Cumberland Advisors Market Commentary – COVID Legal liability & Markets

The political debate over COVID-related liabilities of businesses is intense. Companies want a federal shield, which McConnell-McCarthy haven’t been able to get for them. Trial lawyers want an open target, which Pelosi-Schumer haven’t been able to get for them. A bipartisan Senate group was trying to broker a compromise. (“No Agreement on Covid-Aid Liability Reached,” https://www.wsj.com/articles/bipartisan-group-to-unveil-covid-aid-legislation-11607975152)

Market Commentary - Cumberland Advisors - COVID Legal liability & Markets

McConnell wanted to swap federal municipal aid in return for liability relief, but that deal didn’t happen. All sides seem “dug in.”

Meanwhile, at least ten states have created their own legal shields to limit business and individual liability. Those states include Georgia, North Carolina, Utah, and Wyoming. Over 1300 COVID-related lawsuits had been filed as of Dec. 28. That number grows daily. (“Why Congress Ducked This Covid Legal Fight (for Now),” https://www.bloomberg.com/news/articles/2021-01-03/why-congress-ducked-this-covid-legal-fight-for-now-quicktake?sref=q88SDHkB)

At Cumberland, we’re watching this issue closely. We are uncertain about liability estimates and their impact on companies and on state and local governments. Pandemic liability claims are a newly developing economic event. COVID disclosures are new territory for bond lawyers.

As of this writing, credit spreads show negligible signs of market-based expectations for a large cost coming. This may be the case for a while. It also may change abruptly, based on legislation or based on news of a larger and broader COVID-liability lawsuit.

We are not altering our portfolio management strategy today because of this potential liability issue, but that position could change at any time. We are watching closely as we review credit analyses on publicly traded companies and we perform credit analysis on states and local governments.

COVID liability insurance costs, legal status, financial impact, and overall policy – these are the components of an evolving scenario. Outcomes are presently unknown.

Here’s a list of resources from the Bloomberg article for readers who wish to dive more deeply:

• The Fisher Phillips tracker for coronavirus-related employment litigation
• OSHA’s resource guide on COVID-19
Articles collected by the Institute for Legal Reform, an arm of the US Chamber of Commerce
• The “Towards Justice” blog follows cases brought on behalf of workers, including many related to the coronavirus
Legal analysis of a Republican bill on liability protection during the pandemic
(Source: “Why Congress Ducked This Covid Legal Fight [for Now],” https://www.bloomberg.com/news/articles/2021-01-03/why-congress-ducked-this-covid-legal-fight-for-now-quicktake?sref=q88SDHkB)

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


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Cumberland Advisors Market Commentary – US vs. China – Competition vs. Conflict

China’s economy grew at a 6.5% year-over-year rate in the fourth quarter, bringing growth for the full year 2020 to 2.3%. China’s was the only major economy to expand last year, despite the outbreak of the pandemic and the related economic shutdowns early in the year in China. That positive growth compares with a 3.5% decline of the US economy as the nation continues to battle an ongoing surge of COVID-19 cases.

Market Commentary - Cumberland Advisors - US vs. China – Competition vs. Conflict

 

The rapid recovery of the Chinese economy is providing welcome support for the global economy, a bridge until the expected recovery of the US and other advanced economies later this year. The Chinese economy is the globe’s second largest after the US economy and may become the largest as soon as 2028, according to the UK-based Centre for Economics and Business Research (CEBR). It accounts for 18% of the world’s GDP. However, China’s GDP per capita in 2020 was still less than $9,000, compared with more than $53,000 in the US, more than $47,000 in Japan, and about $36,000 in the European Union. The reason for this difference is that while China has a large and growing middle class that is well educated and a major force behind China’s economic growth, it also continues to have a huge number of poorer, less well educated citizens.

Competition between China and the advanced economies of the US, Japan, and Europe will continue for the foreseeable future. In this note we discuss the areas where that competition will likely continue – trade, technology, finance, geopolitical influence – and the risk that China’s relationship with the US and its allies will deteriorate from competition into conflict and/or isolation. The change in administrations in Washington reduces but does not eliminate the risk of a negative outcome for these relationships.

The Biden campaign stressed the need for a return to international cooperation, restoring relations with allies and with multilateral institutions and agreements. We expect that the US will continue to strongly oppose China’s restrictive, anticompetitive trade, industrial, and technology practices; but the Biden administration’s approach will differ from the unilateral protectionism pursued by Trump, as advised by Navarro and Lighthizer. They did not understand that China is the world’s biggest trading nation and is the largest trading partner of 64 countries. As the Financial Times points out, “Seeking to isolate China or sever its commercial links with the west is hence a non-starter.” The experience under Trump’s policies demonstrated that the costs of his tariffs was borne not by Chinese exporters but by US consumers and businesses. That unilateral approach resulted in Trump’s abandoning the Trans-Pacific Partnership and thus not being able to influence the important Asia-Pacific region multilateral trade agreement, in which China now plays a leading role.

The US, which is now having to play catch-up, will likely seek to work together with other countries to press for improved trade relations with China and to strengthen, not abandon, the World Trade Organization. What is needed is the development of agreed principles and procedures on how trade is to be handled among countries, including ones with different political and economic systems. As the Financial Times pointed out, “Multilateral institutions offer a framework within which disputes can be managed and new and better rules developed.” It will be important for the US to maintain and build upon the recent improvements that were achieved in China’s IP protections, rules against forced transfer of technology, and the opening up of financial services to US firms. We can also expect the US to take strong positions on human rights and environmental issues, but the harsh rhetoric of the Trump administration is expected to be dialed down.

Katherine Tai, Biden’s commendable choice for US Trade Representative, is unlikely to engage in threats of further unilateral tariff increases that would end up raising costs to US consumers and firms. She is also unlikely to reduce or eliminate the Trump tariffs without China’s also making concessions. Biden’s Secretary of the Treasury Janet Yellen testified that Biden’s priority at this time is upgrade the US economy through investments in American workers and infrastructure before liberalizing trade barriers.

International competition in the fields of science and technology is unavoidable and desirable. However, national security and intellectual property concerns must be considered. Certain critical technologies need to be protected and espionage countered. But national security limitations on trade and investment should be narrowly drawn, not used as an excuse or a cover for restrictions motivated by protectionism. Two issues will merit close attention by the Biden Administration: the Trump administration’s escalating measures to constrain US investment in Chinese companies with links to the People’s Liberation Army and the Commerce Department’s “blacklist” that prevents American companies from selling to listed Chinese companies without US government approval. Here, too, closer cooperation with our allies would be desirable, to identify what measures are needed and justified and then to take common action.

One scientific area where close cooperation between China and the US would be highly desirable is research on detecting and combatting serious diseases. COVID-19 will not be the last pandemic to threaten humanity. Biden’s urgent action to rejoin the World Health Organization is an important step in the right direction. A coordinated global effort to identify and contain outbreaks in any country at an early stage is in the interest of all.

China is becoming an increasingly important player in international financial and capital markets through its Mainland markets in Shanghai and Shenzhen and through Hong Kong. The Chinese government is encouraging this development. In our October 19 commentary entitled “China and Wall Street – Decoupling or Linking?” we noted that while the Trump administration was seeking to decouple relationships with China and to get global financial firms to pull back from that country, China, as an element in its sweeping financial liberalization program, was opening up its financial sector to increased foreign ownership and activities. US firms have been responding positively. China’s top financial official, Liu He, is seeking to increase financial discipline, indicating that a string of defaults in China’s bond market should be seen as salutary lessons. He said there is “zero tolerance” for misconduct or attempts to evade debts. China’s bond market is important. Its domestic bond market is the world’s second largest, and its offshore market, while still relatively small, has huge potential. Foreign investors now own some 10% of China’s sovereign bonds, presumably attracted by bond yields of over 3%.

Similarly, the central bank is bringing the financial activities of the Ant Group, the technology services giant, more closely under Beijing’s regulatory control, most likely by having the Ant Group form a financial holding company. There are good reasons for the Chinese regulators to be concerned about rising household debt and to pursue tighter regulation of the growing fintech sector. Bank regulators around the globe have similar concerns about regulating the fintech sector. At the same time the State Administration for Market Regulation (SAMR) is investigating Alibaba, the Ant Group’s sister company, for monopolistic practices. Regulatory actions to strengthen a financial market are commendable; but in China there is also a political dimension, an apparent desire to rein in the empire of Jack Ma, Ant Group’s founder and China’s most prominent proponent of private enterprise.

The Biden administration is not likely to seek decoupling of US and Chinese financial markets. The respective financial sectors will compete for business together with other regional and global markets. China’s importance in the financial and capital markets will continue to increase. The Chinese currency, the renminbi, is at a 30-month high, bolstered by China’s strong economic recovery from the COVID-19 pandemic. Its role in international commerce and finance will increase, but there is little chance the renminbi will approach the importance of the US dollar as a reserve currency in the foreseeable future.

There will continue to be some issues relating to US investments in the stocks of Chinese companies. The US under Biden is likely to continue to uphold the requirement that foreign firms listed in the US meet the accounting standards that all other listed firms are required to meet. A compromise that will permit Chinese firms to meet these standards is under consideration. This would involve allowing a “co-audit” in which US-listed Chinese companies’ US auditors would validate their Mainland subsidiaries’ work. The measures taken so far affecting US investments in Chinese companies with respect to national-security and human-rights concerns will be reviewed by the new administration.

At the geopolitical level, while the temperature and rhetoric are expected to be toned down, the Biden administration will maintain a firm line on matters such as China’s incursions in the South China Sea and will continue to have Taiwan’s back. It has already warned China to stop intimidating Taiwan by significant incursions into the Taiwanese air defense zone. Biden will likely be more outspoken than Trump was on human rights issues such as the treatment of the Muslim population in Xinjiang, the crackdown in Hong Kong, and the repression of dissidents. Should the US determine that sanctions are warranted, we expect it would seek to work together with US allies on the matter. There are areas where cooperation between the two major countries looks feasible, including global health, protection of the environment, economic development, and possibly counterterrorism.

With China and its neighbors in Asia (which have also been relatively successful in combatting the pandemic) looking likely to be the locomotive of growth in the global economy this year, Chinese and other Asian equity markets have been outperforming. Over the past 12 months months as of January 21, the iShares MSCI All Countries ETF, ACWI, advanced some 18.06% on a total return basis. Over the same period, the broad-based iShares MSCI China ETF, MCHI, which tracks an index that is composed of Chinese equities that are available to international investors, gained 42.49%. This outperformance continued over the past three months with MCHI gaining 17.67% compared with 15.72% for ACWI. Elsewhere in the region the iShares MSCI Hong Kong ETF, EWH, advanced by 21.62% over the past three months; the iShares MSCI Taiwan ETF, EWT, 27.56%; and the iShares MSCI South Korea ETF, EWY, 40.66%. Even stocks in the advanced, slow-growing Asian economy of Japan outperformed, with the iShares MSCI Japan ETF, EWJ, gaining 18.25%. We continue to be optimistic about the region and are continuing to overweight Asia in our International and Global Equity ETF portfolios.

Cumberland Advisors holds the MCHI, EWT, EWY, and EWJ ETFs in its portfolios. The author does not hold any of the ETFs mentioned in this commentary.

Bill Witherell, Ph.D.
Chief Global Economist & Portfolio Manager
Email | Bio

_________________________________________________________________
Sources: Oxford Economics, Financial Times, chinalastnight.com, etf.com, The Economist, Center for Economic and Business Research


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Cumberland Advisors Commentary – Palindromes

When I was in the first grade, my teacher said, “David, do you know what you are?” She was reading my last name. In the second grade, the same thing happened. By the fifth grade, I could deliver the lecture: “I’m a palindrome.”

Market-Commentary-Cumberland-Advisors-David-Sunday-Palindromes

The word originates with the Greek palindromos, which means running back again.

A palindrome is a word or a phrase (includes numbers) that spells the same way in both directions. Simple examples are dad, mom, level, Otto, toot. The usual rule is that punctuation doesn’t count, just letters and numbers.

Some palindromes have achieved fame.

“A man, a plan, a canal, Panama.” This one seems to have been hatched by Leigh Mercer, a British wordplay expert and recreational mathematics enthusiast who wrote a puzzle column in the Oxford University publication Notes and Queries (https://www.quora.com/A-man-a-plan-a-canal-Panama-Who-is-the-man).

“Able was I ere I saw Elba” is a famous palindrome but is unlikely to have been spontaneously uttered by Napoleon, since he spoke French, although it could be, I suppose, that he blurted it out in English.

Palindromes can be fun.

“Ana, nab a banana!”

“Go hang a salami. I’m a lasagna hog!”

A funeral director might exclaim, “Stiff fits!” A warehouseman might ask, “Was it a rat I saw?” (Hat tip to Jon Agee, who has penned several books on palindromes. See http://www.jonagee.com/html/wp_books.php.)

Craig Hansen, who also wrote a book on palindromes (Ana, Nab a Banana: A Book of Palindromes, https://www.amazon.com/Ana-Nab-Banana-Book-Palindromes/dp/0452273129), included one that is a math question: “X-Six is one? No. X is one? No. None? No. O, So now, T-six is two? No. So, one? No. NONE? No. Six? ONE? No! Six is X.”

My personal favorite: “Straw? No. Too stupid a fad. I put soot on warts.”

Now, here’s USA Today on palindrome dates: https://www.usatoday.com/story/news/nation/2021/01/19/inauguration-day-palindrome-dates-2021-january-december/4216942001/. Hint: A very significant one just occurred.

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 – Fed Attack Responses

Fed Attack Responses

Fed Attack Responses

We promised we would present responses to our “Attack on the Fed” discussion (https://www.cumber.com/cumberland-advisors-market-commentary-attack-on-the-fed-market-reaction-a-one-day-saga/). But before we do, we must offer an apology to Senator Pat Toomey, whom we criticized in that commentary for appearing to attempt to limit the Federal Reserve’s emergency lending authority. The back story reveals that Senator Toomey was not, in fact, trying to lessen the central bank’s independence. Media wrongly reported his actions, and markets abruptly reacted to a credit-spread widening based on a misplaced observation reported by the financial press. Toomey wanted a specific change in the Fed’s activities and had to argue it in the midst of a legislative session when time was essential. My criticism of his intentions was wrong. I now believe that he understands the need for an independent central bank. I apologize.

Now here are some reader responses.

Former Philadelphia Fed President Charles Plosser sent these observations. We spoke with him about Toomey and wish to thank him publicly for his input.

“I wanted to share with you a few reactions to some of the issues raised in your piece on the Toomey amendment and the idea of a potential ‘catastrophe.’ Many may disagree with my perspective, but that’s ok. I see the Toomey amendment as a step to protect and preserve the independence of the Fed, even though the Fed itself seems, at times, reluctant to do so.

“First, I am not a lawyer nor one who routinely reads legislation. But, in my simple reading of the Section 1005, it basically says the Fed can make no more loans under the lending programs established in the CARES Act for which the Treasury explicitly provided loans or loan guarantees and that uncommitted funds should be returned to the Treasury. It basically formalizes the terms of what Mnuchin said weeks before. The so-called Powell paragraph basically says the same thing. That is, the amendment doesn’t say anything about general lending under 13(3) except as it pertains to the programs created under the CARES Act. (If I misread it, you can clarify things for me.) This has some relevance and logic to it since those were the programs that were explicitly funded, or backstopped, by Congress under a specific appropriation. Therefore, Congress surely should have a say as to how they evolve.

“It is important to recognize that Congress could have asked the Treasury to set up exactly the same programs back in March and not involve the Fed at all, which would have been my preference and consistent with the appropriate division of monetary and fiscal policy. Blurring the boundaries between monetary and fiscal policy in this manner is the sort of abuse of the central bank’s balance sheet that will undermine Fed independence and fuel adoption of an MMT (so-called modern monetary theory) mentality, if it hasn’t already taken firm control in a large segment of Washington. The prospect of continued large fiscal initiatives will likely see Congress continue to call on the Fed as a source of off-budget fiscal policy, further eroding its independence.

“The second point is about data and evidence. I admit I have not studied the data carefully. My quick look at some of the daily data I had access to on credit spreads shows almost nothing going on from mid-November to Christmas. Indeed, the day Mnuchin announced his decision to end the CARES lending programs of the Fed, there was no detectable response in markets as best I can tell, nor was there anything that appeared abnormal around days when the Toomey bill was proposed. The author indicates the effects were very transitory and spreads rapidly returned to low levels.

“Even if there was some turmoil, I would be very dubious of a dramatic interpretation of such daily movements that quickly disappear. Many things can affect small movements in spreads and interest rates in general, and especially intraday, if that is what happened. Attributing or interpreting small transitory movements can be very tricky. The data on the programs themselves seems consistent with a non-response. None of these programs achieved much scale (except maybe the PPP), and many companies decided to borrow money from traditional banks, in some cases at more favorable rates, or not [to borrow] at all. My intention is not to debate the merits of the individual programs; but as I indicated, the Congress could have, and should have, instructed the Treasury to do exactly the same thing without involving the Fed.

“My third point pertains to the term lender of last resort. The term goes back at least to Henry Thornton in the early 19th century. It was intended to describe what central banks (holders of the specie) should do in the event of a bank run or financial panic. Walter Bagehot later spelled out the idea as lending to solvent banks, against good collateral, at a penalty rate of interest. Surely this is what has long been the meaning of the role central banks have as a lender of last resort. However, for a number of years now, people have expropriated the term to justify Fed lending to rescue even nonfinancial firms to prevent them from failing. This perverts the meaning and allows those who do so to justify interventions by the central bank for entirely different reasons. The crisis this year was not a financial crisis. The Fed did do some things to support the financial system, but the CARES Act programs were traditional fiscal policy actions and should have been done by the Treasury, not by the central bank under the guise of lender of last resort.

“Financial markets have become way too dependent on the Fed. Such dependency means capital markets will cease to provide the correct economic signals for the efficient allocation of capital, which is what we need them to do. Moral hazard distorts incentives as Wall Street becomes more focused on the next ‘backstop’ or intervention by the Fed to limit losses. It is no wonder that the calls from Wall Street for Fed interventions have become more frequent and larger in scale, as the Fed has shown a strong willingness to undertake such interventions. I am afraid that this trend of more frequent and larger interventions will continue – and, by the way, will not be solved by the continued rapid expansion of the balance sheet, which only feeds the problem.

“So my bottom line is that the amendment proposed by Toomey was not a crisis or a near crisis for the Fed or the economy, but a wise step to help the Fed remain independent. There is a crisis facing the Fed and central banking more broadly, but more interventions and backstops are not the solution. More likely they are part of the problem.”

Kotok here again. Charlie Plosser is a dear friend of many years. I must thank him for the time he took to offer these details for all of us to consider and for the time he spent with me on the phone discussing the issues.

Economist Steve Blitz offered this take:

“Congress is using the unused 13.3 money to fund the new CARES Act; without Toomey’s objection the same money would be earmarked to be spent twice.”

Kotok note: Blitz is absolutely correct.

Dave Churchill wrote from Boise,

“David – I think that lack of understanding of the issues is the real problem. I agree that Senator Toomey’s attempt was very ill-advised. But the fact is that most of the news media and many of our national leaders completely misrepresented what was going on. There simply aren’t enough people knowledgeable enough to recognize a real, consequential inaccuracy for what it is, let alone understand what the Fed’s role is and should be. I have six years of college (both BS and MS), and it took me several days to understand the real issue. I nearly fell for the story line coming out of our mainstream press, I am sorry to admit.”

Kotok note: Churchill’s critique of media has merit.

Mark Avallone countered with a different take,

“You may believe Sen Toomey was misguided – and the policy may have been. But he is not running for reelection, so I have to believe he was acting out of principles and his firm beliefs. So while you may be correct, your comments come across as jaded about someone who is at least acting out of conscience, which we don’t see a lot of.”

Kotok note: Avallone doesn’t know if I’m “jaded” or not. But he is arguing that behavior is different if a politician is running for re-election or not. There he makes a sad commentary about our system. I would like to think that Senator Toomey would do the same thing whether or not he seeks reelection.

Fred Feldkamp wrote,

“Your kind words regarding our discussion of the recent Fed power debate are much appreciated.

“Let’s hope the analysis is (a) true and (b) actually works to maintain stability.

“It is SO difficult to keep those ‘with’ market power to refrain from using it in an adverse way. We can only hope ‘this time is different.’”

Paul OBrien, trustee of the Wyoming Retirement System and former deputy CIO of ADIA, wrote,

“David, thanks for the detail on Toomey and the Fed. It’s notable that having a lawyer run the central bank is now an advantage.

“We are in this situation because monetary policy has become fiscal policy: allocating credit to individual firms and localities and in principal picking winners and losers. Sure, this is necessary. But I believe it is a power that should be governed by politicians, not unelected bureaucrats.

“Toomey’s initiative was bad because it was hidden. The Congress should have an open debate on the limits of Fed power – and of course their own responsibilities.”

Kotok note: O’Brien makes a good point about transparency. Had we had it, maybe the market squeeze wouldn’t have happened. But that is a counterfactual, so we’ll never know.

David Blond of QuERI International offered this observation, which he had made previously on LinkedIn,

“How Low Can They Go… Obviously there are new depths.

“I won’t comment on this beyond saying – if there are any of my followers who can find a reason for this other than to spite Biden and the economy and the future, please respond, I’d love to hear why? How low can Republicans go, obviously we have not reached the bottom yet.”

Kotok note: Sad to add that there are Democrats who also go low.

Jeff Harbaugh, president, Jeff Harbaugh & Associates, wrote:

“Okay, I see it’s importantly tactically that we’ve been rescued from the Fed not being able to save us again and again and again.  We’ve dodged a bullet that just keeps getting bigger. I know – no choice, but if you see a way this ends well I’d love to hear it. The middle of a pandemic is not time to start taking our lumps but…. Here’s something I wrote in a whimsical, sarcastic mood a couple of weeks ago.

“Let me see if I’ve got this right.  The Fed has to keep rates low because it’s the only way the government can afford its debt and the benefits it’s promised people.  But they need higher inflation because that’s the only way to manage the debt – reduce it by devaluing it. But at some point, higher inflation will lead to at least higher long term rates, which the Fed needs to avoid.  Meanwhile, something like 90% of the people in this country (maybe I mean 98%) aren’t in a position to buy gold, other commodities, real estate (true, many own houses), to hedge against that inflation and will be hammered by the rising cost of living. But the debt has to go away because as long as it’s this high, getting any meaningful GDP growth is probably impossible. Meanwhile, the Fed has spent all this time failing to get inflation to 2% (who knows why they want to) but are confident that once they get it to accelerate, they can control it. They can’t get it to go up, but are confident they can keep it from going up too much, whatever that means.

“What could go wrong?”

And, finally, retired judge Marc Suffern responded from NY State with a philosophical note in a style that I have witnessed for nearly 60 years, and he contributed our closing quote:

“ ‘Any nation that can survive what we have lately in the way of government, is on the high road to permanent glory.’ – Molly Ivins”

Thank you, Marc.

Lastly, here’s the full wording of Section 1005 of bill H.R. 133, which was inserted by Senator Toomey with the intention of limiting the Federal Reserve’s emergency lending authority to restrict a specific tranche of money authorized under the Cares Act.

SEC. 1005. TERMINATION OF AUTHORITY.

Section 4029 of the CARES Act (15 U.S.C. 9063) is amended—

(1) in subsection (a), by striking ‘‘new’’;

(2) in subsection (b)(1), in the matter preceding subparagraph (A), by striking ‘‘, loan guarantee, or other investment’’ and inserting ‘‘or loan guarantee made under paragraph (1), (2), or (3) of section 4003(b)’’; and

(3) by adding at the end the following: ‘‘(c) FEDERAL RESERVE PROGRAMS OR FACILITIES.—

‘‘(1) IN GENERAL.—After December 31, 2020, the Board of Governors of the Federal Reserve System and the Federal Reserve banks shall not make any loan, purchase any obligation, asset, security, or other interest, or make any extension of credit through any program or facility established under section 13(3) of the Federal Reserve Act (12 U.S.C. 343(3)) in which the Secretary made a loan, loan guarantee, or other investment pursuant to section 4003(b)(4), other than a loan submitted, on or before December 14, 2020, to the Main Street Lending Program’s lender portal for the sale of a participation interest in such loan, provided that the Main Street Lending Program purchases a participation interest in such loan on or before January 8, 202 and under the terms and conditions of the Main Street Lending Program as in effect on the date the loan was submitted to the Main Street Lending Program’s lender portal for the sale of a participation interest in such loan.

‘‘(2) NO MODIFICATION.—After December 31, 2020, the Board of Governors of the Federal Reserve System and the Federal Reserve banks—

‘‘(A) shall not modify the terms and conditions of any program or facility established under section 13(3) of the Federal Reserve Act (12 U.S.C. 343(3)) in which the Secretary made a loan, loan guarantee, or other investment pursuant to section 4003(b)(4), including by authorizing transfer of such funds to a new program or facility established under section 13(3) of the Federal Reserve Act (12 U.S.C. 343(3)); and

‘‘(B) may modify or restructure a loan, obligation, asset, security, other interest, or extension of credit made or purchased through any such program or facility provided that—

‘‘(i) the loan, obligation, asset, security, other interest, or extension of credit is an eligible asset or for an eligible business, including an eligible nonprofit organization, each as defined by such program or facility; and

‘‘(ii) the modification or restructuring relates to an eligible asset or single and specific eligible business, including an eligible nonprofit organization, each as defined by such program or facility; and

‘(iii) the modification or restructuring is necessary to minimize costs to taxpayers that could arise from a default on the loan, obligation, asset, security, other interest, or extension of credit.

‘‘(3) USE OF FUNDS.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph (B), the Secretary is permitted to use the fund established under section 5302 of title 31, United States Code, for any purpose permitted under that section.

‘‘(B) EXCEPTION.—The fund established under section 5302 of title 31, United States Code, shall not be available for any program or facility established under section 13(3) of the Federal Reserve Act (12 U.S.C. 343(3)) that is the same as any such program or facility in which the Secretary made an investment pursuant to section 4003(b)(4), except the Term Asset-Backed Securities Loan Facility.’’.

And here’s Section 1006, the single paragraph that was inserted by Fed Chairman Powell.

SEC. 1006. RULE OF CONSTRUCTION.

Except as expressly set forth in paragraphs (1) and (2) of subsection (c) of section 4029 of the CARES Act, as added by this Act, nothing in this Act shall be construed to modify or limit the authority of the Board of Governors of the Federal Reserve System under section 13(3) of the Federal Reserve Act (12 U.S.C. 343(3)) as of the day before the date of enactment of the CARES Act (Public Law 116–136).

Finally, here is a link to the full text of bill H.R. 133: https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-116HR133SA-RCP-116-68.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 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.




Cumberland Advisors Market Commentary – Cash!

We would like to suggest that readers take time to read Josh Brown’s December 29 column at The Reformed Broker, “How to avoid bear markets” (https://thereformedbroker.com/2020/12/29/how-to-avoid-bear-markets/). We thank Josh’s colleague Barry Ritholtz for including it in the daily Ritholtz Reads column.

CA-Market-Commentary-Cash-by-Kotok

Here’s a summary excerpt from Barry Ritholtz’s daily column (January 2, 2020):

“There’s a very simple way to avoid bear markets. What you do is pull all of your money out of the stock market and just let it accumulate in your bank account. Others will make huge fortunes as sustained bull markets carry on for hundreds of percentage points for years on end. Those people who participate will be forced to endure regular ten, twenty and even thirty percent drawdowns along the way. They will feel uncomfortable during these drawdowns. They might have even looked bad for a while.”

Josh Brown’s column and Barry’s excerpt succinctly phrased the investor’s dilemma: “What do I do with my cash, which earns nearly zero?” And/or “How can I bring myself to invest it now at all-time highs in the market?” Further, “Aren’t all the valuation metrics so high, and isn’t there a risk of a market collapse?”

While we’re at it, please add a new question we are starting to get in our email: “Should I buy Bitcoin instead of holding cash or other assets? Can Bitcoin be my ‘store of value’ since stocks are so highly priced?”

For Cumberland, the last question is the easiest to answer. We do NOT own Bitcoin in any managed account. We do NOT own any ETF or fund that is based on Bitcoin. If you want to trade Bitcoin or other cryptocurrencies, we cannot help you.

We do own stocks from the US and elsewhere in the world in our various strategies. We do own US dollar-denominated bonds in the taxable area and in the tax-free municipal area. We do NOT own foreign-currency-denominated bonds. We do favor higher-grade credits. We do have a separate strategy called Pandemic-Affected Municipal Securities (PAMS). All our market materials are publicly available. Just send me an email if you want to see them.

Let’s talk about cash.

At a Sunday night gathering a year and a half ago at Camp Kotok, 27 of us sat on the deck at Leen’s Lodge for our closing discussion session. I posed the question, “What would you do if you truly believed in your heart of hearts that the shorter-term interest rate was going to be near zero in short-term Treasuries for a period of years?” We went around the deck with everyone giving their answers. Details emerged having to do with near-zero rates over intervals of 2, 3, 5, and 10 years, but the fundamental answer was uniform among the group: If you really, really, really were convinced that the shorter rates were going to stay extremely low for a long time, you would have to decide what to do you’re going to do with your cash which earns zero.  This is especially true when you realize that the so-called “riskless” cash is losing buying power at the rate of 2% per year and that the central banks of the developed world are trying to get it to lose value at a rate above 2% per year.

For larger investors ($50 million or more) there are ways to raise the earnings on cash to higher than zero without taking on much credit risk. Think of that yield as somewhere under 1% but above zero. But that set of opportunities is not available to most individual investors or to smaller family offices and other types of accounts. So, for this discussion, let’s call the earnings on cash “near zero.”

Your options if you want to stay in liquid securities are few. Stocks are available with risk and high valuations by historical standards. Bonds are available with low yields by historical standards. A mix of the bond and stock categories can be achieved. You can add geographical diversification (other currencies or countries or regions).  And you can add diversity among investment strategies.  So in the end, we can get to asset diversification, geography diversification, currency diversification and strategy diversification.  Combine them and use risk analysis tools and one can put together a portfolio of liquid securities to address the problems of a zero earning cash alternative.

We suggest clients combine these strategies in a mix of allocations that reflect their risk tolerances and time horizons. We do that in several different ways and will share those details with anyone who is interested.

Another option is non-liquid securities like real estate or farmland or private equity or timber or collectibles or forms of precious metals (like gold bars in a safe). Each of these has pros and cons. We do not use them, but we have many clients who do have allocations to one or more of these categories.

We advise clients to consider all forms of risk tolerances if those clients are individuals, retirement plans, or family offices. Institutional frameworks are different. They have constraints, and many have longer-term time horizons (insurance companies and charitable foundations are examples). So each of these institutions has to determine the asset allocation to cash for itself, and there are techniques available to help. I sit on the advisory board of an organization, Riskbridge Advisors, that helps institutions with these questions (https://www.riskbridgeadvisors.com/about.html).

Back to cash.

The first priority is that you hold what cash savings you need for your safe time horizon usage. Six months or a year is normal. Specific numbers depend on your individual expectations about cash coming in and cash scheduled to go out.

Next, you can also hold what additional cash is needed to give you some “I can sleep at night” comfort. Losing sleep because of an asset allocation is a losing proposition. We do not recommend it.

Then you have to start with the remainder. We look at the stock/bond allocations in multiple ways. Right now, at Cumberland, bonds are deployed in barbell strategies. (We’ve written about that approach many times.) Barbells mean a near-cash equivalent or shorter-term maturity is part of the bond strategy already. We build that into total-return bond management. So the allocation to bonds is active, and it is changing with market conditions.

Stocks. We think the return of inflation and the subsequent return of higher interest rates is coming, but it will come slowly in the beginning. We have already seen some adjustment of interest rates upward.  We believe that the central banks of the world’s developed countries are committed to policies which will try to prevent market shocks. Those shocks can include an abrupt spike of higher interest rates. Central banks must also avoid triggering a rapid resurgence of inflation. These CBs have their work cut out for them. If we are wrong on that, stock markets are in for a serious shock and a difficult correction.

If we’re right about the slower return to higher inflation and rates, then stock prices can go higher as the economic recovery continues. There will be volatility, but the directional trend is upward. The recovery is hard to forecast worldwide because of the uneven damage that the COVID-19 pandemic is dealing to economies around the globe. The markets are looking beyond the immediate headlines. Markets are discounting the recovery as a positive force and are pricing in estimates for 2022 and 2023. Furthermore, markets are anticipating that the rebound will be robust and prolonged. We often hear predictions hailing the “Roaring 2020s.” They may come to pass.  We expect the economic rebound to be unusually robust.

We will separately write about how to value stock markets and what to do when the valuation metrics start with a prolonged period of very low interest rates. That piece is coming soon.

As today’s commentary is being written, our US stock market ETF accounts are nearly fully invested.  Some of our quantitative strategies hold a cash allocation awaiting an entry opportunity.  Tactical and international strategies have varied cash components.   Were happy to share the information.  Of course, any of these positions can change at any time.

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.




Cumberland Advisors Commentary – A Sunday Potpourri

This Sunday morning, we would like to whisk you away from the world of politics for a few minutes.

First, we’ll consider the outsized consequences of acting without thinking. We thank Bill D. for forwarding this 30-second clip:

“Why we don’t do fireworks at Christmas,”

https://www.youtube.com/watch?v=ycviJ-421Z8

Second, we offer, as a counterpoint, an extraordinary human achievement made possible by thinking everything through to implement a marvelous creative vision, as performed on France’s Got Talent:

https://www.youtube.com/watch?v=iog9JVtbMS8

For more about Italian artist Johannes Stoetter, his work, and his process, see this fascinating report on CBS Sunday Morning: https://www.youtube.com/watch?v=TMO2lSuE3L4.

Next, we invite you to consider a classic journey through the stages of quarantine.

Stages of Quarantine

Last, lest we forget that we face a serious pandemic, here’s a link to “Places We’ve Never Been,” episode 38 of Dr. Michael Osterholm’s weekly podcast on COVID-19: https://www.cidrap.umn.edu/covid-19/podcasts-webinars/episode-38. Dr. Osterholm is director of the Center for Infectious Disease Research and Policy (CIDRAP) and has been tapped to serve on President-elect Biden’s coronavirus task force. If you don’t have the hour to listen to the entire podcast, at least please read the following excerpt from the transcript. Osterholm details the ways in which the COVID-19 pandemic has torn up the maps we charted using flu pandemics of the past. (We have lightly edited the transcript, mainly to add paragraphing for easier reading, since reading text without paragraphing is a mental task akin to scaling a climbing wall without key handholds and footholds.)

Transcript Excerpt

 “Michael Osterholm: [00:16:16] I’ve shared with you on multiple occasions that one must have a real sense of humility in dealing with this virus. I have studied this virus, its every move, unlike virtually any other infectious disease I’ve ever worked with in my lifetime. Some days I go to bed thinking about what its next move will be and how to anticipate it. There are days when a part of me has this terribly painful satisfaction of realizing that something I said four or five weeks ago becomes reality today. I tell you that because I’m at a point right now where I don’t quite know where we’re going.

I believe the underlying premise, vaccine is coming, and that’s surely going to have an impact. But let me again kind of tell you a story of what’s happened with this virus in a way that most people haven’t really looked at it or realized what was going on. If you look back to last spring, particularly in that time period of March/April, we saw parts of California, to some degree Seattle was still in that area, clearly Chicago, Detroit, to some degree Atlanta, and most of all the New York metropolitan area and some on the East Coast – were all really houses on fire. We asked the whole country go into lockdown so that we could flatten the curve. Many areas said “Why? We have not had a case of this virus infection throughout the last 6, 10, 12 weeks.” And that was true.

Again, we were applying more of an influenza-like model, that six to eight weeks, in and out. Well, what happened, though, was as those April cases began to curve down from those peaks of looking at, you know, in the thirty-two thousand cases a day, it began to continue to decrease across much of the United States; and that what we saw around Memorial Day, however, was a substantial increase, particularly in the upper Midwest. Minnesota had its first big peak at that time. And those cases climbed through the post-Memorial Day period. And we went from that twenty-two thousand and started to come down. And then all of a sudden something happened – in Southern California, Arizona, New Mexico, right across, Texas, the Gulf states, particularly Georgia and Florida, and we saw this huge increase in cases such that we had that big peak in July of this past year, rising almost to seventy thousand cases reported a day. Then the case numbers started coming down again. We got to Labor Day, and we were talking now about somewhere in the neighborhood of twenty-four to twenty-six thousand cases reported each day. Now, again, that was still high compared to what we were seeing back in the spring.

The Midwest began to demonstrate a very different pattern. Starting in October, we saw cases increasing from Montana to the Dakotas, Kansas, Nebraska, Iowa, Minnesota, Wisconsin; and the case numbers just continue to increase and increase, such that by the end of November, we were watching the number of cases grow to among the highest reported incidences in the world, right here in the upper Midwest. Some of the states like Minnesota put in place major public health efforts to try to reduce transmission. Other states were doing something but less than we did.

And then all of a sudden around the time of the second week of November, case numbers started to drop in all those states, every one of them. And it was a situation where I can’t understand why the case has dropped as they did. I have to tell you honestly that I did not see a Thanksgiving surge in those states, even though we had substantial travel. Possibly that happened, and the drop would have occurred even quicker in cases than it did, but nonetheless we saw a substantial drop in cases.

But at the same time that those cases were dropping, we began to see a major increase in cases, guess what, the same Sun Belt area again. Southern California, Arizona, which at the time of this recording has the highest rate of cases in the US, less so in New Mexico this time. But look at Texas, go right across the coast to Georgia and Florida, and it’s kind of like deja vu all over again. New York this time has had its case numbers increase substantially. We’ve seen the same thing in other parts of the East Coast.

What’s happening here is we’re seeing these evolving and rotating increases in cases in geographic areas and then decreases. And I don’t know why. And I don’t think anybody does. In fact, most people, I don’t think, have yet recognized this pattern of what’s happening. Surely the concept of social networks that I talked about before may play a role, where there are smaller subsegments of the population where transmission has really taken off; and if you can dampen those, those few rods and just that part of the reaction, you can really drop case numbers down. But the reason I share this with you is we tend to grow terribly complacent in an area that may have been at, like Minnesota, eighty-five hundred cases a day newly reported here just five weeks ago, six weeks ago. And now we’re down to sometimes fifteen-hundred/sixteen-hundred cases, the load on the hospitals has been reduced dramatically, and we let our guard down because we’re done. We’re in a place I’ve never been before. Because guess what I’ve seen happen? Just in the last five to seven days in all those same states that I just talked about in the upper Midwest, where case numbers are decreasing, every one of them have taken a turn up again. Now I don’t know if those terms will be sustained. I don’t know if it’s a function more of the holiday reporting season when things come through. We’ll follow that carefully.

But this is really one of the most challenging aspects of understanding this pandemic. What is this virus doing? How is it doing this? It’s not about season. I mean, look at we’ve had these peaks and valleys in the springs in the summers in the falls now in the winter. So it can’t be about that. What it’s telling me is stay tuned. And you can never let your guard down. You can’t. Because just as soon as that big peak goes to a bottom, right now without widespread vaccination, I think it’s going to go right back up. And what it’s pointing out, by the way, for all those that assumed herd immunity was reached last spring in some of these areas, [is] oh, no, there’s a lot of human wood left to burn for this coronavirus forest fire. And it’s doing it. It comes back. Go ask the people right now in Southern California. Ask them what’s happening through a number of the Southern states.

So we have a real challenge on our hands, trying to figure out what’s going on and what that’s going to mean going forward as we’re trying to roll out our vaccine programs, and where are we going to see areas most hard hit? And what’s that going to mean for planning for health care, resources, staffing, and what I would consider to be another psychological challenge of, oh, no, here we go again. So this is clearly a really concerning issue right now that I hope that we start to pay more attention to. I see every night on the television, they’ll go to the one hot spot like L.A., which is right now in terrible shape, horrible shape, and somehow the rest of the country that’s not like that says “Well, that’s not us, that’s not us.” But what we’re finding is it could be us again tomorrow. And that’s going to be an ongoing challenge. That’s why vaccine has to be our savior.”

[In the podcast portion immediately following, Dr. Osterholm discusses Covid mutation variants and their implications for vaccines. The entire transcript is available, along with the podcast, at https://www.cidrap.umn.edu/covid-19/podcasts-webinars/episode-38.]

Dear Readers, we wish you a safe Sunday and fortitude for the week ahead. Here are three thoughts for the road:

“People often say that motivation doesn’t last. Well, neither does bathing – that’s why we recommend it daily.” — Zig Ziglar, author

“Life is a shipwreck, but we must not forget to sing in the lifeboats.” — Voltaire

“Optimist: Someone who figures that taking a step backward after taking a step forward is not a disaster, it’s more like a cha-cha.” — Robert Brault, author

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.

Sign up for our FREE Cumberland Market Commentaries

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.




Cumberland Advisors Week in Review (Jan 11, 2021 – Jan 15, 2021)

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team.

These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

CUMBERLAND ADVISORS’ WEEKLY RECAP

As part of Cumberland Advisors’ continuous effort to maintain strong customer relationships, we offer this week’s short video discussing current market conditions and how we are positioning portfolios.


Matt McAleer & Equities / ETFs
-We’re seeing a little pullback this week, Matt explains.
-Sectors? Strategies? Matt details.
-Good performance news by some names in banks last night. Today, we’re seeing a selloff on the news, nothing unexpected.
-We look to buy on pullbacks.
-Alternative Energy? Solar, Wind, Water has performed well for us since David Kotok directed trades here.
-Energy? Best performing sector this week.
-Yield can be a big dictator of money flows. This might be what’s happening in Energy.
-Monday is MLK Day and Cumberland Advisors will be closed. Observed each year on the third Monday in January as “a day on, not a day off,” the Martin Luther King Jr. holiday is the only federal holiday designated as a “national day of service” to encourage all Americans to volunteer to improve their communities. Learn more at the AmeriCorps website: https://americorps.gov/newsroom/events/mlk-dayJohn Mousseau & Fixed Income / Munis
-Quiet week in bond market
-10yr and 30yr bond down a little this week, we think due to jobless claims being higher than expected
-Biden announced this week a future stimulus package (almost two trillion) that will benefit municipalities, a feature that has been missing until now. The final package is expected to be smaller than announced but still substantial.
-Inflation? Pretty well behaved. As we move toward summer, numbers will move higher along with expectations.
-We have a new look at Cumberland! A new logo has been adopted for the future, something we don’t do very often.
-There have only been a few logo changes since David R. Kotok co-founded the firm in 1973, so we’re excited to share this with you.Cumberland Advisors

Please reach out with any questions/comments you may have about this update; we appreciate your calls, comments, and emails. Watch in the player above or at this link: https://youtu.be/kmRrK0smsTI

-Matt McAleer & Cumberland Advisors

Send your feedback from today’s email/video to Matt. You can reach him at:
-Link to Matt’s Email: Matthew.McAleer@Cumber.com
-Link to Matt’s Twitter: https://twitter.com/MattMcAleer4
-Link to Matt’s LinkedIn: https://www.linkedin.com/in/matthew-c-mcaleer/
-Call Matt: (800) 257-7013Other questions or comments? Email us at info@cumber.com or give us a call at (800) 257-7013.

Contact Matt or any one of our advisors by following this link: https://www.cumber.com/our-people/


In the News…

 

Recovery hopes help markets start with a pop

Quoted: David R. Kotok | Posted on: 01/07/2021 read more

Muni market unperturbed amid mob violence in U.S. Capitol

Quoted: John R. Mousseau | Posted on: 01/06/2021 read more

David Kotok on the Markets (Bloomberg Radio)

Quoted: David R. Kotok | Posted on: 01/05/2021 read more

Munis flat as traders look ahead to next year’s supply slate

Quoted: John R. Mousseau, CFA | Posted on: 01/01/2021 read more


A message from David R. Kotok

Frontline Nurses: The USF Program & Why To Do It

Now, there’s a new USF (University of South Florida) program for nurses, “Frontline Nursing During COVID-19: A New Paradigm,” is coming online. It includes four webinars and focuses on helping nurses, who dedicate their careers to caring for others, to take care of themselves in the midst of and beyond the crisis.

The program is free for any nurse anywhere in the world and especially in the United States. It was developed by the USF College of Nursing. It will give nurses continuing education credits, and it will do so at zero cost to the nurses who sign up.

Here’s the program link and the details: https://health.usf.edu/nursing/frontline-nursing

Frontline Nurses USF Program

Please share the link and spread the word about this program. We want to protect our nurses. We want them alive and healthy. The ancient words apply: “If you save a single life, it is as if you have saved the entire world.” Join me, and let’s try to save nurses’ lives and patients’ lives, too.


Cumberland Advisors Market Commentary

Cumberland Advisors Market Commentary offers 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. Our readers appreciate its timeliness, depth of analysis, and quality of research.

Read current and past commentaries here: https://www.cumber.com/category/market-commentary/


 JOLTS and a Sobering View of Labor Market Conditions

Author: Robert Eisenbeis, Ph.D., Post Date: January 15, 2021

Robert Eisenbeis Although the news is somewhat stale, the January 12 release of the BLS’s Job Openings and Labor Turnover Survey (JOLTS) for November provides some additional information about the underlying dynamics of the labor market as we approached the December virus surge. The picture we see reflects some calming in the labor market after a huge […]


South Africa Facing a Resurgence of the Virus

Author: William Witherell, Ph.D., Post Date: January 14, 2021

Cumberland Advisors Market Commentary by William "Bill" Witherell, Ph.D. In recent weeks, a new and more contagious variant of COVID-19 has been surging in South Africa, with per capita new infections and deaths approaching the globally leading rates being experienced in the UK and the USA. While on December 26 the seven-day rolling average of new South African cases per 100,000 people was 19.86, […]


Markets and Another Impeachment

Author: David R. Kotok, Post Date: January 13, 2021

CA-David-Kotok-Bio-2021 The response of the markets to a potential second impeachment of President Trump is impossible to predict now. History shows why this may not be a market moving event. The new Senate under Schumer will decide what to do with Speaker Pelosi’s new articles of impeachment. How and when is not clear. In the meantime […]


Jobs, As the New Year Begins

Author: Robert Eisenbeis, Ph.D., Post Date: January 12, 2021

Robert Eisenbeis The jobs numbers released this week provide a sobering view of the pace of the recovery and provide clear evidence as to what we can expect from the FOMC. The Committee’s new strategy focuses on ensuring maximum employment, with policy designed to minimize downside deviations from that what the Committee views as full employment. The […]


Q4 Quarterly Credit Commentary – Municipal Credit 2020 and Beyond

Author: Patricia Healy, CFA, Post Date: January 11, 2021

Patricia Healy In the depths of the muni market plunge back in March, many feared that the sky had fallen and that municipalities would not be able to manage their services and debt repayment. The initial fall in prices was due to a collapse of liquidity, when muni money market funds had no one to sell to […]


Mourning

Author: David R. Kotok, Post Date: January 10, 2021

Mourning When we mourn for a person, that is a certain kind of experience. Lose an aged parent and you feel the loss. But that loss is also a part of a repeating life cycle. Lose a pet? Not the same, but there is a sense of loss of a different type. But lose an idea? […]


Author: John R. Mousseau, CFA, Post Date: January 8, 2021

CA-John-R-Mousseau-The Blue Wave and the Bond Markets

The Democrat Party won both Senate seats in Georgia on Tuesday, January 5th. Our own math had a split decision, with each party capturing a Senate seat; but with the sweep the Democrats will now control the White House, the House of Representatives, and the Senate, where a 50-50 split will now be broken by […]


Census Update

Author: David R. Kotok, Post Date: January 7, 2021

CA-David-Kotok-Portrait-With-Title-Blue-2020

According to the Brookings Institution, “Newly released Census Bureau population estimates through mid-year 2020 reveal record lows in U.S. population growth, both annually and for the 2010-to-2020 decade…. “The new estimates indicate that over the period from July 1, 2019 to July 1, 2020, the nation grew by just 0.35%. This is the lowest annual […]


Breakeven Inflation

Author: Robert Eisenbeis, Ph.D., Post Date: January 6, 2021

Robert Eisenbeis

In a recent review of fixed-income security returns, Cumberland Chairman, David Kotok, raised a question concerning what looked to him to be an anomaly with respect to the spread between the 5-year and 10-year breakeven inflation rates on US Treasures, which had narrowed to only 5 basis points. Both market-based measures of inflation expectations, calculated […]


Attack on the Fed, Market Reaction: A One-Day Saga

Author: David R. Kotok, Post Date: January 5, 2021

CA-David-Kotok-Portrait-With-Title-Blue-2020

Dear readers, we narrowly avoided a catastrophe. I use that word because an action by Congress to eliminate or neuter the power of the central bank to intervene as lender of last resort in a crisis is exactly the way to create a catastrophe. The 1929–1933 period of American history is evidence of how a […]


A message from David R. Kotok

Frontline Nurses: The USF Program & Why To Do It

Now, there’s a new USF (University of South Florida) program for nurses, “Frontline Nursing During COVID-19: A New Paradigm,” is coming online. It includes four webinars and focuses on helping nurses, who dedicate their careers to caring for others, to take care of themselves in the midst of and beyond the crisis.

The program is free for any nurse anywhere in the world and especially in the United States. It was developed by the USF College of Nursing. It will give nurses continuing education credits, and it will do so at zero cost to the nurses who sign up.

Here’s the program link and the details: https://health.usf.edu/nursing/frontline-nursing

Frontline Nurses USF Program

Please share the link and spread the word about this program. We want to protect our nurses. We want them alive and healthy. The ancient words apply: “If you save a single life, it is as if you have saved the entire world.” Join me, and let’s try to save nurses’ lives and patients’ lives, too.


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.

Sign up for our FREE Cumberland Market Commentaries

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.




Cumberland Advisors Market Commentary – JOLTS and a Sobering View of Labor Market Conditions

Although the news is somewhat stale, the January 12 release of the BLS’s Job Openings and Labor Turnover Survey (JOLTS) for November provides some additional information about the underlying dynamics of the labor market as we approached the December virus surge. The picture we see reflects some calming in the labor market after a huge surge in the percentage increase of separations in March, as the chart below shows.

JOLTS - rate of hires and separations

After that surge, the percentage increase in new hires again exceeded the rate of separations. In terms of numbers, hires were essentially unchanged at 6 million, while separations increased from 5.1 million in October to 5.4 million in November, suggesting that the labor market might be on the way to recovery. However, there is a long way to go and a huge gap in the number of unemployed versus the number of job vacancies. As the next chart shows, after a period beginning in 2018 when the number of job vacancies exceeded the number of unemployed by a factor of four the number of unemployed has declined significantly but is still some 10.7 million above what it was before the onset of the pandemic.

Unemployed vs Job Vacancies

Additional data on the number of new claims for unemployment insurance suggests an even more sobering view of labor market conditions. These data show that after declining to 782,000 in the last week of December, new claims increased to 784,000 in the first week of January and then jumped to 965,000 last week. These numbers suggest that the trend, as far as the FOMC might be concerned, is not in the direction of achieving the Committee’s employment objectives at the moment. With signs of a surge in the virus and more and more shutdowns being mandated by state and local governments across the country, there is little chance that the FOMC will retreat from its accommodative policy stance any time soon.

Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
Email | Bio


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Cumberland Advisors Market Commentary – South Africa Facing a Resurgence of the Virus

In recent weeks, a new and more contagious variant of COVID-19 has been surging in South Africa, with per capita new infections and deaths approaching the globally leading rates being experienced in the UK and the USA. While on December 26 the seven-day rolling average of new South African cases per 100,000 people was 19.86, by January 9 the rate was 30.18. This second wave has yet to reach its peak. So far, South Africa accounts for 30% of the more than 3 million cases in Africa.

Cumberland Advisors Market Commentary by William "Bill" Witherell, Ph.D.

When the country was hit with the first wave last March, the government reacted quickly, with a strict nationwide lockdown beginning on March 29, which caused a sharp slowdown in economic activity. On June 1, the restrictions began to be eased in order to permit economic activity and travel to start to recover. The spread of the virus continued, with rapid increases in infections until mid-September, when the spread began to recede and the economy began to recover.

Now, confronted with a second surge of the virus that has many hospitals at capacity, the government has announced only relatively limited restrictions, indicating its intention to balance new restrictions to slow the spread of the disease with the need to encourage economic growth. The hard and lengthy shutdown last year caused a recession with severe economic and social costs for the country.

The first delivery of a vaccine will not arrive until later in January. The objective is to have 67% of the population vaccinated by the end of 2021. This target looks difficult to reach; and even if it is attained, it will mean that, for some months to come, the effect of vaccinations on the spread of the virus will be limited. It is evident that the South African economy and the nation’s people face a very difficult time in the first half of this year, with further restrictions to combat the disease probably being unavoidable. Other countries, particularly those in Africa, face the serious risk of the highly contagious South African variant of COVID-19 spreading to their populations.

Following a 51% quarter-to-quarter slump in South Africa’s GDP in the second quarter, a 66.1% bounceback occurred in the third. Nevertheless, total production during the first three quarters of the year was 7.9% less than in the corresponding period of 2019. Signs of weakness reappeared in the fourth quarter. The December Purchasing Managers Index (PMI) for South Africa, a composite single-figure indicator of private business performance, continued to register the decline in activity seen in November.

For the year 2020 as a whole, South African GDP is estimated to have declined over 8%. The economic growth outlook for this year is highly uncertain because of the pandemic. We expect that the second wave of the virus and the restrictions needed to contain it will limit 2021 annual growth to no more than 3.5%, a pace that implies continued high unemployment. The OECD reports that structural reforms are needed in order for the South African economy to recover its growth momentum. Also, deteriorating race relations need to be addressed, as does the continued corruption that has weakened efforts to fight the pandemic.

The Johannesburg Stock Exchange is the largest stock exchange in Africa, and its equity capitalization is the seventh largest among emerging markets, just short of that of Brazil. Despite the problems cited above, South African shares have risen some 67% from their steep sell-off last March. The most recent gains appear to be driven by hopes for more stimulus in the US and by advances in global commodity prices.

The main South Africa ETF listed in the United States is the iShares MSCI South Africa ETF, EZA. It tracks the performance of the market-cap-weighted index of publicly available stocks, excluding all small caps. EZA is up some 21.31% on a total-return basis over the past three months through January 7, but its one-year return is still down 5.24%. The market does not appear to be pricing in the risks to the economy that we see from the now-uncontrolled surge in virus infections. Cumberland Advisors does not currently hold EZA in our International or Global ETF portfolios. South Africa equities are included in the aggregate iShares MSCI Emerging Market ETF, EEM, with a weight of 3.46%. We do hold EEM in the above portfolios.

The author does not hold in his investments either of the ETFs mentioned in this note.

Bill Witherell, Ph.D.
Chief Global Economist & Portfolio Manager
Email | Bio

__________________________________________________________

Sources: Oxford Economics, oece.org, HIS Markit, etf.com, theguardian.com, abc.com, Goldman Sachs Research


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Cumberland Advisors Market Commentary – Markets and Another Impeachment

The response of the markets to a potential second impeachment of President Trump is impossible to predict now. History shows why this may not be a market moving event. The new Senate under Schumer will decide what to do with Speaker Pelosi’s new articles of impeachment. How and when is not clear.

CA-David-Kotok-Bio-2021

In the meantime we may want to look back to an 1876 impeachment vote in the House, followed by a trial in the Senate, as an instructive precedent with regard to the time required for such a process and the likely political fallout, given an already badly divided Congress and country.

In the spring of 1876, Congress found itself embroiled in the impeachment of Secretary of War William Belknap. Belknap, a former Civil War general, had held his post for eight years under President Ulysses Grant. He had, however, become rather notorious for the extravagant Washington parties he and his elegantly attired wife threw, and he had come under suspicion of blatant corruption.

The House of Representatives investigated and was poised to send five articles of impeachment to the Senate, on March 2; but just before the House voted, Belknap submitted his resignation to Grant. The House moved ahead and unanimously charged Belknap with “criminally disregarding his duty as Secretary of War and basely prostituting his high office to his lust for private gain.”

The Senate trial convened in April, and the Senate heard more than 40 witnesses, but it wasn’t until August 1 that a majority of the Senate voted against Belknap on all five articles. However, since the votes fell short of the required two-thirds, Belknap was acquitted.

(https://www.senate.gov/artandhistory/history/minute/War_Secretarys_Impeachment_Trial.htm)

Given the urgency for President-elect Biden to implement his agenda, do we really want to see the country even more deeply embroiled in deciding the fate of its erstwhile 45th president? Biden himself doesn’t think so (“Biden calls Trump ‘unfit’ but doesn’t endorse impeachment,” https://www.pbs.org/newshour/politics/biden-calls-trump-unfit-but-doesnt-endorse-impeachment); and clearly, given the fractiousness of the Senate, there will be difficulty obtaining two-thirds vote to convict.

There are already a number of ongoing federal and state investigations of Trump’s activities, both before and during his time in office. Those inquiries will proceed on their proper legal course, and they will doubtless provide plenty of fuel for the fire of civic discourse and possible disintegration. This is a dangerous time for America and for democracy around the world. As investors and as citizens, we must proceed with care. We are witnessing the writing of American political history while separately managing investment strategies.  They are often two distinct subjects.

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


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