For What it’s Worth

By May 29, 2020Weekly TGIF

There’s something happening here.
But what it is ain’t exactly clear
There’s a man with a gun over there
Telling us, We got to beware

I think it’s time we stop
Children, what’s that sound?
Everybody look – what’s going down?

There’s battle lines being drawn
Nobody’s right if everybody’s wrong
Young people speaking’ their minds
Getting so much resistance from behind

It’s time we stop
Hey, what’s that sound?
Everybody look – what’s going down?

What a field day for the heat
A thousand people in the street
Singing songs and carrying signs
Mostly saying, “hooray for our side”

It’s time we stop
Hey, what’s that sound?
Everybody look – what’s going down?

Paranoia strikes deep
Into your life it will creep
It starts when you’re always afraid
Step out of line, emotions will come and take you away

We better stop
Hey, what’s that sound?
Everybody look – what’s going down?

“Nobody’s right if everybody’s wrong.” Those words ring so true to me right now. There is so much anger and such divide at home and around the world. I find myself constantly in reflection mode, particularly coming off the momentous Memorial Day weekend. I keep studying what’s happening here. The Buffalo Springfield song, written by Stephen Stills, came immediately to mind. It was recorded in 1966. The lyrics reflect today as well.

What is happening here? I go back and study many developments and try to make sense of them. That’s the history major in me. These are words that I wrote back on March 20, in the peak of the crisis:

This is a moment for our nation. How we handle this challenge will dictate the course for our future. This is the ultimate wake up call. We the People are part of the solution. It’s an opportunity to slow things and reset priorities. Americans have always risen to the occasion when facing adversity. Our nation’s history is full of such instances. Challenges can bring out the best in us. We are seeing it real-time. Scientists, medical professionals, supply-chain, pharmacy, and grocery store employees are working tireless hours, risking their health to support the masses. They’re all American heroes.

Fast forward to today: The crisis has certainly brought out the best in people, no doubt. But it has also brought out the worst too. There has been very little global coordination to combat the virus and its effects. Globalization seems to be unwinding faster and faster. Throughout American history, crisis brought our nation together. It brought us closer. It united us. This crisis is different. This crisis has divided the nation even wider than it was prior. And it was already really, really wide.

Clearly there is wide political divide. I’ve written much about the disconnect between Wall Street and Main Street. Racial divide has widened too. America is hurting. America is doing some serious soul searching. It’s as if we forgot who we are or are afraid to admit what we’ve become. America is far from perfect. That is clear and evident. But the American way of life is far better than any alternative. America’s greatness is grounded in the fact that we admit our imperfections but tirelessly strive to be more perfect. That’s our commitment, we the people.

The American people are hurting. Our way of life has been disrupted. It’s forcing everyone to adapt quickly and, in some cases, radically. Some are better equipped to deal than others. Another two Million Americans filed for unemployment insurance last week, bringing the total to 40 Million since the crisis began. Over 100,000 Americans have died from the virus. Q1 GDP was revised down to a 5% decline. Q2 will be far worse. This is a historic challenge.

You could argue that the seeds of this discontinuity and divide started two decades ago. Political division is nothing new. President Reagan faced many challenges and resistance from Democratic opposition, but he was able to reach across the aisle and gather support from what was referred to as the Reagan Democrats. The differences of opinion came in more dignified fashion and history has shined bright on his Presidency, though scars still exist, like Iran-Contra. President Clinton also faced numerous scandals, but he reached the younger generation in somewhat Kennedy fashion. Political gridlock stopped him in his tracks as did impeachment, but he presided over a period of economic prosperity with few rivals in American history.

That prosperity ended with the Dot-com bubble bursting, and the American people at large never quite recovered. The September 11 attacks came soon thereafter, which unified our nation at the time, but also woke us to a changed world, with fear and anger towards foreigners. The united attitude in America broke throughout the Gulf War and the political division was wide as the George W Bush years came to an end.

President Obama ran a campaign on change, but one thing that remained was political division. Just when it didn’t seem like further division was possible from the Bush-Cheney years, it got worse. The Financial Crisis occurred, bringing financial and economic devastation. To this day, the average American still has not recovered. Government response was slow and inadequate back then. The Fed and Treasury acted alone with little support. Wall Street got a bailout. Main Street paid the bill. Anger and distrust grew. Big Business was the bad guy. Congress was a close second.

After eight years of President Obama and even more heated political division, the 2016 election came. The thing is, both Donald Trump and Bernie Sanders tapped into the same theme. They just reached a different segment of the population with, shall I say, much different style. Both candidates tapped into a large number of Americans that have been left behind and did not trust the establishment. Fear turned to anger. Someone had to be blamed. Us versus them was the result. The anti-establishment movement worked in the UK with Brexit, something unthinkable at the time. Hillary Clinton represented the establishment in America. The movement gained momentum. It has broken down alliances. It is changing global norms.

We have an election in November. Emotions are running at a fever pitch. The fever will not break anytime soon. It will only get worse as we get closer. The outcome of the election will clearly dictate the course for the new decade and beyond. I always have a challenging task of discussing political issues without getting political. We use an independent research provider out of Washington as a valuable resource. My job is to interpret developments, anticipate the significance and act accordingly as it applies to our investment strategies. I focus on facts. I deliver facts. My job is not to be political. I won’t do it.

Here is what’s happening and our interpretation, for what it’s worth:

President Trump held a news conference today, saying that he is not happy with China. It was bold. The White House has been critical of China’s handling of the coronavirus as well as Beijing’s Hong Kong national security legislation. White House economic advisor Kudlow said earlier China made a “huge mistake,” and that Beijing will be held accountable for robbing Hong Kong of its freedom. The President claimed that China does not play by the same rules. He also declared the United States is terminating its relationship with the World Health Organization.

The 21st Century Cold War: Dominating the Digital Age.

Huawei represents everything here. Huawei is a strategic asset for China that is looking to become a dominant player in 5G. The White House wants to stop Huawei from becoming the chief supplier of 5G around the world. It has bipartisan support. Both Republicans and Democrats have concerns about China’s 5G goals. The US believes its position as the world leader in critical technologies is vital to its economic and national security interests. Huawei is emblematic of the larger trade war because it is representative of China’s state-led industrial policy that US intelligence officials say relies on intellectual property theft, forced technology transfers, cyber-espionage and discriminatory treatment of foreign investments. The American solution is founded in Silicon Valley.

If the President wants to beat China in the Digital Age, he is seemingly complicating the effort by attacking Silicon Valley. President Trump signed an executive order targeting social media companies and the protections they have from liability for content posted on their platforms. Twitter, Facebook, Instagram (owned by Facebook) and YouTube (owned by Google) were mentioned. The action follows complaints from the White House on the “unchecked power” of social media giants. This executive order makes it US policy that platforms who selectively edit, censor, or are not acting in “good faith” with regards to content will not receive the liability protection included in Section 230 of the Communications Decency Act. This is likely headed to court. The order has energized Trump’s base who believe liberal social media companies discriminate against them. Politics are clearly present here. Despite the uproar on both sides of the issue of cracking down on social media giants, our sources expect very little actual action. Freedom of speech will win the day. The targeted stocks initially reacted negatively, but have largely taken it in stride.

The Digital Revolution has been disruptive, much like the Industrial Revolution in the 19th century. Innovation makes it happen. The modern age has increased the quality of life for many. Not for all. One of the biggest challenges is job creation. Many innovative technologies have been job crushers. Many Americans lack the skills to compete in High Tech. More jobs have been lost during this pandemic and many simply will not return.

Social media has taken over the world. It has been so powerful for free speech, national security and human rights. It’s also a very popular and powerful tool to keep up with family and friends. But social media can also bring out the worst in people. It provides a platform of like-thinkers to congregate in silos and share thoughts and spread information, regardless of fact or fiction. There is an element of propaganda in place. It can brainwash the thinking if you don’t have a firm grasp on the various subjects. As Winston Churchill said, a lie can travel halfway around the world before the truth has a chance to put his pants on. Imagine Churchill with Facebook and Twitter.

I wrote in my piece back on March 24, at the Market lows this. It still applies:

I heard someone say today that perhaps the Universe is sending a message. The implication is Planet Earth has become too divisive and combative. There’s a lot of hate and selfishness. Respect for others has been lacking. Attention has often focused on short-term success and instant gratification at the expense of a healthy and sustainable future. This has certainly been a wake up call. Priorities get reset. You sure do recognize what is most important in our lives. I’ve been thinking about this all day. I’m going to be focused on this for the days, weeks and years to come.

This is indeed a moment. The Olympics have been postponed. But the world just might be coming together in 2020 for a shared purpose. It’s never too late for that.

Back to the present. There’s something happening alright. The US Economy was shutdown and has experienced unprecedented contraction. 40 Million Americans are newly out of work. 100,000 Americans have died from the virus. Political, economic and social divide appears to be widening. Trust and respect seem to have vanished. The Stock Market has exploded higher while tensions are boiling over, both at home and abroad. Everywhere I look, someone asks me, what’s going on?

America is not it’s best self right now. It’s been this way for a while. The Market doesn’t seem to reflect what’s going on. We just need a timeout. The shutdown could’ve been just that. It wasn’t. We the People has been replaced with us versus them. The pandemic proved how vulnerable we are. That we cannot forget. Unfortunately, it feels like we already have. Attention spans are short these days. Patience seems to be too. The Universe is a powerful force. What’s that sound? It sure appears to be sending a message. It seems like a good idea to stop and listen.

These are very confusing times. They are concerning times. Crisis brings opportunity and dealing with adversity brings out the true character in people. I will keep studying developments and interpret them so we can act accordingly with our investment strategies. We are imperfect. As long as we continue to admit it while striving for perfection, we are going to be ok. In fact, we will be more than ok. We will continue to be great.

Nobody’s right if everybody’s wrong.

Have a nice weekend. We’ll be back, dark and early on Monday.

Mike

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