11062020 :: Friday finance week in review

A partial digest of what we learned:

  • Per the Associated Press, Pennsylvania has been called for Joe Biden and Kamala Harris, and their ticket is slated to receive in excess of the 270 electoral college votes required to become the next President and Vice President of the United States. Immediately following, Nevada was called for the Democrats, as well. Georgia is showing blue but uncalled, and North Carolina is showing red but uncalled.

    Thus far, while many have taken to protesting and marching around the vote throughout the country—and self-identifying members of the right are doing their best to mount a disinformation and obstruction campaign they’ve been tagging #StopTheSteal, fueled by repeated allegations of fraud leveled by Trump and GOP leadership—there has yet to be significant unrest derailing the electoral process or anything else, for that matter. We will see if that holds.

    As anticipated, lawsuits were still being filed by Trump’s legal team in multiple states, with judges quickly tossing some of them.

    The Supreme Court, however, took its first real action Friday evening. Justice Alito issued an order enforcing guidance already given by Pennsylvania’s Secretary of State: That ballots arriving during a receipt extension period granted by the state’s own supreme court, which SCOTUS originally allowed to stand in spite of a Republican challenge, be set apart from other ballots and counted separately.

    Alito also indicated that he would be referring the matter to SCOTUS generally on Saturday. PA's secretary of state and associated legal counsel were ordered to respond by early Saturday afternoon.

    At issue is that the initial guidance provided by the secretary of state had been modified somehow in the interim. Also, it is not known whether all election boards in the state were complying with the guidance.

    Of deeper significance is that the three day extension of receipt of absentee ballots came to be because PA's own Supreme Court granted the request as part of a filing by the Democratic Party prior to the election. While SCOTUS didn’t overturn it in spite of a GOP request to do so at the end of last month, it was left open whether the justices would take up a review of the extension’s legitimacy post-election; the GOP may argue that it wasn’t the PA court’s call to grant the extension, but rather the state legislature’s. The end goal on the part of Trump and the RNC could be to get the ballots that arrived during that receipt extension period tossed out.

    SCOTUS was unlikely to order election vote counting to cease altogether. If it had done so at this point, it would have appeared to contradict itself, seeing as how it hadn’t already blocked any receipt extensions anywhere. Plus, SCOTUS would be flouting established state and national election protocols, which allow for the counting of votes legitimately cast for days or even weeks after election day, if need be.

    As Nevada was called for Biden as well, any SCOTUS showdown that Trump sought to invalidate a Biden win in Pennsylvania by getting ballots thrown out may be moot. That is, if the ballots tossed out would have made up the difference between Biden’s lead and Trump’s numbers, even.

    SCOTUS, from their perspective, may still want to dig into the details.

    Elsewhere, a recount has already been telegraphed for Wisconsin (if Trump is willing to pay for it). Also, constant legal challenges in other locations could gum up the works, but probably not stop the train.

    Meanwhile, ‘twas the night before Georgia after all; the state turned blue, though my timing was early. Stacey Abrams has been credited with the state’s transition, and by all accounts, appropriately so. What’s troubling in Georgia’s case is how quickly Secretary of State Brad Raffensperger unequivocally pronounced, in the midst of an ongoing count that had put Biden ahead, that there would be a recount.

    News agencies have since reported on the matter without any fact-checking, sometimes simply presenting misinformation, such as narrow margins “trigger” recounts. Georgia does not conduct automatic recounts. According to state legal code OCGA 21-2-495, the superintendent may call for a recount if it is believed that there has been an error or a discrepancy in the counting of votes. No such error or discrepancy has yet been presented by Raffensperger.

    Otherwise, a losing nominee may request one if they believe there to have been errors or discrepancies in reaching the results, but only if the margin is within half a percent, and they must petition for it. In doing so, they must describe the nature of such error or discrepancy.

    This has not occurred. Hence, the basis for the recount is suspect. Raffensperger is a Trump ally, as is Georgia Governor Brian Kemp. The latter is now being sued for committing voter intimidation during the 2018 gubernatorial race in which he was elected to office. One wonders if he and the Georgia Republican establishment just didn’t want the state called for Biden on their watch.

    Exactly how everything will unfold from here is unknown.

    Inexactly, the probabilities, and the title, have gone to Biden. As printed here prior, Trump will probably not go quietly. That’s turning out to be the real wild card for this nation this election cycle, not the matter of the actual election and outcome. There is a good deal of time between now and the end of Jan 2021, and plenty can be done by him and those still loyal to him to foment turmoil and foster strife, sinking morale and markets in the process.

  • The partisan and philosophical debate over stimulus hasn’t changed. Republicans, including Kudlow and re-elected McConnel, again spoke publicly about a smaller package, while Pelosi & Co. still seek a larger one. As stated before, it is a larger package that is in the best interest of the broadest cross-section of the United States. That happens after Biden takes the presidency next year.

    Should no doubt remain over his path to the White House, expect a confirmation rally and a large stimulus package to get priced in relatively quickly.

    For the whole of last week, assets were moving according to everything election: polls, then results, then complications. Yields dropped noticeably as there was no quick, decisive blue wave. Gold jumped as complications for the Biden campaign intensified. Equities traders placed their bets on a Biden win and for two days rallied hard, then fell into a holding pattern Friday as nothing concrete materialized.

    Tech is ready to take flight again with a Biden victory in place, gaining hundreds of points each of last Wednesday and Thursday. The driving force is the Democrat’s deeper pockets.

    Oil gained ground on the polling data, then struggled for the rest of the week as the picture changed and the industry doesn’t have much of anything going its way of late, actually. It may have a confused rally, positive with stimulus, negative with sights set on a more heavily regulated future, EVs, little travel, and an economy and society in crisis.

    Late Friday, yields ticked back up to close out the week. Perhaps it was a sign of a decisive electoral conclusion near at hand. Bond markets are often a step ahead.

    [tracking: SPY, VTI, QQQ, XLK, EDC, VWO, VXUS, LQD, VXX, XLE, TMV]
  • The Federal Reserve has confirmed support for ongoing asset purchases and basement rates. The possibility for yield curve control at the long end is always there. At one point, the Fed was signaling it would be cooling off on absorbing corporate debt issuance, but it turns out it never really did, according to an oversight report by a watchdog commission. All the more reason that funds like LQD remain in play, besides serving a Treasury-style asset allocation role in terms of portfolio diversification and risk mitigation.

  • Initial jobless claims came in above expectations at 751k. They remain elevated as can be.

    To add to this, 363k more people applied for Pandemic Unemployment Assistance (PUA), a program that covers many who aren’t ordinarily eligible for traditional unemployment insurance, compared to 360k the week prior.

    On the other hand, between some people giving up and others returning to work out of desperation, the official unemployment rate dipped to 6.9%. What follows has been voiced elsewhere, but it’s not a coincidence that increasingly massive amounts of confirmed COVID-19 cases coincide with employment gains.

    [tracking: SPY, VTI]
  • Mortgage applications jumped for the week ended Oct 30, but it was all due to a surge in refis that compensated for a decrease in homebuyers.

    Private construction spending grew, while shrinking in the public and industrial sectors. Qualified homebuyer demand and construction spending may eventually pass each other in the night. The pool of qualified buyers is not endless, the labor picture is poor yet, and the health crisis has plenty of room to run, among other headwinds.

    [tracking: XLRE, NLY, VNO]
  • Ballot proposals for new municipal bond issuance this US election cycle may have unintended but nevertheless negative consequences. While the total amount voters will collectively decide on is by no means a record ($45 billion), they will doubtlessly be funding much needed projects for the common good, including improvements to existing hospitals and educational institutions. However, the problem lies in how municipalities seek to repay those obligations over time.

    For instance, via Proposition No. 1, Washington’s King County is seeking to issue $1.7 billion to improve Harborview Medical Center, the leading trauma center for the entire northwest and a top trauma center in the whole country. The bond is to be repaid by levying additional property taxes on homeowners in the coming years.

    Research indicates that higher property tax assessments are part and parcel of how BIPOC neighborhoods end up gentrified. Especially now, marginalized groups in the United States cannot afford higher property taxes. Historically, systemic racism and discrimination have meant that assessments have already worked against these populations while leaving them with little recourse to challenge the newly assessed values and increasing levies.

    Coupled with other realities of institutionalized racism like higher incarceration rates and job discrimination, the result over time is frequently property loss. Great care would have to be taken with how the county in this example goes about levying additional property taxes, as the ballot measure has successfully passed.

    Unfortunately, it is unclear that there is even sufficient awareness of the relationship between property tax assessments, institutionalized racism, and gentrification to ensure that this care is taken.

  • Sovereign matters:

    • Fitch has revised downward Slovakia’s outlook, citing a growing fiscal deficit given shrinking revenues and increased fiscal stimulus measures.

    • Fitch downgraded Maldives as it believes the country will find it harder to service its debt moving forward. At the same time, debt-fueled infrastructure spending and the impact of the pandemic weigh on the country’s finances.

    • Moody’s has upgraded Greece given perceived growth prospects and continued reforms being undertaken there.

      [tracking: EDC, VXUS, VWO]
  • It bears repeating that breaking its own (and world) records for daily new COVID-19 cases is old hat for the United States. We surpassed 100k in a day this past week. To reiterate, deaths follow cases, or we prove that we really have become more proficient at management and treatment of the illness.

    In that vein, for those who don’t suffer adverse reactions to aspirin (salicylates) and aren’t consuming anything that would be accentuating its effects or contraindicated, its use looks promising. Being as how COVID-19 is thought to be a blood vessel disease, and clotting and hyperinflammation are common issues, aspirin may fit the bill in certain instances.

    Similarly, there are natural compounds available OTC in supplement form with anti-inflammatory and anti-coagulant properties. Research is out there.