3×3” livestreams and Wednesday “Market Updates.” Follow GWS on Facebook and YouTube so you never miss a broadcast!

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If you have any questions, please contact your Lead Advisor or any other member of our team. We are here for you.

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Stimulus

House Speaker Nancy Pelosi told CNN on Sunday that she was expecting more answers regarding a stimulus package on Monday and that an agreement could be reached this week among lawmakers. But Democrats and White House officials are blaming each other for the lack of progress after the two sides went into the weekend without a deal, dimming hopes for an agreement before Nov. 3.

In other news, the Senate voted 51-48 Sunday afternoon to limit debate on the Supreme Court nomination of Judge Amy Coney Barrett, setting up a vote on her confirmation for Monday evening.

Debate

A panel of swing voters give the debate win to Trump, but GOP pollster Frank Luntz says Biden will win the war based on polling leads. However, more than 50 million Americans have already submitted their votes during early voting. So for many, the debates did not matter.

Pollster Frank Luntz warned the industry is “done” if Trump defies odds again: “It’s finished,” he said. President Trump stated we cannot close the nation again. Regarding the virus, he said, “99.9% of young people recover. 99% of people recover. We have to recover. We can’t close up our nation, we have to open our schools, and we can’t close up our nation, or you’re not going to have a nation.”

Tax Policy

Biden’s tax plan could create a tax rate of as much 62% for New Yorkers and Californians, studies show.

Farrell Fritz Tax Update:

• Increase the maximum federal tax rate on ordinary income from 37 percent[xii] to 39.6 percent.

• Increase the federal tax rate for long-term capital gains and for qualified dividends from 20 percent[xvi] to 39.6 percent. [xvii]

• Phase out the 20 percent qualified business income deduction for higher income taxpayers. [xxvii]

• Limit the benefit of itemized deductions for higher income taxpayers. [xxviii]

• Impose social security taxes on income over $400,000.

• Limit the use of like kind exchanges of real property to investors with annual incomes of not more than $400,000.

• Eliminate the step-up in basis for assets acquired from a decedent.

• Reduce Gift, Estate and GST Tax Exemptions

• Increase the federal income tax rate on C corporations[xlv] from 21 percent to 28 percent.

COVID-19 Update

New Cases continue to surge. So far, the growth rate has been slower than the previous two surges, but the daily count is higher. We have not seen a similar increase in daily deaths, but it is increasing as well. 

Flu Cases this year are off to a slow start. We are not peddling a conspiracy theory, but rather believe those on the margin of the spread of COVID bore its brunt. Unfortunately, many have died, and for a short period of time we have a healthier sample population. People still age, so it will eventually increase again. Also, social distancing and reduction in economic activity is also contributing to the slow start:

The question on everyone’s mind is, will there be another shutdown? As long as the medical system is not burden (meaning deaths remain low relative to new cases), we do not believe we will see another shutdown.

The Economy

There is some evidence of reopening, For one thing, more people flew in the U.S. over the weekend of Oct. 16-18 than at any other point during the COVID-19 panic, the Transportation Security Administration reports.

Still, many Americans are operating under an abundance of caution. New data reveals just how many temporarily moved to escape the pandemic.

The Market & Money Supply

The latest numbers show 13-week annualized is at 11.5%; last week, it was 13.0%. This contrasts with the early July peak growth of 62.7%. There is still a lot of new money in the system from the earlier money pump, but the upward pressure from that pump is going to wane over time with the stock market (not consumer price inflation–that has a long way to go).

For more information, be sure to tune in Monday – Thursday on Facebook and YouTube live for our “Daily 3×3” livestreams and Wednesday “Market Updates.” Follow GWS on Facebook and YouTube so you never miss a broadcast!

If you have any questions, please contact your Lead Advisor or any other member of our team. We are here for you.

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Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

As Nov. 3 quickly approaches, the Presidential Election seems to make it into every conversation — personal and professional. Similar to 2016, we believe the polls are not accurately portraying a close race. Blast from the 2016 past: Clinton had a 90% chance of winning. The Presidential election race is much closer than experts forecast, largely because the data is coming from analyzing Twitter comments.

Both sides are questioning the polls. Joe Biden’s presidential campaign manager even warned that the national poll numbers were “inflated” and that their internal polls showed the race to be much closer than is being reported.

The Heart of Polling

The primary goal of polling is to anticipate voter turnout. In today’s environment, that endeavor is as much art as it is science. There are many reasons to why voter turnout has such a unique outcome.

First, the current polling methodology is oversampling Democrats. GWS believes there is core group of individuals who are not easily counted. They tend to be socially conservative and middle of the road blue-collar. These voters tend to align with unions when it comes to economic policy and conservatives when it comes to social policy. The complication is when a populous message is on the Republican ticket. President Trump’s economic policy is viewed favorably by these individuals.

Second, there is an oversampling of women. Women tend to vote more often than men and they are more likely to vote Democrat. However, this year enthusiasm for Trump may create a 50/50 M/F turnout. Lastly, many polling agencies are expecting a high turnout similar to 2012. When you widen turnout to register voters, you increase the number of Democratic voters (historically).

All the above indicate a tilt towards Trump. But there is also a group that appears to be moving Biden’s direction. This is especially problematic for Trump when we look at battle ground state demographics (see below).

Non-Poll Indicators

It is not just the polls suggesting a tighter race; there are also Non-Poll indicators showing a tighter race and/or a possible lead by Trump. The indicators are rally attendance and registered voters. Trump has a significant lead when it comes to attendance for rallies over Biden. It remains to be seen how much COVID plays into this. Also, Republicans lead in registered voters. JP Morgan’s top quant Marko Kolanovic wrote an interesting note, in which he said that clients have been asking him “what data in addition to polls are available to assess possible US election outcomes in various states.”

Stimulus & COVID-19

Fiscal stimulus is waning in news headlines as the public renews its optimism for a pre-election deal. McConnell is willing to put any bipartisan compromise up for vote in the Senate. However, there are still a myriad stumbling blocks, including Senate Republican opposition. Also, Pelosi outlines a 48-hour deadline to pass a relief bill before the election.

The United States continues to see a rise in COVID cases, but the highest numbers are still in rural counties, specifically in the Midwest.

The European Union recently surpassed the United States in cases and is quickly gaining relative to deaths. Sweden’s historical data is all of a sudden different, so we are actively monitoring for patterns and will report back.

The World Health Organization has been working this week to clarify its stance on pandemic lockdowns after one of its officials acknowledged the negative economic consequences such measures can bring. 

The Economy, Market & Money Supply

Retail sales, a measure of purchase at stores, restaurants and online, rose a seasonally adjusted 1.9% in September from the prior month, the Commerce Department reports. The benchmark 10-year note yields rose to 0.744% on the retail sales data. The yields have traded in a tight range from 0.50% to 0.80%. The producer-price index increased 0.4% from a month earlier after a 0.3% gain in August, the Labor Department reports. The PPI also climbed 0.4% year-over-year, the first positive reading since March. Food costs were the biggest driver of the upward climb, rising 1.2% MoM and plus 13.3% YoY. Mortgage Rates Set Yet Another Record Low. Homebuilder sentiment beats, hits a fresh record: The October NAHB housing market index rose two points to 85, passing previous record of 83 first set in September.

Earnings beat the rate above trend, but the reaction to early reporters suggests the bar is higher.

Thirteen-week annualized money supply (M2NSA) growth is showing another decline. Over the last week, it has dropped from 15.1% to 13.0%. And this is far, far, far from the early July growth peak of 62.7%. Absolute monetary growth was up this week which is certainly an indication of Fed monetizing of Treasury debt. But this pump, as can also be seen by the chart, has been quite inconsistent, probably because of limited, conservative bank lending activities outside of the housing markets.

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If you have any questions, please contact your Lead Advisor or any other member of our team. We are here for you.

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

More good news this week: we continue to see a decline in daily cases and death counts related to COVID-19. With death rates scaling back and the Democratic and Republican National Conventions fading into the past, the media is shifting news coverage to other topics.

A popular debate topic is the “Vote by Mail” option, which President Trump claims invites voter fraud. When it comes to this debate topic, our concern isn’t engaging in an argument, but rather understanding current political risks. If we don’t know who the presidential winner is on November 3, problems could ensue for the market and economy.

This leads us to the topic of “mirage or oasis.” What is “red mirage”? According to Christopher Zara from Fast Company, it is a name for the worst-case election scenario. The term is described as “an election outcome in which early results appear to favor President Trump, but then tip toward a decisive victory for Joe Biden as more mail-in ballots are counted.”

Favoring U.S. Domestic Equity

Going forward, we believe U.S. domestic equity is favorable to other regions, considering the Cobb Douglas Production Function below. The U.S. is dominant in technology and has a growing labor market.

The Cobb-Douglas production function is the relationship between two or more inputs and the outputs that can be produced — as well as the total factor of productivity. In this case, the inputs are labor and physical capital. (View our video recap for a more detailed description of this concept.)

Money Supply

The money supply is slowing down on the growth scale, and it appears to be weakening at an aggressive rate. ​ In general, we want to buy into weakness and sell into strength.

​ What happens from here all depends on the Fed’s activity. If the Fed explodes money supply again, everyone would be back in the stock market at 100%. If the money supply slowdown intensifies, everyone will take even more profits.​ ​ We won’t try to outguess anything, but rather will let the numbers tell us what to do.​ Volatility may not be our friend in the short term, but it will provide a wide opening for major opportunities in the long run.

U.S. Dollar Index

The U.S. dollar has stabilized over the last couple of weeks. It is not a coincidence that gold is giving back some of its recent gains. However, this is likely due to some optimism in the market.

Gold is not the only asset giving back recent gains. There is a rotation away from technology as well, reflecting some fear in the market.

Follow GWS on YouTube

For the full video recap of the webinar on which this blog post is based, follow GWS on YouTube. (If a recent episode isn’t posted there yet, it’s still in compliance review). And be sure to tune in to our weekly Gatewood Wealth Solutions Market Webinar to hear updates on the current state of the market and economy. As always, we welcome you to share our broadcast links on social media or with your friends and family. They are more than welcome to listen in and learn our perspective on the market and the economy.

If you have any questions, please contact your Lead Advisor or any other member of our team. We are here for you.

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

We continue to move forward on the coronavirus timeline. Finally, economic activity is ascending from its deep hole, and industrial activity is also rebounding. Although COVID-19 continues to dominate the headlines, we are seeing a reduction in new cases. We estimate a couple of weeks out before seeing the drop in new cases; let’s see how that forecast plays out. Our market is rapidly changing as the November election is approaching and the corona virus continues to dominate headlines.

If the 2016 election of President Trump and Brexit taught us anything, it’s that polls aren’t to be trusted. Instead, let’s focus our attention on the Electoral College map. We do not elect anyone to the presidency through polls, but through electors.

Last week, we saw a retraction against GDP growth due to employment information. Initial claims for state unemployment benefits decreased by 228,000 to a seasonally adjusted 963,000 for the week ended Aug. 8. Firms that are laying people off at this stage clearly do not see any improvement in the near future.

Economics 101

This week, we’re focusing on the ramifications of money supply expansion. Excess resources suggest a greater pool of loanable funds, which drops the interest rate. Once that interest rate is lower, entrepreneurs see it as a way to borrow money. Now, they can pay back loans on projects that didn’t work out at higher interest rates.

As economic development increases, so does capital production. The intent is to expand the production capacity of the overall economy, which will ultimately increase our production possibility frontier and standard of living. That’s how the market balances itself: the interest rate and consumption vs. excess resources work together to reach equilibrium.

Central Bank Business Style

Let’s revisit the Gross Domestic Product (GDP) equation we talked about, where GDP equals consumption plus investment plus government spending.

GDP = Consumption + Investment + Government Spending

If consumption and investment have gone up, it is likely economic activity has also increased, and government spending will typically follow suit. This is part of the boom/bust cycle through which the economy consistently oscillates.

Asset Class Weighting & Strategies

As the U.S. dollar has stabilized in the last couple of weeks, it’s no coincidence that gold has given back some of its recent gains. We’re also seeing a rotation away from technology, likely due to fear coming out of the market. The beneficiaries have been small and mid-cap as well as unloved stocks in the S&P 500. This means many of the stocks in the market have some runway here.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.