The only thing on investors' minds right now is the US election.
At the time of writing the final votes have yet to be tallied. Right now, many battleground states are still up for grabs, with Pennsylvania looking like the key to victory.
Trump has already claimed the win and approached the courts filing multiple lawsuits in most of the swing states. He's demanded a recount in Wisconsin. And of course, after the quick swearing in of the Republican Supreme Court Justice Amy Coney Barrett, if this election result is decided in the courts, Trump will have a distinct advantage.
The Senate is also looking like it will move back into Republican hands. This means there will be no “blue wave” in which the Democrats will control the Senate, the House of Representatives, and the White House. And yet, still the odds favour Biden for president. Long before Americans went to the polls, we knew that mail-in votes, which will come through later in the count, would help Biden.
The next 24 hours will be critical!
The action in financial markets over the last 48 hours has been frenetic.
Our local currency drifted down to around R16.00/$ before shooting up to R16.40/$ as it became apparent that the election pollsters knew absolutely nothing about predicting who would win the so-called swing states. Trump once again defied the predictions. But when nerves settled, and a semblance of sanity returned, the rand broke the important R16.00/$ level and headed all the way down to R15.81/$. I believe the volatility is giving you an excellent time to buy US Dollars.
At the same time, the Tech heavy Nasdaq spiked and dropped almost 5%. An enormous number when you consider the market capitalisation of its constituent companies. Many times, the value of the entire South African market was being created and destroyed in minutes.
Techtronic financial forces are shifting as the world's largest economy.
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It’s how Warren Buffett built his $80.5 billion fortune!
It’s how Sir John Templeton quadrupled his money...
And how Walter Schloss (you’ve probably never even heard of him) took home R190 million in a year.
It’s perhaps the most unfair advantage an investor can have in the markets.
So, what does all this madness mean?
As the US selects its new leader, a move that will in a large part determine the direction of humanity for the next four years, there are certain factors that the mainstream media seems to have forgotten. But this time perhaps they can be forgiven as the electoral noise is incredibly loud and drowning out almost all thought.
Firstly, while financial markets are in the process of repositioning at a sector level, the overall direction of equities should still be clear. Sure, Biden will be better for renewable energy and Trump will probably be better for Big Tech and the “America First” companies, but the overall risk versus return profile of the equity markets is unlikely to change.
We still have massive monetary stimulus flooding in from the Fed. This ultra-accommodative monetary policy will remain in place and interest rates are likely to be low for a long time to come. This will force cash into equity markets and continue to make bond markets unattractive. If you think this is just an American issue you couldn’t be more wrong. The policy of Central Banks around the world is inexorably linked. If the Fed keeps interest rates low, then there is a high probability the South African Reserve Bank will keep interest rates low. This means your house payments, car payments, business loans and the general “price of money” will stay low. Cheap money is very, VERY good for stocks.
Secondly, the market should be welcoming a Biden victory with a Republican Senate. This currently looks like both the most likely result and is also the best-case scenario for stocks. If the Democrats manage the “blue wave”, where they have a clean sweep of the House of Representatives, the Senate and the White House, passing new legislation would be easy. Sure, they would enact a large Fiscal Stimulus package which would help stocks, but we could also see the Democrats increasing capital gains taxes and potentially even the US corporate tax rate. This would be extremely negative for share markets.
So, with the Republicans looking like they will hold onto the Senate and Biden likely to take the White House, we will probably get the best of both worlds. A large Fiscal Stimulus package thanks to the Blues but also lower corporate and capital gains taxes thanks to the Reds in the Senate. That’s almost a perfect situation for equity markets. And if you were worried that the stock markets perform poorly under Democratic leadership you would again be incorrect."
If you have a look at history and perform a quick analysis of how the S&P500 performed under Republican and Democratic leadership you’ll see that since 1947 the market has returned around +10.8% per year under the Democrats and only +5.6% per year under the Republicans.
Finally, the real elephant in the room is still the coronavirus. It keeps trying to poke its head through the wall of election stories, but it seems people want to stubbornly focus on democracy in action. And I can understand why. This Corona thing is boring! It has been dominating our lives for too long! We want to stop hearing about it! Why won’t it just go away so we can get on with our lives!
But the truth is, it is still here.
And it’s getting much, much worse. We’ve seen new lockdowns across Europe. France, UK, Germany as cases start to soar. Greece has just announced it will also be heading into its second lockdown. But there is hope that we’ll finally see the end to this. For one, businesses have already made significant strides in adapting to the world of work-from-home. And believe it or not, normally obtuse governments have learned a bit about what can and can’t be done with lockdowns. Added to that is the eternal hope that a vaccine will emerge, and things might not be so bad.
Just, this week we heard that Johnston and Johnston will be partnering with South Africa’s very own Aspen Pharmacare for the manufacture of up to 300 million doses for their vaccine per year. Aspen has enormous sterile facilities down in the Eastern Cape which will be able to pump out vaccines like few other global players can!
Pickpocket Trader just closed a massive 243% gain on the Rand…
In the same month, his members could've banked another 111% on a play with the Ozzie dollar and a quick 21.98% on the British Pound!
So how do you play the world today?
It’s a great question. I’m still convinced equities are the place to be. Sure, if you’re older you need to include a few corporate and emerging market bond options to keep the risk down and the yield up, but given the lower interest rate environment it’s difficult to picture any sensible investment portfolio without a healthy dose of global equity exposure.
Personally, I’m very excited about a new basket the team is launching. It is called the NewWorld10.
A basket is a mini-managed portfolio which includes 10 of the top stocks in any given theme. This specific basket selects stocks in 10 companies which are either tackling the Coronavirus head on, or at least are going to be direct beneficiaries of the “new normal” as the world changes.
Picture a seamless investment in which you get equally weighted exposure to the likes of Johnston and Johnston, AstraZeneca, GlaxoSmithKline on the pharmaceutical side but also companies like Zoom and Microsoft which are benefitting as people shift their lives online.
If you’re interested in finding out more, send an email with the promo code NewWorld10 to firstname.lastname@example.org
and one of our representatives will contact you with more details on how to get started!
Director and Portfolio Manager for Rand Swiss