Cumberland Advisors Market Commentary – Q&A with Christopher Whalen

Christopher Whalen is a longtime friend and confidant, so this interview with him inevitably reflects the sorts of biases that result from engaging, enlightening conversations over many years. Many know Chris from TV appearances or press quotes or social media commentary. Others may know his three successful books: Inflated: How Money and Debt Built the American Dream (2010), Financial Stability: Fraud, Confidence and the Wealth of Nations (with Frederick Feldkamp, 2014), and Ford Men: From Inspiration to Enterprise (2017). I’ve read all of them.

Market Commentary - Cumberland Advisors - Q&A with Chris Whalen

Christopher’s career includes stints in government and central banking and as head of research, and corporate and financial ratings, at Kroll Bond Rating Agency. In between working as a banker and consultant, he writes a column for National Mortgage News that often delves into obscure areas of the fixed income and mortgage markets. His impressive skill set in banking, mortgage finance and fintech enables him to delve deeply into the functioning of US and global financial institutions and how they manage risk. Chris has agreed to a Q&A, so here goes.

Kotok: Chris, you have a free public newsletter that is readily available to any interested person (you can sign up to receive it here: https://www.theinstitutionalriskanalyst.com). I read it regularly. What can our readers expect to find in it?

Whalen: Thank you David. The Institutional Risk Analyst was started in 2003 when I worked with my friend Dennis Santiago in Los Angeles. The title was a bit of a tease for our friends at Institutional Investor and reflects the focus on risk in the global political economy at the time.  We like to keep that emphasis on risk as a central theme, although we do wander from financials to markets to monetary policy. They all inhabit the world of financial mechanics.

Kotok: You also have a premium service that is focused on banks and nonbanks (information available here: https://www.theinstitutionalriskanalyst.com/plans-pricing). You really get specific in it. I have read that detailed reporting, and I found your analysis of Wells Fargo (NYSE:WFC) especially helpful. Please tell readers what they can expect and how they can try your service.

Whalen: In 2017 we migrated our web site to WIX, which makes production and editing of the newsletter very easy.  Subscribers get a reminder of new posts from WIX and we also have payments functionality via Stripe.  The Premium Service of The Institutional Risk Analyst is $99 per quarter and includes our company risk profiles, market comments and the quarterly IRA Bank Book, which covers the macro view of the US banking industry.  We monitor a couple of dozen commercial banks and nonbank mortgage firms.  Our goal for the Premium Service is to publish a couple of profiles and market comments per month.  Some of our recent risk profiles include the following assessments:

Citigroup (NYSE:C) Negative
Goldman Sachs (NYSE:GS) Negative
Deutsche Bank AG (NYSE:Negative)
Wells Fargo (NYSE:WFC)
Ally Financial (NASDAQ:ALLY) Negative

https://www.theinstitutionalriskanalyst.com/post/bank-profile-ally-financial-inc

Whalen: We published the profile on Ally Financial publicly as an example of the type of work our readers may expect to receive in the Premium Service.  Our goal with the profiles is to illustrate the operating performance and business model differences of the large banks and nonbanks, which are often considerable. As Dennis says, US banks are truly a coral reef of business models.

Q&A with Christopher Whalen - Gross Spread Loans & Leases
Source: FFIEC

Kotok: We always appreciate the operating insights and historical references in your comments. Reminding readers about the Norwest legacy at WFC was a great way to illustrate the bank’s enormous presence in the mortgage market today.

Whalen: People forget that Norwest, Countrywide and Citibank were the take-out investors for subprime mortgages in the late 1990s and 2000s. The GSEs pushed the banks away from the secondary market trough in 2003-2004, then collapsed in 2007. Of note, we also published the bear case for the US mortgage market as a counterpoint to all of the IPOs announced in the wake of the Rocket Mortgage (NYSE:RKT) offering in August.  The follow-on mortgage equity offerings that have priced since then have had a tough time.  Selling a mortgage story to PIPE investors in the SPAC market is not an easy task.

Kotok: No indeed.  Let me get to a few serious and specific questions. We have the large and G-SIB banks (eight of them in America), the middle-sized or regional banks, and the community banks. You’ve described how these are now actually three different businesses. Can you give us some views on each of these cohorts? And please mention how they are coping with the current Federal Reserve posture of a near-zero interest rate policy for IOER (the interest rate on excess reserves). For the G-SIBs, please add a view on how they manage their size so as to reduce charges for capital.

Whalen: George Selgin reminded me on Twitter the other day that the Fed no longer enforces reserve requirements, so it’s just reserves now. As we wrote this week, US bank balance sheets have doubled in size since 2000, refuting the official fiction regarding low inflation.  All US banks have seen their returns on earning assets fall due to the Fed’s low interest rates policies. Funding costs have of course fallen, but asset returns are falling fast.  Remember, banks and other investors are getting negative returns on agency and government mortgage backed securities (MBS) because of the resumption of quantitative easing or QE.  The Fed, FDIC and other regulators have given banks a pass on capital to support the new short-term deposits created by QE as well as deposit insurance assessments.  But we cannot “sterilize” the effect of prepayments on residential and commercial MBS. If you pay 109 for a Ginnie Mae 2% MBS and six months later get a prepayment or insurance payment at par, that hurts.  Same for a commercial MBS guaranteed by Freddie Mac. These risk-free assets contain a lot of risk now thanks to QE and this impacts the performance of all banks.

Q&A with Christopher Whalen - Return on Earning Assets (All Banks)
Source: FDIC/WGA LLC

Kotok: Within that framework, we have to ask about your outlook for the future, when net interest margins (NIMs) are likely be under pressure for several years. Do you expect the number of community banks to shrink? How will the shrinkage take place? If deposit size isn’t a driver of value now because of low interest rates, what will drive values?

Whalen: Market rates tell part of the story, but NIM is really about spreads over funding.  What we have seen since March is that markets are pricing new assets independent of the FOMC’s actions, but spreads are contracting rapidly. The cost of funding in some markets has essentially stopped out at 1% for some government-insured products, suggesting that there is less and less elasticity of supply for funding as the FOMC buys $50 billion in new MBS each month.  Prepayments are so high that it will be difficult for the Fed to keep the system open market account’s MBS at $trillion even with this level of open market purchases.  This is a concern because, to recall Bagehot’s warning about low rates too long, investors can always take their cash and go home, leaving the Fed of New York standing alone.  American policy makers and politicians seem determined to test the practical limits of the special role of the dollar as a reserve currency.  The cost of QE to banks and depositors is enormous. Today some 90% of the interest revenue of banks now goes to equity holders instead of deposits and bond holders.  That’s what we call Financial Repression.

Kotok: Let’s move to housing-finance territory, which is among your areas of deep expertise. The first area is mortgage servicing and the value of servicing as interest rates change. We are at a low threshold for rates. Mortgage refis have surged, but that is only a one-time shot. Most observers do not expect rates to go any lower. Let’s make “no lower” the assumption for this question. If rates remain at present levels or start to rise, we may see a massive change in the value of servicing and a strategical low of refi activity. Do you agree? Disagree? And, either way, what do you see for the banks and related servicing enterprises?

Whalen: It is the best of times and the worst of times. Some of the mortgage firms that were making IPOs in October were on the verge of failure the past April due to the FOMC’s decision to “go big” with open market purchases.  Margin calls in April and May for the TBA market were more than the net worth of the industry.  That problem was fixed in June as volumes surged and cash was returned.  But now, the mortgage industry faces the cost of COVID and the idiocy of the Cares Act, where Congress unilaterally imposed costs upon mortgage servicers and other lenders without any thought of compensation. State governments have also imposed moratoria on auto and commercial loans.  Congress and the states need to fix this deliberate act of negligence before the wave of refinance volumes subsides.  As we noted in the The Institutional Risk Analyst October 5, 2020 post, “The Bear Case for Mortgage Lenders,” so long as the volume of mortgage refinance volumes remains strong, the industry will continue to use the float from mortgage prepayments and payoffs to finance COVID advances. This money, however, belongs to bond holders. Issuers will ultimately need to replace such escrowed funds to make payments to bond holders in respect of such prepayments and mortgage payoffs.  That is why the outlook for mortgage production in 2021 is the key question facing policy makers at the Fed and mortgage agencies such as Ginnie Mae and the FHFA. The good news for lenders is that those Ginnie Mae 2.5% coupons that they issued this year will be ripe for a refinance when the FOMC forces rates lower next year. Bad for investors.

Kotok: To focus on government-backed mortgages, we get to the perpetual unfixed issues. What happens to Fannie and Freddie? When and how, and even if, there will be some restructuring remain open questions. And these agency securities are now seriously used by the Federal Reserve as an instrument of policy implementation. FNMA and FHLMC have been in limbo for many years. Please step into your bully pulpit and give our readers a Whalen’s-eye view of how their future plays out.

Whalen: Exactly nothing is going to happen to the GSEs regardless of who is in the White House.  If you observe the carnage of the mortgage IPOs this month, it suggests that selling a mortgage story to equity investors is a challenge and this even with interest rates and yields on MBS at record lows. Yes, lending volumes are amazing and, in my view, will likely continue in 2021, but with shrinking spreads. We believe that the estimates out there for falling refinance volumes and rising rates in 2021 are wrong. Effective mortgage coupon rates will fall when the secondary markets want them to fall, not because of the FOMC.  This is precisely why the GSEs cannot function outside of conservatorship. Stripped of their “AAA” rating from Moody’s and forced to go head-to-head with JPMorgan (NYSE:JPM) PennyMac (NASDAQ:PFSI) and AmeriHome in the secondary market, the GSEs will not survive.  Nobody is going to care about paying 60bp for a guarantee from a private “A/AA” rated GSE that must compete for assets and funding with the big banks and nonbank aggregators.  If FHFA even tries to take the GSEs out of conservatorship, the prospective corporate downgrade by Moody’s will kill the deal before it happens.  Even if the GSEs pay Treasury to wrap the extant agency MBS with a “AAA” rating, say 15bp per year on $6 trillion in issuance, the GSEs as corporate issuers will be at a big disadvantage.  If JPM or PFSI can buy that same guarantee from Treasury for residential MBS, then why exactly do we need the GSEs as issuers?

Kotok: One more, if we can segue to geography. You live in New York. You and I have spoken many times about the NYC we used to know and the NYC you now see every day and I experience vicariously through our conversations. Please share with readers what COVID life is like in the city. And please offer a forecast of how you see life in NYC evolving in the months ahead before we have an effective and fully distributed treatment regimen and vaccine and then once we enter in the post-vaccine, endemic period instead of the pandemic period.

Whalen: My dad’s people have lived in New York for 250 years. They came to this country from Kilkenny, Ireland, and settled in Poughkeepsie. We have been hunkered down in New York since March and have watch an exodus of people and businesses from New York.  We are missing about 500,000 people who have left and are not ready to return.  The mid-town business district is largely empty, with little in the way of street traffic or tourism. Most of the hotels and entertainment venues are closed. From a credit perspective, New York City faces the prospect of default because of the sharp decline in tax revenues and the various acts of stupidity by Mayor Bill DeBlasio, Governor Andrew Cuomo and the NY state political community, which is overwhelmingly Democratic. Mayor DeBlasio increased the headcount of the city government to levels that were a problem before COVID. Now things are ridiculous and the city will likely fall under the Financial Control Board as in the 1970s and 1980s. The rent control laws imposed by the Democrat state legislature last year, for another example, have made many multifamily rental properties uninvestable. Banks will not lend on these properties because landlords cannot recover the cost of operations and maintenance.  New York City and New York State face a financial and political disaster that frankly Washington cannot fix.

Kotok: Chris, thank you for your time and your thoughtful responses for our readers. Please stay safe and careful. And, as we both like to say in Maine, “Tight lines.”

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 – Florida: Desantis, Disease, Deaths, Schools

The DeSantis administration’s official COVID-19 track record in Florida shows more than 840,000 confirmed COVID-19 disease cases and 16,470 dead among Florida residents as of Thursday, October 22 (https://coronavirus.jhu.edu/us-map). We have only crude estimates of how many people may have caught the SARS-CoV-2 virus in Florida and taken it with them to someplace else.

David-Kotok-Quote-Florida - Desantis, Disease, Deaths, Schools-2020

Ron DeSantis is the governor who stood up at a press conference in Bradenton at Blake Medical Center and invoked a comparison between Florida and Taiwan, since Florida and Taiwan have about the same population. He was bragging that day about how many more tests were done in Florida than had been done in Taiwan. (See https://www.cumber.com/cumberland-advisors-market-commentary-florida-vs-taiwan/.)

As of this writing Taiwan still has only 7 total dead and 543 cases (https://coronavirus.jhu.edu/map.html). Full mitigation. No lockdown. Full masking rules observed. Fully functioning economy.

What about Florida?

Canadians are not coming this year (https://www.usatoday.com/story/travel/news/2020/10/15/justin-trudeau-canada-us-border-not-reopening-covid-19/3661758001/). They don’t trust the State of Florida data, and they recognize political deception when they see it. They don’t want to come here and get sick. And they don’t want to take the quarantine risk if they have to go home.  We’ve personally heard that from some of our Canadian readers.

Businesses are closing in Florida. Come to Main Street in Sarasota and look for Edy’s Ice Cream Shop. (It will soon be Yoder’s instead.) Look for some kitchenware at Sur La Table; the store is empty, and the company is bankrupt.

Florida’s COVID-19 cases are trending upward – not as steeply as in some other states, but they are up 29% over the last 14 days (https://www.nytimes.com/interactive/2020/us/florida-coronavirus-cases.html), and COVID Exit Strategy deems the spread of the virus in this state, as in many others, to be “uncontrolled” (https://www.covidexitstrategy.org). The US map is daunting; take a look. For Thursday, October 22, the State of Florida saw 5557 new cases and 57 “newly verified deaths” (“Sarasota County and Florida report most new COVID-19 cases in more than two months,  https://www.heraldtribune.com/story/news/local/2020/10/22/sarasota-county-and-florida-report-most-new-covid-19-cases-two-months/3727716001/). Hospitalizations are up.

Given the state’s ailing economy and in the absence of a second federal aid package, budgets for schools and other essential services are drying up. Eight hundred positions stand to be slashed in Hillsborough County Schools alone.  (See “Anger mounts over school layoffs, masks and other coronavirus decisions,”
https://www.tampabay.com/news/education/2020/10/20/anger-mounts-over-school-layoffs-masks-and-other-coronavirus-decisions/.)

The only tool that can drive effective strategy with regard to a pandemic is telling the truth and allowing people to have confidence in data. Then they can figure out how to manage risk and navigate their lives, their children’s education, and their businesses. They can discern sensible, constructive policies from detrimental, even disastrous ones. When government hides the data and misleads, people lose trust; and economic recovery remains elusive as the virus spreads.

Florida COVID cases rise; hospitalizations rise; and increased deaths may follow, though improvements in treatment are making a difference (https://www.miamiherald.com/news/coronavirus/article246629818.html). What is the response from Governor DeSantis? He wants to reduce the frequency of data releases and lower the threshold of already inadequate information available to the public. Rather than affording the transparency that Floridians and tourists need, Governor DeSantis’s administration is now considering scaling back daily case updates, perhaps to weekly ones, apparently because, gosh, it is a lot of work to provide daily updates. But it is necessary work. Dr. Sadiya Khan, an epidemiologist from Northwestern University affirms,

“It is really important for all of us to have a sense of what the numbers look like and what is happening. You don’t want just your health officials or governor, or doctors to have that information. You want everyone to have access to that information.”
(See “Florida considers not releasing daily COVID-19 case numbers to the public,” https://www.wfla.com/community/health/coronavirus/florida-considers-not-releasing-daily-covid-19-case-numbers-to-the-public/.)

We know the plight of the Florida schools – 67 counties in Florida, all those school systems. The only source that is trusted is the website of the fiercely independent whistleblower Rebekah Jones, who has achieved many times the credibility of Ron DeSantis and his ilk. Rebekah has called Florida’s school data a “holy hot mess of hell” and walked through the problems with that data’s very first iteration back in a post on September 29. You can read her analysis here: “Snapshot of Florida data; in-depth analysis to come tomorrow,”  https://floridacovidaction.com/2020/09/29/snapshot-of-florida-data-in-depth-analysis-to-come-tomorrow/. She has created a site to track school cases across the nation at https://www.thecovidmonitor.com. As Rebekah notes, “The only national resource for case data in school is me and my team. NO ONE can understand how this virus impacts schools without data.”  https://twitter.com/georebekah/status/1319449294928306177?s=11

Rebekah is not the only person making this point. Many K-12 schools seem to be faring better than many feared they might; but, as Andrew Joseph of Stat News points out,

“Experts are also cautious about simply declaring in-person schooling safe. The data that do exist are generally voluntarily supplied by districts, so it’s not clear what’s missing. Because there’s no national reporting, researchers can’t parse which approaches – hybrid models, mask mandates, classroom size restrictions, limiting in-person instruction to just the youngest students while having middle and high schoolers learn virtually – are working best in terms of minimizing cases.

“‘It is encouraging, there’s no doubt about that,’ Wendy Armstrong, an infectious disease physician at Emory University, said about the K-12 school experience so far. But having such limited information available ‘severely limits our ability to give additional guidance to schools that are based on very clear, evidence-based data. And with limited reporting, in my mind, it makes it impossible to interpret the available data to truly understand current risk.’”
(“‘At a breaking point’: New surge of Covid-19 cases has states, hospitals scrambling, yet again,” https://www.statnews.com/2020/10/20/at-a-breaking-point-new-surge-of-covid-19-cases-has-states-hospitals-scrambling-yet-again/)

In our commentary published on Wednesday, October 21, “Qingdao, Canada, and Florida”
(https://www.cumber.com/cumberland-advisors-market-commentary-qingdao-canada-and-florida/) we considered not only the accuracy of the school data in Florida but also its accessibility as we looked at the situation in one particular county: Hillsborough County Schools. It is apparently so hard to get a clear picture of what’s happening in Florida’s schools that when, on October 20, Governor DeSantis called for schools to remain open for on-site learning no matter what happens this fall and winter, he seems not to have been aware that schools have already had to close their doors for now because of the size of their COVID-19 outbreaks (“Gov. DeSantis says schools shouldn’t close, unaware two Duval campuses shut down,” https://www.jacksonville.com/story/news/education/2020/10/20/live-updates-gov-desantis-hosts-education-briefing-jacksonville/5991268002/).

Timber Creek High School in Orange County, meanwhile, joins six others that have had to revert to online learning in Central Florida (“Timber Creek High School joins growing list of schools closed due to COVID-19 cases,”  https://www.wftv.com/news/local/orange-county/timber-creek-high-school-moves-virtual-learning-after-14-covid-19-cases-reported/TL3YX3KXJVFUXGU4YY6DQAKPRE/).

Cases at schools in Miami-Dade, Broward, and the Keys are rising, too. Even a school system’s own counts, however, can reflect a time lag. As the Miami Herald reports,

“Although the [Miami-Dade] district has been updating the dashboard daily, parents should not consider what’s on there an up-to-date count, but rather ‘a lagging indicator’ that is ‘not intended for use as an immediate notification system of cases,’ said Natalia Zea, the district’s director of communications.”
(“COVID cases up to almost 100 in Miami-Dade schools. Broward, Keys see rising cases too,”  https://www.miamiherald.com/news/local/education/article246584893.html)

We know that Ron DeSantis is now questioning the wisdom of having students who have been exposed to COVID-19 quarantine: “DeSantis: Healthy students should not have to quarantine if classmates test positive for COVID-19,”  https://www.wftv.com/news/health/desantis-healthy-students-should-not-have-quarantine-if-classmates-test-positive-covid-19/OX6F7SFWJBE47AORM6C27QQOAM/.

If the Florida Department of Health’s quarantine policy is changed as DeSantis would like it to be, it would allow potentially COVID-positive students back to school. That is no formula for keeping schools open and case numbers and hospitalizations within manageable bounds.

On the plus side, the DeSantis administration is supplying rapid tests to schools, with results in 15 minutes. Timely testing and timely results are essential, both in schools and across the state. Those rapid tests are, however, to be administered to symptomatic students, and those students who do become symptomatic will have been contagious a day or two before symptoms develop (“60,000 rapid COVID-19 tests to be sent to Florida school districts this week, Gov. Ron DeSantis says,”  https://www.wptv.com/news/state/60000-rapid-covid-19-tests-to-be-sent-to-florida-schools-this-week-gov-ron-desantis-says). Further, young people positive for COVID-19 may never become symptomatic at all. Those students will not land in the school nurse’s office for a test. Floridians have to hope that the Florida Department of Health will not change its quarantine guidance for students, despite DeSantis’s desire for schools to be able to carry on as if COVID-19 were not a problem in the communities they serve.

To complicate matters, as of this week, the CDC has redefined a close contact as “someone who was within 6 feet of an infected person for a cumulative total of 15 minutes or more over a 24-hour period starting from 2 days before illness onset (or, for asymptomatic patients, 2 days prior to test specimen collection) until the time the patient is isolated.” (https://www.cdc.gov/coronavirus/2019-ncov/php/contact-tracing/contact-tracing-plan/appendix.html). That’s regardless of whether the individuals involved were wearing face coverings.

The new guidance has significant implications for how schools do contact tracing and quarantining and for how students are moved around during the school day, as Sarah Sparks, notes, writing for Education Week:

“For example, if a student came into contact with a sick classmate three times during a school day, for five minutes each time, he would be asked to stay home and isolate himself for 14 days, while checking for fever, coughing, and other symptoms of COVID-19. Students and adults in schools would need to go into quarantine if they had close contact from two days before the infected person showed symptoms (or within two days of being tested, if the person had no symptoms) until the infected person started quarantine.”
(“CDC Clarifies ’15-Minute Rule’ for Social Distancing,”  http://blogs.edweek.org/edweek/inside-school-research/2020/10/cdc_clarifies_15-minute_rule_for_COVID_social_distancing.html)

Australian virologist Ian Mackay has updated an illustration depicting the Swiss cheese analogy for defense against viruses such as flu and SARS-CoV-2. No one layer of protection is enough, at least shy of a safe and effective vaccine. It’s a wonderful image that Dr. Mackay has developed and shared.

If I could add one more element to this pre-vaccine version of the illustration, that would be good data. It is data that tells us how to deploy and orient all the other layers of protection in order to conquer COVID-19. It is good data that reveals the path toward economic recovery. In every school, in every community, in every state and nation, reliable, timely, strategic data makes the difference between failure and success in the fight against COVID-19 and the fight to reclaim our economy and once-again unhampered lives.

The price Florida is paying for a lack of good data and leadership continues to be high. How many Floridians are ready to join President Trump in threatening to fire Trump’s protégé Ron DeSantis? (“Trump jokes he’ll fire DeSantis if he loses Florida. ‘I’ll find a way,’” https://www.tampabay.com/florida-politics/buzz/2020/10/16/trump-jokes-hell-fire-desantis-if-he-loses-florida-ill-find-a-way/). Will DeSantis’s performance here affect the election outcome in this key swing state? Trump might have been half joking, but Floridians who understand the gravity of the threat that COVID continues to pose to our health, our lives, our communities, and our businesses take the issues very seriously.

With that thought, I will leave you a short list of some additional reads for the week as you contemplate the weeks and months ahead.

“The Badger” at Florida COVID Action takes a hard look at how to not to be misled by reported COVID-19 data.
“Countering Some Myths About COVID-19 in Florida; October 19, 2020,”  https://floridacovidaction.com/2020/10/19/covidmyths/

It’s not just Florida. The White House is being cagey with COVID data, too.
“Weekly COVID data from the White House isn’t shared publicly,”  https://www.kcentv.com/article/news/health/coronavirus/weekly-covid-data-from-the-white-house-isnt-shared-publicly/67-7fd8e1f9-83c8-4f91-a573-8f6728feb9b4

Looking beyond Florida, the picture around the nation does not bode well for fall and winter.
“‘At a breaking point’: New surge of Covid-19 cases has states, hospitals scrambling, yet again,” https://www.statnews.com/2020/10/20/at-a-breaking-point-new-surge-of-covid-19-cases-has-states-hospitals-scrambling-yet-again/, cited above, is worth reading in full. See also the COVID Tracking Project’s blog update for the week:  https://covidtracking.com/blog/weekly-update-oct-22. The report is an important read, though it lacks weekly data from Alabama, Georgia, and, you guessed it, Florida, as all three states had reporting issues this week. The COVID Tracking Project Team notes,

“Our team continues to compile weekly data on COVID-19’s spread through the country’s long-term care facilities. We’re alarmed that Florida went nearly three weeks without releasing long-term care death data, despite saying they publish numbers weekly. The state finally released data on October 22, though it’s dated October 16, reporting 599 new resident and staff deaths.”

In sum, things do not look good in Florida or across the South. On October 20, Bloomberg noted Florida’s rise in deaths relative to other states: “New York leads in the total number of coronavirus deaths since the pandemic began with 33,366. Texas comes in second, with 17,481, and California third, with 16,982, according to Johns Hopkins University. Florida, with 16,021 deaths to date, may soon surpass New Jersey’s death toll of 16,214 for the country’s fourth-worst fatality count.” (“Southern States Are the Seething Center of America’s Pandemic,”
https://www.bloomberg.com/news/articles/2020-10-20/southern-states-are-the-seething-center-of-america-s-pandemic)

Cases are also rising sharply in the Midwest (60% in the last two weeks), straining the limited capacities of rural hospitals (“COVID-19 Surges In Rural Communities, Overwhelming Some Local Hospitals,” https://www.npr.org/sections/health-shots/2020/10/22/926264615/covid-19-surges-in-rural-communities-overwhelming-some-local-hospitals).

I will say of COVID what I have said of the 2020 election and what baseball great Yogi Berra scrawled on my baseball: “It aint over till its over.”

Data-driven response is the key.

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 (Oct 19, 2020 – Oct 23, 2020)

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

Week In Review

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.

Dear Clients & Friends,

Thank you for joining Cumberland Advisors for this end-of-week update on market conditions, bonds & equities with Matt McAleer and John Mousseau, CFA.

Matt McAleer & Equities / ETFs

-Equity markets digesting COVID-19 and election headlines well
-Recent Russell 2000 outperformance showing expansion of breadth in the market
-Value maintaining strong bid due to interest rate relief for banks and insurance
-Know the difference between Volatility and Risk

John Mousseau & Fixed Income / Munis

-Bond yields creeping higher
-Markets thinking about a Democratic victory
-More muni issuers looking to come to market before the election
-Looking out for Jobless Claims and Q3 GDP next week

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/k7ByJltj_TE)

Stay safe, healthy, and have a great weekend.

-Matt McAleer & Cumberland Advisors

Matt enjoys your feedback. 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) 257-7013

Other 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/

 


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.

To read current and past commentaries, visit https://www.cumber.com/category/market-commentary/


Qingdao, Canada, and Florida

Author: David R. Kotok, Post Date: October 22, 2020

David R. Kotok

Readers can compare for themselves. In Qingdao, China, just a dozen new cases of COVID-19 triggered the testing of the city’s entire population – that’s nine million tests in just five days. Sickness and death are being held tightly in check and so is damage to economic growth. (“China’s Beer Capital to Test Entire Population for […]

Taxes

Author: David R. Kotok, Post Date: October 21, 2020

Market Commentary - Cumberland Advisors - Taxes

There are several policy areas where the differences between Biden and Trump are huge. Climate change policy is one of them, and we have discussed that in the past. Another is taxes. Essentially, Biden promises he will raise taxation in many ways, with the increases falling on businesses and on Americans with taxable incomes of $400,000 per […]


Where Do We Stand Now?

Author: Robert Eisenbeis, Ph.D., Post Date: October 20, 2020

Two key issues in the upcoming election are jobs and the economy. Given their importance, it is appropriate to review exactly where we are on these issues. Both the economy and the job situation have been radically impacted by the COVID-19 pandemic. In the first quarter of 2020, real GDP declined at an annual rate […]

Cumberland Advisors Market Commentary – China and Wall Street – Decoupling or Linking?

Author: Bill Witherell, Ph.D., Post Date: October 19, 2020

China and Wall Street – Decoupling or Linking by William Witherell, Ph.D

For at least three decades, under both Republican and Democratic administrations, the United States has urged China to open up its financial markets to foreign capital and foreign financial firms. However, as part of a broader strategy to decouple relationships with China, President Donald Trump’s administration appears to want global financial firms to pull back […]


Women

Author: David R. Kotok, Post Date:

Market-Commentary-Cumberland-Advisors-David-Sunday-Women

The facts are becoming undeniably clearer. Labor force data confirms them. Anyone who wishes to dispute this claim may offer evidence to the contrary, but we won’t bog down this Sunday morning commentary with charts and links. There are about 25 million to 30 million Americans (out of a labor force of 160 million) who are in […]


Insider Trading – the Case of Consumer Discretionary

Author: Leo Chen, Ph.D., Post Date: October 15, 2020

Leo Chen, Ph.D.We have recently published two commentaries regarding insider trading. You may find them here: https://www.cumber.com/cumberland-advisors-market-commentary-insider-trading-the-case-of-energy/ & https://www.cumber.com/cumberland-advisors-market-commentary-insider-trading-what-does-it-tell-us/. As the third quarter has just come to an end, we want to pick the third-quarter winner, Consumer Discretionary, as our latest insider trading study. Please see Chart 1 below for the sector’s third-quarter sector performance. Consumer Discretionary […]


Yogi: “It aint over”

Author: David R. Kotok, Post Date: October 14, 2020

Market Commentary - Cumberland Advisors - Yogi “It aint over” “It aint over till its over” is exactly how Yogi Berra signed this ball when I bought it at a charity auction decades ago. He did put a dot over each lower case i. He didn’t use an apostrophe in ain’t, nor in it’s, and he did use till instead of until. Yogi’s message is […]


SCOTUS

Author: , Post Date: October 12, 2020

Market Commentary - Cumberland Advisors - SCOTUSAmerica’s stock and bond markets seem to be accepting of the current SCOTUS nominee and the political controversy. The following passage is translated from the original French work De La Démocratie en Amérique (Democracy in America), written by Alexis de Tocqueville nearly 200 years ago: “The great difficulty was, not to devise the constitution of […]


Three Items to Consider

Author: David R. Kotok, Post Date: October 11, 2020

Market Commentary - Cumberland Advisors - Three Items to Consider Item 1. My friend Nick Colas of DataTrek sent along a link to a Lapham’s Quarterly piece by Francine Prose that dives deeply into previous pandemics around the world and draws some surprising parallels with the way our present political establishment has managed the pandemic. The author says, “What’s so startling about the texts and […]


Wildfires Out West

Author: Patricia Healy, CFA, Post Date: October 8, 2020

Patricia Healy, CFA

On Sunday, Bloomberg reported that this year’s California fires had scorched more ground than the last three years of fires combined. Higher temperatures and greater winds have contributed to the spread. Year-to-date, the California fires have covered 4 million acres in 8,200 fires throughout the state. Some 8,400 homes and buildings have been lost, and […]


Markets, Events, Economics

Author: David R. Kotok, Post Date: October 7, 2020

David R. Kotok

Market-moving events and data points are coming fast, and in a chaotic sequence. Here are some bullets we are watching. 1. The outlook for elections is still highly uncertain and volatile. Biden appears to be strengthening. Texas governor Greg Abbott has restricted drop boxes for absentee ballots to one per county (“Texas governor shuts down drop-off […]


Muni Bonds Turn Toward the Election

Author: John R. Mousseau, CFA, Post Date: October 6, 2020

Market Commentary - Cumberland Advisors - (Mousseau)

With the presidential election a month away, we start to mull over what the bond market might look like post-election day. While most polls have Vice-President Biden ahead by 6–7% points, we know the race has the potential to be much closer, since the 50 individual states decide the election by virtue of voting by […]


International Equity ETF Q3 Overview and Outlook

Author: William Witherell, Ph.D., Post Date: October 5, 2020

Market Commentary - Cumberland Advisors - William 'Bill' Witherell - International Equity ETF Q3 Overview and Outlook

The global economy is expected to have registered a stronger than anticipated rebound in the third quarter with record-breaking growth rates after output collapsed in the first half of the because of the COVID-19 pandemic. The reopening of businesses and the easing of lockdowns and other restrictions in many countries allowed the rapid pickup in […]


Trio to Trio with Laura Wazen

Author: David R. Kotok, Post Date: October 4, 2020

We have a medley of remarkable performances for you this Sunday – a little diversion from the daily political and pandemic fare. Let’s kick things off with a rousing flash-mob rendition of Beethoven’s Symphony No. 9, Ode to Joy, performed years before COVID-19 entered our lives. It lifts us now out of this moment and […]


Hope – An Update

Author: Robert Eisenbeis, Ph.D., Post Date: October 2, 2020

Cumberland Advisors Market Commentary - Hope – An Update - Robert-Eisenbeis, Ph.D.

Our commentary “FOMC: Hope Now Seems to Be a Strategy” (https://www.cumber.com/cumberland-advisors-market-commentary-fomc-hope-now-seems-to-be-a-strategy/) focused on the FOMC’s latest decision to keep its target for the federal funds rate between 0–.25%, to change its strategy for policy going forward to focus on shortfalls in labor markets from what the Committee perceives to be full employment, and to shift [Continued…]


Zika Pamphlet by David R. Kotok

Zika Download - Kotok

The Zika virus is mosquito-borne. The virus mutates frequently, just as all viruses do. And it can do serious damage to people. It is especially threatening to the fetus of a pregnant mother. It causes conditions, including microcephaly, which spell tragedy for the infant and the family. When it deals such damage to children, Zika imposes huge societal costs measured in the many millions of dollars. All this is documented in the writings that now constitute the chapters of this pamphlet.

https://www.cumber.com/zika/


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 – Qingdao, Canada, and Florida

Readers can compare for themselves. In Qingdao, China, just a dozen new cases of COVID-19 triggered the testing of the city’s entire population – that’s nine million tests in just five days. Sickness and death are being held tightly in check and so is damage to economic growth. (“China’s Beer Capital to Test Entire Population for Covid-19 After Local Flare-Up,” Caixin, https://www.caixinglobal.com/2020-10-12/chinas-beer-capital-to-test-entire-population-for-covid-19-after-local-flare-up-101613866.html)

Incidentally, this was China’s first domestic COVID-19 outbreak in several months. A dozen cases! Qingdao International Airport responded by canceling more than half of arriving and departing flights. (“Qingdao Cancels More Than Half of Flights Amid Covid-19 Surge,” Caixin, https://www.caixinglobal.com/2020-10-14/qingdao-cancels-more-than-half-of-flights-amid-covid-19-surge-101614373.html)

Meanwhile in Florida – population about double Qingdao’s – Governor DeSantis remains in denial about pandemic mitigation, and some citizens continue to avoid masking. Little wonder: In a single damaging stroke on Sept. 25, their governor lifted all restrictions on restaurants and other businesses and prohibited local fines against people who refuse to wear masks. (“Florida governor lifts all restaurant restrictions, bans mask fines as COVID-19 spreads,” PBS Newshour, https://www.pbs.org/newshour/health/florida-governor-lifts-all-restaurant-restrictions-bans-mask-fines-as-covid-19-spreads)

Florida confirmed 2883 new COVID infections on Oct. 14. At that point, some 15,788 Floridians had died. A week later, as of the time of this writing on October 21, new cases for the day totaled 3662, and 16,308 Floridians had died. (Florida COVID Action, https://experience.arcgis.com/experience/d2726d6c01c4486181fec2d4373b01fa).

That’s 779 Floridians lost in a week, the equivalent of a couple of 747s going down with no survivors. That figure exceeds the death toll incurred in February of 2010 when both an earthquake (measuring 8.8 on the Richter Scale) and a tsunami hit Chile (https://www.theguardian.com/world/2010/feb/28/chile-earthquake-death-toll).

The economic impact of the pandemic is severe. In Florida, the unemployment rate stood at 7.6% in September (down from nearly 14% in April and May). Total nonfarm wages and salaries were down 5.0% year-over-year, as of September, and the falloff for the Leisure and Hospitality sector was 18.7%. (Bureau of Labor Statistics, https://www.bls.gov/regions/southeast/florida.htm#eag)

The numbers for my home county, Sarasota, are nearly identical: 6.3% unemployment in August (down from 14.1% in April) and nonfarm wages and salaries down 4.9% year-over-year in September. Anecdotally, I look around the city and county, day after day, and see businesses continuing to close.

The closing of the US-Canada border by the pandemic is thwarting the winter migration of Canadian “snowbirds” to warm, southerly parts of the US. Normally, 60% of those folks would flock to Florida. (“Goodbye, Sunny Florida. Hello, Frigid Winter. Covid Strands Canadian Snowbirds,” Wall Street Journal, https://www.wsj.com/articles/covid-strands-canadian-snowbirds-winter-travel-florida-11602691585)

Reports from Florida schools are lacking in completeness, transparency, and timeliness. As of this morning (October 21), as we worked on this commentary, the school data reported on the state’s site was current through October 10. An 11-day reporting lag is far too long to reflect the rise in school-related cases that is happening now in Southern Florida. See “South Florida reports rising COVID-19 infections in schools as state reports 3,662 new cases,”
https://www.clickorlando.com/news/local/2020/10/20/south-florida-reports-rising-covid-19-in-schools-as-state-reports-3662-new-cases/, and “Number of COVID-19 Cases Ticking Up in Miami-Dade Schools,”
https://www.nbcmiami.com/news/local/number-of-covid-19-cases-ticking-up-in-miami-dade-schools/2309297/.

As of early this afternoon (Wednesday, October 21), the site indicates that the data is current as of October 17, so there’s been an update that is four days old upon publication. The print on screen is miniscule. The page looks like the blue-lined continuous computer printer paper widely used in the 1980s, and there are no case totals tallied at the end. But if we zoom in at 250% magnification to see the fine print on page 11 of 19, we find that Fort Walton Beach High School had 30 new cases for the week ending in October 17. And that is the process for discovering information about Florida schools, information that is at best out of date. There is no graphical representation by district or region, and no up-to-date, trustworthy numbers. Just raw, old data.

A check of the news reveals that 177 students were quarantined for possible exposure at Fort Walton Beach High School during the previous week (“Data shows Fort Walton Beach High School sent 177 students into quarantine last week,” https://www.nwfdailynews.com/story/news/2020/10/13/fort-walton-beach-high-school-quarantined-177-students-last-week/5977439002/). A visit to the Okaloosa Schools website nets further information, in the form of a notification that healthy students exposed to COVID-19 may not need to quarantine at all, per Ron DeSantis as of yesterday. Read a concerned superintendent’s note to parents:
“We prepared this letter to send to parents prior to a press conference held by Governor DeSantis yesterday afternoon. During the conference, the Governor stated that healthy students should not be quarantined. Governor DeSantis has been a champion for students throughout this difficult year and provided guidance and resources that have greatly benefitted the students of Okaloosa County. Upon hearing the Governor’s comments, we reached out to the Department of Health, who has the statutory authority to quarantine, to see if it had received updated directives or emergency orders that would change how they contact trace and quarantine students. We also spoke with the Florida Department of Education in hopes of receiving information. We have been told that the Florida Department of Health is meeting to determine next steps, and we will update you as soon as we receive information that changes what is stated below.”
(“Important Quarantine Update from Superintendent of Schools, Marcus Chambers,” https://www.okaloosaschools.com/articles/2020/quarantine-update-10.21.20). This is a big curve ball.

See also “DeSantis: Healthy students should not have to quarantine if classmates test positive for COVID-19,” https://www.wftv.com/news/health/desantis-healthy-students-should-not-have-quarantine-if-classmates-test-positive-covid-19/OX6F7SFWJBE47AORM6C27QQOAM/.

What are parents to think? How safe will families, schools, and communities be if students and teachers exposed to COVID-19 are not asked to quarantine in Florida?

Cumberland has clients from Jacksonville to Key West, from Ft. Lauderdale to St. Petersburg. We get real-time data from our clients. Having no effective statewide leadership for COVID mitigation means having more citizens living in fear and uncertainty. This not how to turn the economy around. Governor DeSantis, you’re in a hole. It’s getting deeper. Stop digging!

Readers, we will follow up with more on Sunday.

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 Market Commentary – Taxes

There are several policy areas where the differences between Biden and Trump are huge. Climate change policy is one of them, and we have discussed that in the past. Another is taxes.

Essentially, Biden promises he will raise taxation in many ways, with the increases falling on businesses and on Americans with taxable incomes of $400,000 per year and up. Trump has cut taxation in many ways and promises to cut further. For details, see “Where Trump and Biden Stand on Tax Policy,” https://www.wsj.com/articles/where-trump-and-biden-stand-on-tax-policy-11600335001. Americans are comparing the details of the two approaches, along with their probable impacts on businesses, individuals, and the US economy.

We have for you a compilation of articles about this taxation debate. Various views are represented. Note that taxes are tied to deficits. We will start with a link to an updated report from the Committee for a Responsible Federal Budget. They have modeled the deficits coming in a Biden versus a Trump outcome. It is sobering to consider this analysis as you assess forthcoming deficits. See “The Cost of the Trump and Biden Campaign Plans,” http://www.crfb.org/papers/cost-trump-and-biden-campaign-plans.

Now let’s get to the compilation of discussions of taxes. With Joe Biden ahead in the polls, wealthy Americans are bracing for a tax increase even as they evaluate prospects for growth and earnings under a Biden presidency. Here are three related reads:

“It Doesn’t Matter Who Wins the Election – Higher Taxes Are Expected, So Get Ready,” https://www.dedicated-db.com/tax-planning-in-an-election-year/.

“Trump’s Taxes Give Biden Blueprint to Fix System Rigged for Rich,”

https://www.bloomberg.com/news/articles/2020-10-01/trump-s-taxes-give-biden-blueprint-to-fix-system-rigged-for-rich?sref=TG2o5EVv

“Rich Americans Are Protecting Their Fortunes from a Possible Biden Win,”

https://www.bloomberg.com/news/articles/2020-10-09/election-news-richest-u-s-families-seek-tax-savings-before-possible-biden-win?sref=TG2o5EVv

Both Moody’s and Oxford Economics, as reported in September, expect spending and tax changes under Biden to net a faster US recovery.

“Biden’s Spending to Drive Faster U.S. Recovery, Economists Say,”

https://www.bloomberg.com/news/articles/2020-09-24/biden-s-spending-to-drive-faster-u-s-recovery-economists-say?sref=TG2o5EVv

Analysts at the Tax Foundation, on the other hand, suggest that Biden’s tax policies will result in a 1.47% reduction in GDP over the longer term:

“Details and Analysis of Democratic Presidential Nominee Joe Biden’s Tax Proposals,”

https://taxfoundation.org/joe-biden-tax-plan-2020/.

An American Enterprise Institute (AEI) analysis reported on Fox Business on October 14 found that Biden’s proposed tax plan would increase revenue by $2.8 trillion. “As a result of these taxes, the top 1% would see a reduction in after-tax income of 14.2%, taxpayers between the 95th and 99th percentile would see a small reduction in after-tax income, and everyone else would see an increase in after-tax income ranging from .5% to 11.3%.” But the AEI foresees other secondary impacts that erode those apparent tax savings among lower- and middle-income taxpayers.

“How Biden’s corporate tax rate increase would affect Americans,”

https://www.foxbusiness.com/economy/how-bidens-corporate-tax-rate-increase-americans

The Urban-Brookings Tax Policy Center (TPC) revised its own March 2020 analysis of the implications of the Biden tax plan based on pandemic impacts and the Biden campaign’s tweaks to its plan, particularly tax breaks aimed at Americans who fall into lower- and middle-income brackets. The TPC lowered its estimate of the anticipated tax revenue increase under Biden’s plan from $4 trillion to $2.4 trillion, in contrast to the AEI’s estimate of $2.8 trillion. About 60% of the increased tax burden under the Biden plan, of course, falls on businesses.

“Biden’s Tax Plan Would Raise Just $2.4 Trillion, Report Says,”
https://www.bloomberg.com/news/articles/2020-10-15/biden-s-tax-plan-would-raise-just-2-4-trillion-report-says

The TPC also found that “Those in the top 1 percent of income, who have income of more than $788,100, would see a reduction in their after-tax incomes of 15.9 percent, while those in the bottom fifth of income, who have income of less than $24,800, would see an increase in their after-tax income of 5.2 percent….”

“Tax think tank lowers revenue estimate of Biden’s tax plans to $2.4T,”

https://thehill.com/policy/finance/521216-tax-think-tax-lowers-revenue-estimate-of-bidens-tax-plans-to-24t.

CNBC noted that the increase in after-tax income extends to the middle class, according to the TPC analysis: “Those in the middle, earning between $50,000 and $89,000, would see a tax cut of $620, while those making between $89,000 and $160,000 would see a cut of $420.”

“Biden tax plan gives $620 tax cut to middle class, new study says,”

https://www.cnbc.com/2020/10/15/biden-tax-plan-gives-620-tax-cut-to-middle-class-new-study-says.html

Politico digs into the details of the Biden tax plan to find that middle class tax relief under Biden’s tax plan will disappear when a temporary increase in the child tax credit, from $2000 to $3000 or $3600 depending on a child’s age, expires.

“Biden’s proposed tax increases have shrunk, analysis says,”

https://www.politico.com/news/2020/10/15/biden-tax-increases-429630

The Wall Street Journal lays out the Biden campaign’s strategy of increasing taxes on only 1.8% of Americans, but also points out, “Tax economists estimate that corporate tax increases affect people across the income spectrum—in the short run, people who own corporate stock and, potentially, over a longer period, workers as companies limit wage growth.”

“Why Biden Would Start Tax Increases at $400,000 a Year,” https://www.wsj.com/articles/why-biden-would-start-tax-increases-at-400-000-a-year-11601730000

Moving away from taxes, Moody’s Analytics tackles an analysis of the macroeconomic impacts of four different election outcomes, ordered from most likely to least likely, as follows. You will want to read this analysis in detail. Interestingly, Moody’s anticipates highest GDP and job growth under a Democratic sweep.

“The Macroeconomic Consequences: Trump vs. Biden,”

https://www.moodysanalytics.com/-/media/article/2020/the-macroeconomic-consequences-trump-vs-biden.pdf

Goldman Sachs concurs.

“Goldman Sachs: A Democratic sweep would mean faster economic recovery,” https://www.cnn.com/2020/10/06/business/economy-election-blue-wave-goldman-sachs/index.html

For investors, election results will drive portfolio strategy. We close with a useful overview of the portfolio implications of a Biden win vs. a Trump win, from Reuters: “Biden basket vs Trump trade: Picking a presidential stock portfolio,”

https://www.reuters.com/article/us-usa-stocks-election-analysis-idUSKBN26J0GZ.

We suggest that readers take a deep dive into the weeds on all these issues, as we have been doing for some time now.

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

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Cumberland Advisors Market Commentary – Jobs – Where Do We Stand Now?

Two key issues in the upcoming election are jobs and the economy. Given their importance, it is appropriate to review exactly where we are on these issues. Both the economy and the job situation have been radically impacted by the COVID-19 pandemic. In the first quarter of 2020, real GDP declined at an annual rate of -5 %, largely as a result of the first surge of COVID cases in March, when the pandemic began to have a real impact on economic activity. Corporate profits declined by $37.5 billion, and the first round of job losses – over 1.3 million – occurred in March. The decline in the second-quarter GDP of -31.4 % was even more dramatic and was accompanied by a drop in the PCE price index to 1.6% and by the loss of 20.8 million jobs in April. Rounding out the third quarter, only 7.5 million of those job losses were reversed in May and June, and only another 3.9 million were recovered in the third quarter, indicating that the virus continued to impact activity in the third quarter.

Providing further data to consider, Federal Reserve banks have started to produce what are call nowcasts, or running estimates of GDP and other economic statistics. One of the most well-known is produced by the Federal Reserve Bank of Atlanta, and the forecast of the annualized in GDP growth in Q3 was 35.2%, as of October 9. It is worth noting that in June the Bank predicted a increase of 51.8%, substantially larger than what occurred; so, like all forecasts, nowcasts are subject to error and sometimes huge errors. The New York Fed also now produces a nowcast of GDP growth as of October 17 and its nowcast is a growth  of 13.8% on an annualized basis (less than half the increase predicted in Atlanta’s forecast) for Q3 and 3.6% for Q4, suggesting that a significant slowdown will persist for the remainder of the year. The NY Fed’s number seems more reasonable at this point and may be too high for Q4, given the recent announcement of layoffs by airlines and by Disney and other companies in the hospitality business.

Turning now to the job situation, we note that in February the unemployment rate dipped to 3.5% – a rate not seen since February 1969, when unemployment stood at 3.4%. Equally impressive, beginning in March of 2018, the number of job openings exceeded the number of unemployed and continued to do so until March this year, when we had 1.2 million more job vacancies than unemployed persons. The data suggest that we were probably at the point where the chief explanation for the difference is what economists term frictional unemployment, where, for example, an unemployed person lives in Seattle, while the best job for that person might be in Miami. There is also a “skills mismatch” explanation; for example, the job opening is for a nurse, but the unemployed person is a computer technician. By April, however, the story changed. There were 23.1 million workers suddenly unemployed. To be sure, that number has declined to 12.6 million as of the end of September. However, new weekly claims for unemployment continue to be high, reaching 898,000 for the week of October 10. The four-week moving average of 866,250 rose 8,000 from the previous week’s number.

The general picture we get from labor market data is that while the economy is improving, the rate of improvement is slowing. Chairman Powell and other federal officials have argued that more fiscal stimulus is needed and that the failure of the Congress and the Trump administration to reach an agreement is adding to the uncertainty. One argument advanced against providing additional support for the unemployed is that the $600 per week may act as a disincentive for the unemployed to seek work. But a study by the Federal Reserve Bank of Chicago (see https://www.chicagofed.org/publications/chicago-fed-letter/2020/441) found that people receiving the $600 weekly payments searched for employment more than twice as intensely as those whose benefits had expired. The study also found that those who had exhausted their benefits were more likely to take lower-paying jobs. Other work is also suggesting similar conclusions. This growing body of work suggests that the expanded unemployment insurance does not function as a disincentive. There are at least two logical arguments consistent with this behavior as well. First, recipients know that benefits will not go on forever. Second, people know they will be better off with a job that has benefits than they will be if they stay on unemployment. Will Congress respond? We don’t know, and it is becoming less and less clear that a deal at this point will benefit either party in the election. Meanwhile, the virus outbreak continues and shows no sign of abating.

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




Cumberland Advisors Market Commentary – China and Wall Street – Decoupling or Linking?

For at least three decades, under both Republican and Democratic administrations, the United States has urged China to open up its financial markets to foreign capital and foreign financial firms. However, as part of a broader strategy to decouple relationships with China, President Donald Trump’s administration appears to want global financial firms to pull back from China.

China and Wall Street – Decoupling or Linking by William Witherell, Ph.D

This policy reversal comes at a time when China has recently made sweeping reforms to liberalize its financial market, including removing ownership on foreign financial services companies operating in China and allowing MasterCard and PayPal to enter its payment industry and Blackrock to sell its own mutual funds in China. Under President Xi Jinping, China is pressing forward with a “linking” strategy to develop increased connections with foreign financial companies. China wishes to attract increased capital inflows and to develop their bond, pensions, and insurance markets. Chinese policymakers see benefits from having domestic financial firms gain greater exposure to major Western firms. US financial firms and US investors are clearly demonstrating that they support closer, mutually beneficial relations between the US and Chinese financial markets.

The tension between the incompatible objectives of “decoupling” and “linking,” voiced in public statements made by the leaders of the world’s two largest economies, leads to fears that a financial and capital market estrangement is developing that will have negative effects for both nations. Increased competition between Wall Street, Chinese, and other financial centers is to be expected and welcomed. Developments to date, however, suggest that the two countries may avoid seeing financial relations deteriorate to the extent that relations in trade and technology have. The substantial mutual benefits to the US and China and to global financial stability from avoiding such a breakdown in relations must be apparent to policy officials.

Despite the tough political rhetoric, the financial measures taken by the US thus far against China have been limited. Mainly, the US has blocked a federal government pension plan from investing in Chinese stocks, and the US Senate has passed a bill that threatens to delist Chinese firms from US stock exchanges if they don’t meet requirements. As the government pension plan accounts for just 3% of America’s pension assets, the effect on the flow of US investments into China’s equity markets is insignificant.

The Chinese equity market has recovered strongly this year. The CSI 300 Index, which covers the top 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, is up some 17% this year. The S&P China BMI Index, which covers the investible universe of publicly traded companies domiciled in China but legally available to foreign investors, is up some 23%. In comparison, the S&P 500 is up 10.3% year-to-date. The inflow of global funds into the two Mainland China markets this year has topped $26 billion.

The Senate bill, the Holding Foreign Companies Accountable Act, prohibits the securities of any company from being listed on a US securities exchange if the company fails to comply with the Public Company Accounting Oversight Board (PCAOB)’s audit for three years in a row. The bill also requires public companies to disclose whether they are owned by a foreign government. The political statements made by Senators and others when this bill was considered and passed must have concerned Chinese firms, but the bill’s impact may be limited. Most private (i.e. non-state-owned) Chinese firms will likely arrange within the time limit to meet the PCAOB standards that all US-listed firms are required to meet. There are reports that a compromise for Chinese firms is under consideration. The attractions of listing in the US will continue to be strong: namely, better analyst coverage, deeper liquidity, and higher trading volume. The number of Chinese firms listed in the US is 220, an increase over the past year of more than 25%.

The fact that the Ant Group’s IPO, which may be the largest in history, is expected to be listed in Shanghai and Hong Kong, bypassing the United States, is understandably viewed with some concern by Wall Street. A successful offering of $30 billion or more will demonstrate the capability of these markets and may lead other Chinese firms to follow Ant’s example, possibly with urging from the Chinese government. But the Ant Group is an exceptionally attractive company. On October 16 it raised the valuation target for its IPO to $280 billion. Ant views its core activity as a facilitator of e-commerce and innovative financial services. In 2019, Ant handled over 50% of China’s $8 trillion digital payments market. The attractions cited above of listing in the United States will remain powerful as long as the US does not take further actions against listed Chinese firms.

Major US financial firms are not hesitating to take advantage of the reforms of China’s foreign-ownership and market-access regulations, despite Washington’s decoupling objectives. JP Morgan is completing a $1 billion buyout of its joint-venture asset-management partner and is also taking control of its Chinese securities and futures joint ventures. These actions should make JP Morgan the first major fully foreign-owned investment bank operating in China. Goldman Sachs and Morgan Stanley have taken majority control of their Chinese securities ventures, and Citi has been authorized to serve institutional investors as the first US custody bank in China. Vanguard is shifting its Asian headquarters to Shanghai.

US institutional investors have just demonstrated their support for a continued strong linkage between the US and Chinese financial markets by ordering more than $27 billion in response to China’s first bond offer made directly to US buyers. The bond offer was for $6 billion, and the yield on the 10-year component was about 0.5 percentage points above the equivalent US Treasury. The huge China onshore bond market is estimated as the second largest globally. In contrast, the China offshore market is now small but has huge potential, as the bond sale to US investors suggests. Participating in and helping to develop these markets together with the Chinese pensions and insurance markets will become important for US financial firms.

Tensions in the relations between the United States and China will continue whatever the outcome of the elections in the US. Both sides need to dial back the rhetoric and avoid further missteps toward a new cold war and increasing military tensions. Further moves in the direction of isolationism and protectionism by the United States will continue to be counterproductive.

It is fortunate that financial relations between the US and China have not broken down in substance. Both sides have much to gain from continuing the détente that has been hard won over years. China desires continued access to US capital and to the positive contributions US firms can make to the development of its markets. As the Chinese economy continues to grow strongly and to become the globe’s largest, its financial markets will continue to grow and mature. Opportunities for US firms to earn asset management fees and securities revenue will be huge. Also, US financial firms can learn from the advances China is making in digital payments. More importantly, including China in the current global monetary system is far preferable to giving incentives to China to develop a parallel global payments system.

Cumberland Advisors is continuing to have overweight China positions in its International and Global Equity ETF Portfolios.

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


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Cumberland Advisors Market Commentary – Women

The facts are becoming undeniably clearer. Labor force data confirms them. Anyone who wishes to dispute this claim may offer evidence to the contrary, but we won’t bog down this Sunday morning commentary with charts and links.

Market-Commentary-Cumberland-Advisors-David-Sunday-Women

There are about 25 million to 30 million Americans (out of a labor force of 160 million) who are in trouble. They are either unemployed or underemployed or on some type of sustaining payment stream. Time is running out on them every day. The latest employment report and JOLTS data confirm this reality. The gender distribution is not balanced.  The disproportionate majority of impacted workers are women.

If the US economy is to recover and regain levels we saw in 2019, these people need help now. But the Congress, and especially the US Senate, fiddles, and Rome burns. But Rome is in Washington, and the nation is the vast United States and all its citizens. Of the 25 million to 30 million Americans, the significant majority are women and many head households; that means the needs for federal assistance is intensified. The data support this observation.

Women are paying the heavy economic price exacted by the pandemic disproportionately to men. Just look at women who head households versus men who do so. Across the country, mothers have given up jobs to supervise their children’s online learning, while others try to juggle working from home or working outside the home and helping with online lessons. And look at single moms whose kids go to school in states like Florida and Georgia, where a mother has to worry about her child’s health, too. In my home state of Florida, the school system’s data is still not transparent, because our governor refuses to make it transparent.

If we are going to get the American economy on track, negligent carelessness with data must stop. Governors, don’t lie to us. We need truth and facts. And aid from the federal government must be intelligently and constructively deployed. It must address the women who head households. Congress, pass the damned CARES-2 aid bill now and include the piece for state and local governments. It is state and local governments that deliver the services now required. The House will pass a bill that gets this essential work done. Get to a conference and send a bill to both chambers and there is an absolute certainty that it will pass on a final vote. President Trump will sign a bill if it gets to him. McConnell, Thune, and others, you have the power to break loose that bill. In Florida, Rubio and Scott hold the Senate seats. They can break this bill loose if they know that their political careers depend on their doing so. Let us help them to understand.

We will dedicate the rest of this Sunday morning missive to the women on the front lines as working parents, as caregivers, and as home educators. We admire and respect them, and we call upon the federal government to address the nation’s need in ways that support women and their families.

1. The UK’s Susan Boyle served as her mother’s caregiver for a decade before she auditioned on Britain’s Got Talent, at last pursuing a life-long dream. Her audition still inspires.

https://www.youtube.com/watch?v=RxPZh4AnWyk

2. In a time when many women fear hard-won rights and opportunities slipping away, Leslie Gore’s “You Don’t Own Me” (1964) seems a fitting reminder.

https://www.youtube.com/watch?v=vNb-8gLcXLs

3. Helen Reddy rocked the world with “I Am Woman.” Women vote, and politicians find themselves accountable to them.

https://www.youtube.com/watch?v=rptW7zOPX2E

4. Now, how to close our Sunday missive? The nation waits for Congress to help forestall widening economic damage wrought by a pandemic, as businesses struggle or die and a once-promising recovery ebbs, delayed by inaction. States and municipalities wait for the support they need to keep public schools and other essential services afloat. Americans who have lost work – or who are otherwise struggling to manage under phenomenal amounts of stress – wait for the help (and the full information) they need to navigate a crisis. And in the midst of dual economic and pandemic storms, the nation must now sail through the rocky straits of a contentious election.

As I reflect this October Sunday, our closing rises now out of memory. Emily Dickinson, my mother’s favorite poet, penned long ago a poem about hope. She saved her poem with hundreds of others in a drawer. Today we unfold it together and read again. May you hear always the tune.

(Source: https://commons.wikimedia.org/wiki/File:%22Hope%22_is_the_Thing_with_Feathers.jpg)

“‘Hope’ is the thing with feathers,” by Emily Dickinson

“Hope” is the thing with feathers –
That perches in the soul –
And sings the tune without the words –
And never stops – at all –

And sweetest – in the Gale – is heard –
And sore must be the storm –
That could abash the little Bird
That kept so many warm –

I’ve heard it in the chillest land –
And on the strangest Sea –
Yet – never – in Extremity,
It asked a crumb – of me.

(https://www.poetryfoundation.org/poems/42889/hope-is-the-thing-with-feathers-314)

 

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


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Cumberland Advisors Week in Review (Oct 12, 2020 – Oct 16, 2020)

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

Week In Review

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.

Dear Clients & Friends,

Thank you for joining Cumberland Advisors for this end-of-week update on market conditions, bonds & equities with Matt McAleer and John Mousseau, CFA.

Matt McAleer & Equities / ETFs

-Just what the doctor ordered!
-A little backing and filling, some drawdown midweek met with demand
-We have an interesting Blackrock table to share with you and what we find shocking
-We see nervousness with traders and investors today
-Most calls into our trading desk are about what’s going wrong or what’s going to go wrong
-Very few calls are asking “what can go right,” “what does next year look like,” or “what does the liquidity from the Fed look like?”
-It’s very important for a trader or investor to ask questions about what can go wrong and what can go right
-Matt gives some opinion on what he thinks is tilting things toward negative
-Are we a country in decline? Matt says, “no!”
-Conduct a web search on Messenger RNA (mRNA), fascinating science.
-Use some of your COVID-downtime to learn new things, mRNA as an example
-Where can some of our new discoveries take us down the road?
-Some discoveries and their associated companies will become spectacular successes in the future, something to keep an eye on

John Mousseau & Fixed Income / Munis

-John runs the numbers on interest rates, unemployment, CPI/PPI
-Yield move slowly upward over time
-Does the market expect a blue wave?
-Rates will continue to move up with anticipation of an improving economy
-Muni supply building, we expect to see some buying opportunities as this progresses
-Muni issuers looking to get their offerings into the market before the election
-Next week, looking at employment and new home sales

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/is3g8hHxWnY

Stay safe, healthy, and have a great weekend.

-Matt McAleer & Cumberland Advisors

Matt enjoys your feedback. 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) 257-7013

Other 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/

 


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.

To read current and past commentaries, visit https://www.cumber.com/category/market-commentary/


Insider Trading – the Case of Consumer Discretionary

Author: Leo Chen, Ph.D., Post Date: October 15, 2020

Leo Chen, Ph.D.We have recently published two commentaries regarding insider trading. You may find them here: https://www.cumber.com/cumberland-advisors-market-commentary-insider-trading-the-case-of-energy/ & https://www.cumber.com/cumberland-advisors-market-commentary-insider-trading-what-does-it-tell-us/. As the third quarter has just come to an end, we want to pick the third-quarter winner, Consumer Discretionary, as our latest insider trading study. Please see Chart 1 below for the sector’s third-quarter sector performance. Consumer Discretionary […]


Yogi: “It aint over”

Author: David R. Kotok, Post Date: October 14, 2020

Market Commentary - Cumberland Advisors - Yogi “It aint over” “It aint over till its over” is exactly how Yogi Berra signed this ball when I bought it at a charity auction decades ago. He did put a dot over each lower case i. He didn’t use an apostrophe in ain’t, nor in it’s, and he did use till instead of until. Yogi’s message is […]


SCOTUS

Author: , Post Date: October 12, 2020

Market Commentary - Cumberland Advisors - SCOTUSAmerica’s stock and bond markets seem to be accepting of the current SCOTUS nominee and the political controversy. The following passage is translated from the original French work De La Démocratie en Amérique (Democracy in America), written by Alexis de Tocqueville nearly 200 years ago: “The great difficulty was, not to devise the constitution of […]


Three Items to Consider

Author: David R. Kotok, Post Date: October 11, 2020

Market Commentary - Cumberland Advisors - Three Items to Consider Item 1. My friend Nick Colas of DataTrek sent along a link to a Lapham’s Quarterly piece by Francine Prose that dives deeply into previous pandemics around the world and draws some surprising parallels with the way our present political establishment has managed the pandemic. The author says, “What’s so startling about the texts and […]


Wildfires Out West

Author: Patricia Healy, CFA, Post Date: October 8, 2020

Patricia Healy, CFA

On Sunday, Bloomberg reported that this year’s California fires had scorched more ground than the last three years of fires combined. Higher temperatures and greater winds have contributed to the spread. Year-to-date, the California fires have covered 4 million acres in 8,200 fires throughout the state. Some 8,400 homes and buildings have been lost, and […]


Markets, Events, Economics

Author: David R. Kotok, Post Date: October 7, 2020

David R. Kotok

Market-moving events and data points are coming fast, and in a chaotic sequence. Here are some bullets we are watching. 1. The outlook for elections is still highly uncertain and volatile. Biden appears to be strengthening. Texas governor Greg Abbott has restricted drop boxes for absentee ballots to one per county (“Texas governor shuts down drop-off […]


Muni Bonds Turn Toward the Election

Author: John R. Mousseau, CFA, Post Date: October 6, 2020

Market Commentary - Cumberland Advisors - (Mousseau)

With the presidential election a month away, we start to mull over what the bond market might look like post-election day. While most polls have Vice-President Biden ahead by 6–7% points, we know the race has the potential to be much closer, since the 50 individual states decide the election by virtue of voting by […]


International Equity ETF Q3 Overview and Outlook

Author: William Witherell, Ph.D., Post Date: October 5, 2020

Market Commentary - Cumberland Advisors - William 'Bill' Witherell - International Equity ETF Q3 Overview and Outlook

The global economy is expected to have registered a stronger than anticipated rebound in the third quarter with record-breaking growth rates after output collapsed in the first half of the because of the COVID-19 pandemic. The reopening of businesses and the easing of lockdowns and other restrictions in many countries allowed the rapid pickup in […]


Trio to Trio with Laura Wazen

Author: David R. Kotok, Post Date: October 4, 2020

We have a medley of remarkable performances for you this Sunday – a little diversion from the daily political and pandemic fare. Let’s kick things off with a rousing flash-mob rendition of Beethoven’s Symphony No. 9, Ode to Joy, performed years before COVID-19 entered our lives. It lifts us now out of this moment and […]


Hope – An Update

Author: Robert Eisenbeis, Ph.D., Post Date: October 2, 2020

Cumberland Advisors Market Commentary - Hope – An Update - Robert-Eisenbeis, Ph.D.

Our commentary “FOMC: Hope Now Seems to Be a Strategy” (https://www.cumber.com/cumberland-advisors-market-commentary-fomc-hope-now-seems-to-be-a-strategy/) focused on the FOMC’s latest decision to keep its target for the federal funds rate between 0–.25%, to change its strategy for policy going forward to focus on shortfalls in labor markets from what the Committee perceives to be full employment, and to shift [Continued…]


Taxable Total Return 3rd Quarter Review

Author: Daniel Himelberger, Post Date: October 1, 2020

Cumberland Advisors Market Commentary - Taxable Total Return 3rd Quarter Review

Markets experienced volatility in the third quarter of 2020 as COVID-19 and the looming election continued to drive uncertainty regarding an economic rebound. The net result of the volatility left the Treasury market little changed on the quarter, while spreads on investment-grade corporates and taxable municipals continued to grind lower from the peaks set at [Continued…]


Beware of Private Equity in Retirement Plans – 3(38) Fiduciary Advisors Are Needed Instead

Author: Michael McNiven, Ph.D., Post Date: September 30, 2020

Cumberland Advisors Market Commentary - Michael McNiven, Ph.D.

Over the summer, the private equity industry received a very favorable ruling from the Department of Labor, allowing 401(k) plans to invest in private equity funds. Of course, the private equity industry and their lobbyists have long desired the opportunity to access 401(k) assets, and they are ecstatic. This opportunity opens up several trillion dollars [Continued…]


UK Facing Virus Second Wave and Brexit Deadline

Author: William Witherell, Ph.D., Post Date: September 29, 2020

Market Commentary - Cumberland Advisors - UK Facing Virus Second Wave and Brexit Deadline

United Kingdom stocks are underperforming the Eurozone markets as the nation faces the double challenges of an upsurge in virus infections and time running out in the deadlocked negotiations with the EU on Brexit. Over the past three months through September 24, the iShares MSCI United Kingdom ETF, EWU, lost 5.0% on a total return [Continued…]


CIO Overview & Outlook

Author: David R. Kotok, Post Date: September 28, 2020

David R. Kotok

The second quarter of 2020 saw the worst quarterly decline in economic terms since the Great Depression of the 1930s. The US economy literally fell off the COVID cliff. This downdraft side of a very sharp “V” has already made an economic bottom. (It was foretold by the March 23 low in the stock market.) [Continued…]


Zika Pamphlet by David R. Kotok

Zika Download - Kotok

The Zika virus is mosquito-borne. The virus mutates frequently, just as all viruses do. And it can do serious damage to people. It is especially threatening to the fetus of a pregnant mother. It causes conditions, including microcephaly, which spell tragedy for the infant and the family. When it deals such damage to children, Zika imposes huge societal costs measured in the many millions of dollars. All this is documented in the writings that now constitute the chapters of this pamphlet.

https://www.cumber.com/zika/


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 – Insider Trading – the Case of Consumer Discretionary

We have recently published two commentaries regarding insider trading. You may find them here: https://www.cumber.com/cumberland-advisors-market-commentary-insider-trading-the-case-of-energy/ & https://www.cumber.com/cumberland-advisors-market-commentary-insider-trading-what-does-it-tell-us/. As the third quarter has just come to an end, we want to pick the third-quarter winner, Consumer Discretionary, as our latest insider trading study.

Please see Chart 1 below for the sector’s third-quarter sector performance. Consumer Discretionary not only led the quarterly performance by outperforming the S&P 500 by 6%, but the sector also has also beat the benchmark by almost 20% year-to-date. Undoubtedly, the 2020 equity market presents stock pickers an opportunity to significantly outperform. While Information Technology and Consumer Discretionary have outperformed the benchmark, Energy is down almost 50% so far. So how are Consumer Discretionary insiders doing?

Chart 1. Sector performance in the third quarter of 2020

Previously, we pointed out the insider buying frenzy in March. If we dig into the Consumer Discretionary sector on its own, we can see that it was a hot sector among insider buyers. Total transactions reached $173 million during the month of March. Those stocks would be worth $400 million at today’s values, reflecting a 131% return in six months—far larger than the entire sector’s contemporary return.

But that’s just the sector average. What may be the biggest shock comes when we look at the top performers in the sector. Please refer to Table 1, below, for the top insider trades in Consumer Discretionary in March. Overstock is a top online furniture company, which understandably should be a beneficiary of COVID-19 market. But the returns these insiders have made this year dwarf even those made by the greatest investors in history. Notably, there is a strong positive correlation between the net return and the importance of the roles that these investors play in the company.  Also, before the purchase in March 2020, Abraham Allison and David Nielsen hadn’t bought any company stock since 2015; and the purchases made by Jonathan Johnson and Joseph Tabacco were both their biggest share acquisitions in terms of number of shares in one single trade at the company.

Table 1. Selected insider trading activity

Please note that Cumberland Advisors uses our research only for investment purposes. By this research we attempt to identify misvaluations. We do not imply any illegal activities in any circumstance.

*Data as 10/12/2020. All data come from a third-party provider. Cumberland Advisors does not guarantee the completeness of the data.

Leo Chen, Ph.D.
Portfolio Manager & Quantitative Strategist
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.