Cumberland Advisors Market Commentary – Katie Darden and Camp Kotok

Katie Darden, Financial Institutions Research Director at S&P Global Market Intelligence, joined us at Camp Kotok and then published this excellent summary of our discussions: “At Camp Kotok, fears over China and ‘magic money tree’ overshadow Fed policy,” https://platform.mi.spglobal.com/web/client?auth=inherit#news/article?id=53593818&cdid=A-53593818-12580 .

Leen's Lodge Back Deck

Then Katie joined her bank analyst colleague Nathan Stovall, who authors StreetTalk, a monthly column and blog focused on banking in the South, in a podcast interview in which Nathan first asked Katie to explain the “unique beast” that is Camp Kotok. Katie conjured with this image, which I find both amusing and fitting: “If you can imagine a large group of very smart adults at summer camp, that may come closer to conveying what it is.”

Katie goes on to say that in the ambience of Leen’s Lodge and the Great North Woods, with everyone suited up to go fishing, something magical occurs as professional egos fall away and a camaraderie develops that lets people openly engage on often contentious topics in a way that is often difficult in the outside, workaday world. (She notes that it doesn’t hurt that wifi in Grand Lake Stream can be spotty.)

Fishing Guides & Canoes

With everyone on the same level, says Katie, “You can barge into any conversation that you want, take part in any conversation that you want. I’ve gone to this every year since 2014, and every year I come away feeling that I’ve had this incredible experience that lifts me above the day-to-day, and I’ve gained new insights….”

Then Katie and Nathan launch into the major topics that had our group’s attention this year: China, Fed policy, Modern Monetary Theory, etc. We encourage our readers to check out this entertaining and informative summation of Camp Kotok 2019. Here is a link to the podcast on SoundCloud: https://soundcloud.com/street-talk_spglobal/ep-49 . And here is the link on Apple Podcasts: https://podcasts.apple.com/us/podcast/street-talk/id1277129317 .

We thank Katie Darden and Nathan Stovall for creating this insightful look at our Maine gathering.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary – Report from Leen’s Lodge (Camp Kotok)

The 50-person gathering at Leen’s Lodge encompassed diverse political views, financial and economic specialties, and asset class focused from cannabis to currency trading, real estate to debt of all types, stock markets and ETFs, derivatives and futures, and more. Over $1 trillion in managed assets were represented as we gathered for each informal meal. No lectern, no PowerPoint. The China Panel and the MMT panel are public and in the social media domain and the press and public are free to use the video footage and quote the speakers. Other discussions were conducted under the Chatham House Rule.


There are some takeaways:

1. Regardless of the attendees’ political views, Peter Navarro’s advice to Trump is seen as a disaster. In a poll, 1 supported Navarro, 3 weren’t sure, and 36 disapproved. When asked more generally about Trump’s trade war policy, the group was divided, with about 3 opposed to Trump for each supporter.

2. The damage incurred by Navarro’s advice and Trump’s policy was cataloged in detail, and it is ugly. It is spreading and appearing in more and more evidence and anecdotes.

3. Border and immigration policies were discussed in detail and with data. The group’s outlook is bleak. Nearly all fault a dysfunctional Congress for its repeated failures. Here the group leaps over partisanship. Democrats and Republicans are guilty.

4. Global debt expansion and central bank credibility is a major concern. I refer readers to the MMT panel for a clear, multidimensional discussion of MMT and the Fed’s dilemma: Camp Kotok MMT panel. My personal takeaway is that the Fed needs to step up its game with regard to its communications strategy. Most agreed that putting a name with each dot in the dot plot would be an easy improvement to make. If the Fed had a clear policy statement against negative interest rates, that assurance would help to reduce risk premia. The gathering views negative rates as a spreading financial malignancy. The varied forecasts about proliferating negative rates and their global effects are sobering.  Kotok note: adjusted for most recent inflation reports, the US treasury yield curve is already negative when computing real yields.

5. The China panel packed an extraordinary amount of valuable information into a half hour and is well worth the time you’ll spend to view it: https://youtu.be/Sff0AGPrIJQ


 

This 2019 Camp Kotok talk session features panelists Michael Drury (Chief Economist for McVean Trading & Investments, LLC.), Jonathan D. T. Ward (Founder of Atlas Organization), & Leland Miller (CEO China Beige Book), all offering their take on U.S.-China relations. The panel and audience Q&A are guided by moderator, Lisa McIntire Shaw.

Beyond the direct China-US trade war, attendees discussed contagion risk, Hong Kong, Argentina, capital flight, and alternative choices for storing value in a world of discredited fiat money, among other issues. Most attendees expressed gratitude for an assembly that allowed for free and open exchanges under the Chatham House Rule.

Here are three questions for readers to consider:

1. How would you restructure your investment portfolio if you really believed that the global high-grade sovereign debt nominal yield would average 1% or lower for many years?  That implies real yields would be negative worldwide for a prolonged period.

2. How would you restructure your investment portfolio if you believed that high-grade federal, state, and local debt yield would also average 1% or lower for many years? This question implies that the entire yield curve (term structure) is under 1%.  What are implications for munis, mortgages, swaps, forwards, etc.

3. The third question involves geopolitical risk and personal safety. At Camp Kotok we had private conversation on this subject. The results are alarming as many of us have altered global travel plans. I’m one of those who has done so. So here’s the question. Think about the world that you see. Then make a list of every place you have visited during your lifetime. This takes a few days for older and well-traveled folks as memories are rekindled. Then look at the list and ask which of these destinations you would visit today and which not. Add this consideration: Which would you visit only with ample security and protection?

Lastly, Dave Nadig drafted an exquisite description of Camp Kotok and has given us permission to share it. Enjoy: https://www.etf.com/sections/blog/camp-kotok-wall-street-woods

We also have permission to share Brent Donnelly’s thoughts on Camp Kotok, 2019: Brent-Donnelly’s-Notes-from-Camp-Kotok-2019.pdf

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary – Gorsuch & Fake News

At our Camp Kotok gathering in Maine, we often discussed truth and fact checking versus the spreading practice of political lies and fakery.  We will have more to say about the gathering. For now here is a case study about truth and lies.

Cumberland Advisors - Fake News

Shortly after he was appointed to the Supreme Court in April, 2017, Justice Neil Gorsuch announced that he would not be participating in the court’s “cert pool.” The pool is a labor-saving device by which justices share their law clerks in an effort to streamline decisions about which cases to hear. The pool has, however, been criticized – by former justice John Paul Stevens, among others – for reducing the number of cases the court takes up.

We applaud Justice Gorsuch for his action (he joins Justice Samuel Alito as the only justices who do not participate in the pool). We wish we could stop this missive right here.

But our purpose in writing today is actually to call attention to a rather devious story circulating on the internet that conflates Gorsuch’s move with a claim that the Supreme Court ruled on the teaching of Sharia law in US schools. The claim goes further, stating that Gorsuch, in his first decision on the court, not only cast the tie-breaking vote but also issued a statement about the decision.

There was no such decision. The claim is false. The Snopes website, on a page titled “Did the Supreme Court Side with Trump on Schools Teaching ‘Sharia Law’?,” establishes that the court has not considered the matter of Sharia law (source: https://www.snopes.com/fact-check/sharia-law-trump-schools-supreme-court/).

Thus, what began as a rather innocuous and complimentary story about Justice Gorsuch morphed into a blatant attempt to disseminate fake news. It is that fakery that has triggered this commentary.

In today’s world, people have considerable license to say what they please on the internet. Our First Amendment constitutional rights are very broad. But we should not forget that defense of our right to free speech includes the responsibility we each have to do independent research and to take care when dealing with social media and political websites of all types.

The fake story reached our office in the form of an email to me. Here is the explanation of how this devious behavior went viral: “The Supreme Court and Sharia law: How a fake-news story spreads,” https://www.politico.com/story/2018/05/14/fake-news-story-spreads-576752).

The originator of the fakery, Christopher Blair, has done a disservice to our nation and made a mockery of our Constitution, which protects us and him. In my opinion he is a scoundrel. He duped many who didn’t take the time to verify but instead forwarded his lies to others.

Here is the original text: We are reproducing it verbatim with permission from the author. If you saw it or if it was forwarded to you, please feel free to send my missive in reply. If you know the original source, you can decide for yourself about any action to take. Thank you for caring about the First Amendment and practicing vigilance to protect it.

__________

“THIS IS ONE OF THE MOST ENCOURAGING EVENTS YOU WILL NOT SEE, OR HEAR MUCH ABOUT IN PRINT OR ON TELEVISION…

“Neil Gorsuch has only been on the Supreme Court for a short while. Recently he ignited the fire of liberty and broke 40 years of precedent when he refused to join the SCOTUS ‘cert pool.’

“The cert pool was established in 1973 during the early days of the Burger Court, in order to efficiently review the near 8,000 petitions received each term. In practice, the petitions are apportioned among the Court’s law clerks, who then circulate a memo to the justices recommending a grant or denial. The obvious problem here is that this gives the power in these 8000 cases to the law clerks instead of the Justices. It also, in theory, allows 3rd parties to unfairly influence a case through the clerks.

“That is NOT how the Supreme Court was designed to operate. Neil Gorsuch just managed to set his foot down in the Supreme Court and say it is NOT okay to pass off judgments to the discretion of legal clerks. This is the kind of story everyone should be hearing or reading in the media, but obviously is not.

“Today the United States Supreme Court issued a direct and final blow to the Islamic Indoctrination of the young in this nation. The full panel of the United States Supreme Court which consists of 9 judges met to decide the fate of Islamic indoctrination in our American public schools. In a typical 5 X 4 decision, common sense won out, and we have sanity restored to our schools once again.

“The United States Supreme Court was able to hand out this decision banning Sharia Law and Islam from being taught in classrooms because of the tie-breaking vote of the newly appointed Supreme Court Justice Neil Gorsuch.

[Kotok note: The fake news practitioner has just told an outright lie.]

“Gorsuch went on to write about the decision: ‘The government certainly has no business being involved in religion, but this isn’t a government issue or a religious issue. This is about the judicial branch interpreting the laws as they apply to the teaching of religion. We shouldn’t be teaching any religions in the public schools of this country’

[Kotok note: The creator of fake news has had the temerity to put false words in the mouth of a Supreme Court justice. To couch that lie in religious terms is a further affront to the First Amendment.]

“Amen, Justice Gorsuch, Amen!

“Liberals are all about teaching Islam and Sharia Law but they have issues with ‘Under God’ in the pledge of allegiance and ‘In God We Trust’ on our currency.

[Kotok note: The fake news fabrication is now broadened into a liberal versus conservative religious rant.]

“This should have been a unanimous decision, not 5 to 4, but it seems the 4 liberal judges on the Supreme Court don’t care about the Constitution, or our values. Perhaps this is the start of restoring America to its founding glory.

“Thank GOD for our new Supreme Court Justice Neil Gorsuch — a great selection by President Trump.

“IF YOU WILL, PLEASE PASS THIS ENCOURAGING NEWS ALONG, AS I HAVE DONE”

__________

Dear readers. We try to fact-check everything we write about and offer citations. We avoid forwarded assertions like the deception above. And we scrupulously defend those magical 45 words of the First Amendment. Those words stand between us and tyranny.

Here is the text of the First Amendment, which Justice Gorsuch and his SCOTUS colleagues are sworn to preserve and defend.

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.”

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio

Above graphic derived from IFLA infographic based on FactCheck.org’s 2016 article “How to Spot Fake News”:  https://www.ifla.org/publications/node/11174


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Yahoo Finance Highlight: FAANG stocks hit hard by U.S.-China trade war

Yahoo Finance Highlight: FAANG stocks hit hard by U.S.-China trade war

August 6, 2019

FAANG stocks hit hard by U.S.-China trade war

Watch the embedded video from Yahoo Finance below.

Tech stocks take a beating as the trade war drags on. Yahoo Finance s Julie Hyman, Adam Shapiro, Sibili Marcellus and David Kotok of Cumberland Advisors discuss.

 


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Yahoo Finance Highlight: Fed Chairs warn Washington that meddling could lead to market instability

Yahoo Finance Highlight: Fed Chairs warn Washington that meddling could lead to market instability

David Kotok on Yahoo Finance - 2019-08-06 12_37_27-Fed Chairs warn Washington that meddling could lead to market instability

Watch the embedded video from Yahoo Finance below.

An unprecedented op-ed in the Wall Street Journal, penned by Former Fed Chairs, call for the Central Bank to remain independent. Yahoo Finance’s Julie Hyman, Adam Shapiro, Sibilie Macellus, Brian Cheung and David Kotok of Cumberland Advisors discuss.

 

 

 


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Trump’s trade war with China is starting to get out of hand

Trump’s trade war with China is starting to get out of hand

Market Commentary - Cumberland Advisors - Currency Risk Quote (David Kotok)

Excerpts below.

By Matt Egan, CNN Business
Monday, Aug 5th 2019

New York (CNN Business)The US-China trade war has always been serious. Now it’s starting to get scary. China allowed its currency to drop sharply on Monday to the weakest level in more than a decade. And China announced its companies have halted purchases of American agricultural goods. This comes after US President Donald Trump vowed last week to impose tariffs for the first time on a wide swath of US consumer goods from China.
 
China’s currency move raised the specter of a currency war, where major countries race to devalue their respective currencies.
 
“It’s the currency risk that is the most volatile, hardest to see and the fastest reacting,” said David R. Kotok. “That’s the left hook that can knock out the boxer.”

 

Read the full article here: CNN Business


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Cumberland Advisors Market Commentary – Inflection Point?

I’ve known Tom Kean, former governor of New Jersey and co-chair of the 911 Commission, for 40 years, and served in several positions in his administration when he was governor. He represents the greatness of the Republican Party, which has produced folks like him and his father Bob Kean and others like Everett Dirksen or Margaret Chase Smith or Jacob Javits or Nelson Rockefeller. Tom’s book The Politics of Inclusion (https://www.amazon.com/Politics-Inclusion-Governor-Jersey-Thomas/dp/0029183413) is a timely reading for today.

Market Commentary - Cumberland Advisors - Inflection Point (David Kotok)

After the 9/11 Commission presented its final report, and over one of our occasional lunches, Tom Kean and I talked about the biggest terrorism risks and how to handle them. Tom was very clear. He said, “The lone wolf is our biggest risk.” He summarized a conclusion and I will paraphrase his words: Our Commission believed the other threats from external forces could be managed even though the cost might be high. But a lone wolf, acting with a distorted or misguided societal view, was the greatest danger. And the potential for that person to be manipulated by insidious forces in ways that the perpetrator did not comprehend only compounded the danger and made that individual a very dangerous risk to America.

We have just witnessed that threat play out again this weekend.

Authorities have now confirmed that 21-year-old Patrick Crusius, the shooter who opened fire at a Walmart in El Paso, killing 20 and injuring 27, was indeed the author of an anti-immigrant manifesto published online just minutes before the attack. They are now treating the El Paso shooting as an act of domestic terrorism (https://www.nytimes.com/2019/08/04/us/el-paso-shooting-updates.html).

In a rhetorical climate marked by intolerance, in which the president of the United States paints perceptions of groups such as non-European immigrants or journalists with a broadly negative and dehumanizing brush, the risks of stochastic terrorism are being realized. (Dictionary.com defines stochastic terrorism as “the public demonization of a person or group resulting in the incitement of a violent act,  which is statistically probable but whose specifics cannot be predicted.” See https://www.dictionary.com/browse/stochastic-terrorism.)

Tom Kean and his Commission colleagues hit the nail squarely on the head with regard to the dangers of the lone wolf. Washington political forces decided not to listen to them. Now we have the latest news and two more examples to underscore the argument.

As with anything else, there will be an ultimate “inflection point” with domestic terrorism. When that point is reached, things will change. Before that occurs, inertia and special interest politics are the combined obstacles. Only at the “breaking point” do things change, as Malcolm Gladwell has explored in his writings.

We had years of hijacked airplanes. It took the horrific events that unfolded on 9/11 to change the system with the introduction of TSA. 911 was the breaking point. We haven’t had a hijacking since. History is replete with examples of breaking points and the high cost required to alter a landscape once a society has reached an overwhelming consensus to change.

Are we there yet with mass shootings by lone wolves? How many more shootings, killings, and mass murders are needed until a national breaking point is reached and the Congress and the president change the rules? Or the voters throw the incumbents out and replace them with responsible leaders who will change the rules. Time will tell.

Here is a compilation of the buildup toward the breaking point.

2017:
In 2017, the US saw 382 mass shootings, including the deadliest mass shooting in US history, in Las Vegas, as lone shooter Stephen Paddock took 59 lives and injured 422 people, with hundreds more injured in the panic that ensued (https://time.com/4965022/deadliest-mass-shooting-us-history/).

2018:
323 mass shootings, with 387 killed and 1274 injured (https://en.wikipedia.org/wiki/List_of_mass_shootings_in_the_United_States_in_2018). Though the year was not unusual in terms of the number of mass shootings, more shootings occurred at schools than ever before: https://www.vox.com/2018/12/10/18134232/gun-violence-schools-mass-shootings.

2019:
251 mass shootings to date, with 281 fatalities and 1032 injuries (https://en.wikipedia.org/wiki/List_of_mass_shootings_in_the_United_States_in_2019). At the Gun Violence Archive (https://en.wikipedia.org/wiki/Gun_Violence_Archive) readers can view a list of 2019 mass shootings so far. That list is 11 pages long already and likely, sadly, to get longer: https://www.gunviolencearchive.org/reports/mass-shooting.

Here is a 37-year summary of mass shootings in the US, with a downloadable database: https://www.motherjones.com/politics/2012/12/mass-shootings-mother-jones-full-data/.

Inflection point?  Are we there yet?

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Guest Commentary – The Quill, The Feather & DiMartino Booth on Housing

My friend and Camp Kotok fishing-person Danielle DiMartino Booth is CEO & Chief Strategist for Quill Intelligence, a research and analytics firm that is celebrating the one-year anniversary of launching its publication The Daily Feather and the four-year anniversary of The Weekly Quill.

Cumberland Advisors Market Commentary - The Tenthouse Suite - The American Housing Divide

Danielle has kindly allowed us to share with our readers an interesting, data-rich piece she recently penned on crucial issues in the US housing market. Titled “The Tenthouse Suite: The American Housing Divide,” it takes an incisive look at the problems young adults and other typically lower-income folks face in buying or renting homes today (link below).

But first, let me tell you a bit more about Danielle.

With Quill Intelligence (QI), Danielle set out to create a “research revolution,” redefining how market intelligence is conceived and delivered, with the goal of not only guiding portfolio managers but also promoting financial literacy. To build QI, she brought together a core team of investing veterans to analyze trends and provide critical analysis on what is driving markets, both in the US and globally.

Commentary and data from The Daily Feather have appeared in many other financial sources, such as Bloomberg, CNBC, Fox Business, Institutional Investor, Yahoo Finance, The Wall Street Journal, MarketWatch, Seeking Alpha, TD Ameritrade, and TheStreet.com.

Danielle is the author of FED UP: An Insider’s Take on Why the Federal Reserve is Bad for America (https://quillintelligence.us14.list-manage.com/track/click?u=a93505e1ffc51c4d9790b4c97&id=dcbc376f33&e=93c07ca37d). She is also a full-time columnist for Bloomberg View, a business speaker, and a commentator frequently featured on Bloomberg, CNBC, Fox News, Fox Business News, BNN Bloomberg, Yahoo Finance, and other major media outlets.

Prior to Quill, Danielle spent nine years at the Federal Reserve Bank of Dallas, where she served as advisor to President Richard Fisher throughout the financial crisis and until his retirement in March 2015. Her work at the Fed focused on financial stability and the efficacy of unconventional monetary policy.

Danielle began her career in New York at Credit Suisse and Donaldson, Lufkin & Jenrette, where she earned her BBA as a College of Business Scholar at the University of Texas at San Antonio. She holds an MBA in finance and international business from the University of Texas at Austin and an MS in journalism from Columbia University.

Now, here’s Danielle DiMartino Booth on US housing: “The Tenthouse Suite: The American Housing Divide” (text link: https://www.cumber.com/pdf/The-Tenthouse-Suite-by-Danielle-DiMartino-Booth.pdf).

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary – “Send them back!”

Named for the last Hawaiian king (see https://en.wikipedia.org/wiki/Kal%C4%81kaua), Kalakaua Avenue is Waikiki’s answer to Worth Avenue or Rodeo Drive. When you turn the corner out of the Royal Hawaiian Center into the throngs walking on Kalakaua Ave., Planet Earth’s multicultural diversity lies before your eyes.

David R. Kotok

Hawaii is America’s newest and 50th state (see https://en.wikipedia.org/wiki/Hawaii_Admission_Act). It is a true American melting pot and a testament to why the outrageous chant “send them back” is an affront to everything our great nation stands for. One need only land at the airport in Honolulu and find, in the terminal, the story of a patriotic American named Dan Inouye (see https://en.wikipedia.org/wiki/Daniel_Inouye) to realize how gross an insult the president has injected into our national political life.

Our visit to furthermost western edge of the US is only a few weeks away from the trip to Maine and the region that contains the easternmost place in the US, West Quoddy Head. That landmark is six time zones from Pearl Harbor and is located about an hour’s drive from Leen’s Lodge. In that neck of the woods, too, the chant “send them back” is just as offensive.

Our encounters throughout the country in the last month took me to a dozen states where we met hundreds of citizens, young and old, of all political persuasions. Nowhere did we find “send them back” getting any support.

Many of my Republican friends simply say “I don’t agree.” They are privately distraught by this president’s behavior. Many Democrat friends say “racist” or “bigot.” They are also distraught. More than half of those I meet are simply fed up with the political divide and ugliness in our country. Many now ignore it. They tune it out. They’ve had enough of the Twitter wars.

Most financial and economics friends and colleagues are the same. We’re inundated by political trash. Added to it is Trump’s unrelenting attack on the central bank and specifically Chairman Powell. Presidents and Fed chairs rarely get along and have differed on many occasions, but Trump’s personal attack on Powell is without precedent.

Meanwhile markets ignore the political salvoes for the moment. They also ignore the shortages of labor to fill jobs. And they ignore questions in the credit sectors like commercial real estate vacancies or CLO risk or aircraft leasing.

From west to east we see signs of pressures building; we watch earnings carefully; and we worry about the deteriorating political landscape and its ugliness.

How this all tears at the national political fabric remains to be seen. But in our view the chant “send them back” resembles history from the 1930s, and it rekindles memories that run deep.

I expect the low-vol financial markets, which are intent on ignoring political forces, to get a wake-up call that may be unpleasant. “Send them back” doesn’t fly on Main Street. It won’t fly on Wall Street, either.

The great poem by Emma Lazarus inscribed on the Statue of Liberty doesn’t say “send them back.” From Hawaii to Maine, there is no broad support for slogans like that. At least that’s how it looks to this traveler.

The New Colossus

By Emma Lazarus

Not like the brazen giant of Greek fame,
With conquering limbs astride from land to land;
Here at our sea-washed, sunset gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning, and her name
Mother of Exiles. From her beacon-hand
Glows world-wide welcome; her mild eyes command
The air-bridged harbor that twin cities frame.
“Keep, ancient lands, your storied pomp!” cries she
With silent lips. “Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!”

(Source: https://www.poetryfoundation.org/poems/46550/the-new-colossus . And here is a video reading of the poem: https://www.youtube.com/watch?v=N0B9CitsfU0 .)

And finally, here is a piece from the Brookings Institution that makes the case that, as its title says, “Racism is not a distraction; It’s policy” (https://www.brookings.edu/blog/the-avenue/2019/07/19/racism-is-not-a-distraction-its-policy/) . The author reminds us that “Racism should never be diminished as a distraction – history shows well that the strategic deployment of bigotry is a default practice used to undercut democracy.”

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio

 


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Cumberland Advisors Market Commentary – Rocky Mountain Summit

Four states – CO, WY, ID, UT – in six days; private professional meetings, a few public gatherings, two Chatham House roundtables, and one half-day with a fly rod.

My longtime friend Bill Dunkelberg and I brought nearly 40 trout to the net for release. An equal number escaped the net during the fight. Here we are after the four-hour marathon.

David Kotok & Bill Dunkelberg
The location was Trout Ranch in Idaho, a few miles from Afton, Wyoming. Hosting was the Bronze Buffalo Club. They partner with the Global Interdependence Center for the Rocky Mountain Summit. The public presentations at the Summit are posted on the GIC website, https://www.interdependence.org/ . Below is this photo of a spawning rainbow trout (notice the shape of the jaw along with the glorious coloration), I will bullet the takeaways from the Chatham House discussions.

David Kotok & Fish
Before I get to money and markets, let me quote one paragraph from Kyle Westway’s weekend missive #283:

“Imagine a world in which priests only make their money by selling access to what you said in the confession booth? That’s basically Facebook / Google’s business model. Except in this case, Facebook is doing that with 2 billion people and has a supercomputer that’s actually predicting the confessions you’re going to make before you make them. And it’s stunningly accurate. AI has been shown to predict our behavior better than we can. It can guess our political affiliation with 80 percent accuracy, figure out you’re homosexual before even you know it, and start suggesting strollers in advance of the pregnancy test turning pink. As each track leads to profit maximization, companies must become more aggressive in the race for attention. First it was likes and dislikes, making consumers active participants, causing them to feel as if they have personal agency within the platform. They do, to an extent, yet as the algorithms churn along, they learn user behavior, creating ‘two billion Truman Shows.’ Watch Tristian Harris – former Google design ethicist – speaking at a Congressional hearing (ironically on YouTube).”

I strongly recommend the 17-minute YouTube of Tristan Harris’s US Senate testimony. The link is at the end. Think of this two ways: What it indicates for society and social behavior, and what it means for regulation, supervision, and legal changes applied to social media businesses.

Here is the link to his testimony: https://www.youtube.com/watch?v=WQMuxNiYoz4 .

Let’s get to takeaways from the week in the West, where we encountered publicly and privately owned businesses and wealth running to trillions of dollars. Many of the decision makers who participated in our gatherings have 8- or 9- or 10-figure personal wealth. All conversation was conducted under the Chatham House Rule.

Bullets

1. Trade war – No one is able to predict outcomes now, so capital investment is being deferred. Some tariff cost passthrough has started. The lead-to-lag timing of trade war effects is about a year, between a Trump sabre rattle and an actual outcome. What we see today in sales, prices, and other trade war impacts is the result of last year’s trade and tariffs policy. This delayed impact portends poorly for the next year or so.

2. China – Most folks see the unfolding generation as one of protracted adversity. They characterize the US-China negotiations as a modern version of the Cold War of yesteryear.

3. The Fed – Never have I heard so much criticism and ridicule of the central bank. Voices that are direct but polite in public are intense and negative in private. Paul McCulley’s keynote alluded to rewriting the Federal Reserve Act. Richmond Fed President Barkin was a keynote, too. He sat politely through the other presentations. My guess is that he has a message to carry back to the Fed, which will include the need for the Fed to improve communication. I believe that improvement is essential, and my takeaway is that the Fed as we know it is at risk and that the peril from a political intervention by Congress is high and rising.

4. Negative interest rates – Negative rates in Europe and Japan are universally viewed as poison. Nearly all believe this experiment ends badly. No one knows when, and so all must speculate about how it ends as they make portfolio decisions.

5. Investments – Portfolio options discussed included real estate, timber, farmland, gold, other hard assets, tactical stock market plays, private equity, royalties, and some exotic structures, plus privately owned operations. Bill Dunkelberg reminded everyone that there are 30 million businesses in the US and only 20,000 trade on the stock exchanges. Half the US nongovernment economy is privately owned. A chunk of that half populated these meetings.

6. Politics – My guess is 70% or more of the group believes Trump will be re-elected. Few like him or his behavior, but most are willing to overlook it because of his policy outcomes on taxes and deregulation. Trade war escalation and a recession would change this. Most believe Trump knows that and will avoid those pitfalls. Most believe the Democrats haven’t produced a viable alternative to Trump. If one does emerge, many would consider that option. In one forum of 25 people, only two thought Biden would be the nominee. Some noted how at this stage in the previous election Hillary Clinton was not yet on many people’s radar screens, and Trump was dismissed as impossible. A few mentioned de Blasio or Castro as possible emerging names. Harris comes into the Super Tuesday fight with a California basket of delegates. Anyway, lots of speculation, and the only majority view was that Trump gets re-elected.

7. Stores of value – The last takeaway is about money, whether euro or dollar or yen. All agree it is still functioning as a medium of exchange and a unit of account – we pay and receive fiat money, whether via paper or electronic paper or interpersonal Venmo transfers. But many believe the store-of-value characteristic of money does not reside with fiat currencies. The debate does not concern whether this is true, but instead where store of value does reside. Gold is an increasingly acceptable option. Bitcoin has little history. SDR anchorage hasn’t caught on. Few respect a small group debating monetary policy around a table in the Marriner Eccles Building as a reliable way to ensure that fiat money stores value.

On this last point the world’s central bankers are failing. They ARE clearing payments. They ARE facilitating government deficits, and they ARE trying to avoid recessions and default meltdowns. But in so doing, they ARE losing the trust and confidence of their constituents. In my view that trade-off is dangerous. The store-of-value characteristic of money started with the Athenian “owl” 2400 years ago. History shows that things ended badly every time a monetary authority lost sight of that store-of-value attribute.

Thank you to the Global Interdependence Center and the Bronze Buffalo Club for an enlightening week.

Final note. All fish were released. All hooks were barbless.

Lastly. Cumberland has some cash reserve. Our US ETF portfolios include an overweight position in the gold miner ETF.

David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.AAA