Skies cloudy. Fog is enclosing the landscape. Hard to see very far in any direction. That is where we are now. Whether this is going to happen, or whether that is going to happen, is an enigma that encompasses the markets as we all try to peer forward with a lack of outcomes in sight. The future is shrouded in mystery.
Each day our coronavirus is in the headlines. More cases, more deaths, people working from home, questions about commercial real estate, dismal observations about the travel industry, airlines, hotels, restaurants, and our ability to go anywhere and do anything. All covered by what we now have to wear to mask both our faces and our emotions.
Our energy markets are in disarray as supply and demand veer from positive to negative with each passing day. Calls for Green New Deals echo in the oil fiends but the truth of it is that this goal is decades away as all of the talk, can’t walk the walk, any time soon.
The news that we depend upon to make our financial judgments may not be fake, but it is certainly in disarray. Huntley and Brinley and Cronkite are names of the past that are certainly missed these days. “Verification” is the watchword of the financial markets now and “guessing” seems to be in vogue, as we all struggle with revenues, earnings, and profits.
“It’s no use going back to yesterday, because I was a different person then.”
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I point all of this out today because it is reflective of all of our markets. Little can be trusted and the people that can be trusted to give you an honest opinion are fewer still. For almost nineteen years now I have written “Out of the Box.” You may agree or disagree with my opinions but the one thing that I can assure you, before both God and country, is that my opinions are what I honestly think, not one iota more or less. Also, I stand up for what I believe.
“If I am not for myself, who will be for me? If I am not for others, what am I? And if not now, when?”
– Hillel the Elder
Aside from our medical/economic crisis, we now face an election. I make no political comment, as in none, but the markets may well react negatively to a change in control. Vice-President Biden has proposed the following as part of his agenda:
- Raise the top income tax rate back to 39.6% from 37%.
- Tax capital gains and dividends at ordinary rates for those with annual incomes over $1 million.
- Tax unrealized capital gains at death.
- Applying Social Security payroll tax for those earning over $400,000 a year.
- Close the stepped-up basis loophole.
- Raise top corporate income tax rate to 28% from 21%.
- Impose 15% minimum tax on book income of large companies (at least $100 million annual net income).
- Tax profits earned from foreign subsidiaries of U.S. firms 21%.
I point out that none of this is “market friendly.” It may be “something else friendly” but, in my estimation, the markets will not respond well to these initiatives. We have a ways to go before November, but I would constantly bear in mind these issues as you stare long and hard at your portfolios.
Then there is the Fed. They have been very “market friendly,” in my estimation. Interest rates just this side of Zero. For the first time ever buying Corporates, Municipal bonds soon, ETFs are helping to keep the cost of America’s debt down, way down. They have created a “Borrower’s Paradise” where, as one example, mortgage rates are at an all-time low.
The question to ponder is whether all of this will remain in place with a new Administration. Will the Fed of today be the Fed of December and the next few years. I don’t know the answer here, but I am watching to see what might come if the Administration changes and Congress raises taxes and the economy responds. Will the nation be over Trumped, once again, or will we all be Biden our time, is the gist of it. November will answer the question.
Very well, as you can see, I have issued a warning today. Uncertainty awaits. It lies before you like the dawning of a day. Beware this uncertainty. It may strike with rack and ruin or safer paths must be found. “Preservation of Capital” is the King and the Ruler and I would set my sights accordingly.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.