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Arrowhead Asset Management Investment Update - A 2021 Analysis

First, Happy New Year to you and your loved ones.

Economically, all we hear about these days is the supposed pent-up consumer demand “V-shaped” recovery that awaits us once we all get vaccinated (or at least enough of us).

This “all clear” premise assumes that we will all be going out to eat, fly, and again do everything that is fun, from movies to the theatre to the theme parks to the casinos to sporting events to cruise ships, etc.

However, there are two important issues at play going forward.

First, the consumer sectors hit most by Covid-19 that are supposed to create a huge release of "pent-up demand" equals a grand total of only 8.5 per cent of total consumer spending.

FYI, the truly big spending items in the consumer sectors are rents, utilities, and health care, which make up nearly 40 per cent of the aggregate national spending pie. These consumer spending outlays were already up fractionally in 2020.

There are other areas of low wage service sector spending that especially took it on the chin — housekeepers, day care, dental services etc. — but they don’t trade on the major stock market exchanges.

The second issue is that spending growth in the largest consumer sectors has already benefited strongly from the pandemic, almost doubling in 2020 from the non-pandemic historical norm.

And because of the pandemic, spending in 2020:on consumer goods in the United States rose by $180 billion more than normal - had the pandemic crisis never happened. 

So, in 2021, this highly anticipated "pent-up consumer demand" projection would only equal an increase of less than 1 per cent of total consumer spending over 2020.

As investors, are we being set up to get excited about what may turn out to be only a one-per-cent lift in “pent-up” aggregate consumer demand?

The post-Covid-19 consumer spending bump for 2021 stock prices

When investment pundits talk about future pent-up consumer demand pushing up the stock market, what other assumptions are they making?

Are they assuming that there will be no reversal in consumer demand - or even a levelling-off in the already booming consumer goods sectors?

For perspective, here is what occurred in 2020:

Furniture spending soared 16.4 per cent, more than double the typical annual growth.

Major appliance spending rose 7.6 per cent, more than double the typical annual growth.

Home improvement expenditures ran up 20.8 per cent in the year through November, four times the normal 5 per cent.

Spending on games and toys grew 34.4 per cent, compared to the normal 4 per cent.

Yes, in early 2020, we did see a huge plunge in select consumer spending; but we also saw many items in select consumer goods soar in the second half of 2020.

The big consumer demand question for 2021

As we all go out and party later in 2021, just how many more cars, skillets, television sets, patio furniture and backyard decks are we going to need in the year ahead?

Contrary to what pundits are promoting, there may be much less pent-up consumer demand waiting to pop up stock prices than the hype wants us to believe.

If anything, consumer demand may aleady be saturated. Nobody is really talking about the fatigue in consumer spending that may already be integrated into potential investment opportunities in 2021.

Will the anticipated post-Covid employment surge increase consumer spending?

We are also being told that new jobs and re-hiring will come back in a major way. That’s the assumption, in any event.

But the reality here is that in the lower-paid jobs community, government incomes from Covid-19 relief programs - after the biggest 2020 Covid job layoffs - actually increased the overall money Americans had to spend, had the pandemic never happened.

Why? Because many low-paid workers who became unemployed and started receiving government stimulus income support actually had higher incomes than what they were earning while employed in their normal low wage jobs. 

This is the result of two reasons:

1) Lower paid America workers have been stuck in low wages jobs years prior to the Covid pandemic. Fortunately, in the November election, numerous state passed new legislation raising the minimum wage to at least $15.00 an hour or higher to address this problem.

2) The unprecedented income transfer from the Federal government to the wealthiest of Americans after the first Covid stimulus package.

What about after the pandemic vaccine rollout?

So, what will happen to US middle class and lower wage incomes when the Coronavirus survival  benefits fade, even with whatever jobs will be created (or re-hired) after a successful vaccine rollout?

First, more than half of the jobs lost in early 2020 have already come back in the past six months - yet incomes have fallen in three of the past four months. This was because government support was cut off due the stalling of the second Covid stimulus program.

To make it even more confusing and unprecedented, on a year-over-year basis, actual employment is down 6.1 per cent but real personal incomes are up 3.8 per cent.

Why?

It’s because in 2020 stimulus income from the government expanded worker average annual income to 18 per cent above normal.

Typically, a 6.1 per cent decline in employment would see average income down roughly 4 per cent. But that did not happen in 2020.

Today, we have reached a situation where government stimulus income benefits now make up nearly 20 per cent of total median personal income. At its 2020 peak, government-provided income was 31 per cent back in April.

The current government income support percentage has never been this high in recorded US history, and that includes the 2008-09 Great Recession.

When the government share of personal income accounts for the historical high it is today, some economists would say we are in an “economic depression.”

The "managed" decline of government income support

Not only do we have a situation where already oversaturated lack of consumer spending will probably offset the benefit of any pent-up demand we see post-vaccine, a hasty Congress-imposed pull-back in government income support could end up swamping whatever new employment spending we get from returning service sector workers.

Given where the stock market is now, at some point the saturated consumer demand reality described above will set in.

It may very well be that the "pent-up consumer demand" V-shaped recovery thesis for 2021 is as overdone now as it was heading into the final few months of 2020 - absent any big new central bank fiscal stimulus announcements.

Clearly, we don't know yet how skilled the Biden Democrats will be managing the post-Covid economic recovery.

But compared to the rigid austerity mindset of the Republicans, the Democrats are generally more likely to be sensibly cautious to take special care weaning worker co-dependency from government income assistance.

Like an addiction, any 2021 and beyond government income reduction program needs to be gradual - and with intelligent oversight.

Perennial Republican Party economic failures 

Historically, if we look at it objectively, with each economic collapse after almost every stint of Republican presidential rule, the Democrats are elected to come in, clean up the mess, and get at least some of the Main Street economy moving and headed in the right direction.

In other words, Republicans hate government. And when combined with their antiquated "trickle down" economic rigidity, they generally end up failing to use tax revenues productively - for the primary benefit of most citizens.

Instead, the Republicans sway their voters with their increasingly irrelevant "conservative" economic rhetoric, pilfer the Federal tax coffers, gives too much of our tax dollars to their favored elite cronies, and then lose to Democrats when national incomes and economic stability gets way out of whack.

This has been especially true with Trump and his legally criminal "family" of kleptocrats, which is why he is a one-term president. "Good Riddance" is what a majority of both the popular vote and Electoral College shouted.

In summary, during this year's post-pandemic America, Biden and the Democrats need to be very careful not to help facilitate a deeper recession by irrationally starving American workers of needed government income assistance.

Commentary

The current Republican Party leadership, especially those with the sick MAGA mindset of Donald Trump, are simply not smart or adaptable enough to successfully problem-solve the complexities of modern American society.

We saw it very clearly with Trump's domestically-focused white nationalist racism and his deadly Covid-19 pandemic response.

Donald Trump’s legacy, if written honestly, will be two-fold:

1) 400,000 Americans died from the Coronavirus – largely due to Trump’s executive incompetence and his lies and promotion of quack medicine. When it was obvious Trump was too stupid to organize a competent national pandemic response, he simply gave up and shamefully called the deadly virus statistics "fake news" and overblown numbers."

2) Trump's ugly white grievance political philosophy directly uncloseted the resurgence of 21st century American Jim Crow racism, encouraging far-right domestic violence with his dog whistle tweets and campaign slogans that promoted divisive and seditious anger and hate.

So, on January 20, let's all remember how Trump, his MAGA Republican Party, and millions of his voters - in a state of racist scapegoating - accused mostly black and brown voters in the major cities of Detroit, Philadelphia, Atlanta, Milwaukee, and Phoenix of being part of a vast conspiracy of election fraud - with absolutely no proof that could be claimed as true or valid by the leaders of this sick MAGA servitude.

All productive Americans who want to move forward from the pandemic and the Trump political hate machine should thank the citizens in our urban centers for their voter turnout that helped to remove the racist Donald Trump from office.

Finally, the obviously discredited and seditious Trump can now relocate to Mar A Lago and take up his new role as America's King Lear.

In 2021, the majority of non-MAGA citizens can again see life with the lens of a sane cognitive reality, move forward, and go out and make money in a healthy and productive political economic manner!

Rocky Boschert

How to invest in a world being clobbered by climate-related disasters

The United States has seen devastating wildfires ravage the Pacific Northwest (and Colorado more recently) as well as a record-breaking hurricane season in the Gulf of Mexico since July 21. It is clear climate change is responsible for the growing frequency of natural disasters, not to mention their increased power in terms of the damage and destruction they leave in their wake.

The International Monetary Fund’s latest World Economic Outlook states that the losses from unmitigated climate change on global "gross domestic product" (GDP) will average 15 per cent by 2100 (with a range of three per cent to 30 per cent). Likewise, the Network for Greening the Financial System (established by eight central banks following the signing of the Paris Agreement) indicates a reduction of 1.5 per cent to 23 per cent in global GDP.

Yet, at a time of record-high government debt levels, the ability of public fiscal policy to adequately respond to climate change impacts will be constrained. All of this is to say that private capital will play an enormous role in the world’s attempt to solve the problem.

The good news is that scientists still say there is time to avoid the worst-case projections, meaning that investors can stand to benefit from the long-term global shift to a non-fossil fuel, low-carbon economy.

Renewable Energy

The biggest investment opportunity will come in the form of renewable energy.

This is not a new idea for investors, but the scope of investment required for the world to meet its climate goals is massive. Total spending will have to reach an annual average of US$2 trillion by 2030 to reach the Paris Agreement targets (for reference, spending in 2018 was US$900 billion), according to the International Energy Agency (IEA). This shift is already happening, as market forces have taken over.

The economics behind building new fossil fuel power generation stations are not as attractive as they once were, especially for coal. Companies and utility providers specializing in solar, hydro, wind and geothermal technology will stand to benefit as a result (nuclear, though able to produce clean energy, appears to lack the political appetite now).

Solar power is in line to be the big winner: IMF research gives it the largest jobs multiplier, making it a logical first choice for politicians looking for bipartisan support regarding infrastructure spending.

The biggest concern surrounding renewables is the lack of “baseload” ability — for example, peak energy demands are not always when the sun is shining the most. For that reason, technologies supporting storage capacity also must grow.

Overall, the cost of renewable energy has come down dramatically and is now in-line, or cheaper, than fossil fuel alternatives. And that is before factoring in the externality costs (pollution, carbon dioxide) of fossil fuels.

Analysis done in 2015 revealed the global gap between the existing and efficient prices to be US$4.7 trillion in aggregate, or 6.3 per cent of GDP. The transition to renewables would accelerate even faster if fossil fuels weren’t currently benefiting from such massive direct and indirect subsidies from lobbly-money co-dependent governments.

Nonetheless, the world is moving towards a tipping point when it comes to renewable energy sources, and once we get there (if it hasn't arrived already), investors will want to have exposure to this secular bull market industry.

Electric Vehicles

Besides clean energy, the next opportunity comes in the form of electric vehicles.

Tesla’s story is well known among investors and is the biggest “pure-play” company on this theme, but all auto manufacturers are moving in this direction. Globally, the IEA estimates there are only eight million electric vehicles on the road but predicts that number will be 120 million by 2030 (potentially as high as 250 million depending on the scenario).

The COVID-19 pandemic shock may have revealed that the shift in consumer preferences is already underway.

From January to April 2020, it is estimated that traditional car sales plunged 15 per cent compared to 2019, yet sales of electric vehicles remained stable. A market that is forecasted to be nearly 20x larger in the next 10 years, and has relatively more inelastic demand, certainly warrants a further look from investors.

These are just two of the largest opportunities that come to mind when thinking about investing around the climate change theme.

Green Infrastructure

Other opportunities worth mentioning include rare earth metals (both the commodities directly and through mining companies), since demand will grow alongside the need for battery technology.

Plus, environmental consulting and engineering and construction services companies, will benefit from the changing infrastructure needs to a low-carbon economy; as well as carbon capture and storage technologies.

Geothermal 

Finally, a potential investment idea that is often overlooked is geothermal energy. This is not the first source that typically comes to mind when thinking of “green” alternatives, but it solves two key problems.

First, it addresses the issue of peak production versus peak demand. Power generation can be scaled to match any demand curve since the flow of heat from underground can be increased or decreased with relative ease.

Second, and perhaps more importantly from a political perspective, the expertise and resources that oil and gas companies have in drilling and maintaining oil wells can be put to use in the construction of these power plants (which require creating a network of reservoirs to cycle the heat above ground).

Geothermal plant construction is a natural solution for transitioning the workers who feel threatened by a move away from fossil fuels, making it an easier political decision for governments.

Renewable technology successes are tied to economic geography

It should be mentioned that betting on any one technology or solution may not be a prudent investment decision as it is too early to call a winner in many cases. Furthermore, given the early-stage nature for some technologies, investors with the ability and risk tolerance may consider looking at private companies - even though there is no shortage of public company options either.

Bottom line: As governments attempt to make up for lost time as the climate approaches the critical 2-C warming threshold that scientists have warned about, these trends will continue to grow.

As such, private capital will need to play a critical role in this global energy transformation, as informed electorates demand more and more action on climate change.

The economic recovery from the COVID-19 pandemic is an important opportunity for governments to accelerate investments, through green infrastructure spending and the like, wherever there is political appetite for stimulus.

Much like the industrial revolution, the coming decades will open several opportunities for investors to take advantage of shifts in global priorities and technological breakthroughs.

David Rosenberg, Founder, Rosenberg Research & Associates 

 

Trump’s MAGA Cult Is Now The Biggest Threat to the US Economy (and Our Investments) Is the Political Gullibility of American Voters

After watching the US Capital be overrun by a delusional minority of violent paranoid MAGA insurrectionists, I was again reminded of some disconcerting realities about the economic US "state" of the Union.

First, there is no doubt Biden / Harris won the election. Any sane American knows this fact.

The sick Republican insurrectionist politicians have blatantly lied to their dangerously gullible Republican constituents about the legitimacy of the Biden victory, Such calculated political manipulation tells all Americans who and what the Republican Party has become.

Any excuses made by the MAGA extremists who violated the Capital on 1-6 would simply be more MAGA cult lies. The worst of the Capital insurrectionists are MAGA anti-Semites, pro-slavery racists & genocidal white supremacists, as well as sick pedophile-obsessed Q-Anon nutcases.

It's time to deal with the racism, the right wing hate, and the totally suicidal lies of the MAGA / QAnon cults now!

The Republican Party Vision of the US Economy 

The powerful business elites, especially those sympathetic to the MAGA Republican Party, care only about the appearance of economic success via the stock market. They care little about middle- and lower-class economic interests in what we call the Main Street economy.

Specifically, Americans who call themselves "conservatives" need to stop believing the blatant self-serving lies of these ultimately white nationalist (i.e. racist) Republican politicians, especially at the Federal and State level.

In fact, Texas represents some of the most vile of these soulless Christian politicians - like the megalomaniacal opportunitists Ted Cruz, Ken Paxton, Louis Gohmert, Dan Patrick, and to a lesser degree, Greg Abbott. These politicians are addicted to hate and power, disguised as Christian values.

Economically and financially, these political hustlers dupe their dangerously gullible voters into voting for them - then rarely follow through on their promises after they have been elected. In fact, they often do the opposite of what they campaigned on.

It is no wonder so many MAGA Republicans are seriously angry and potentially violent - as often as they have been lied to by their manipulative leadership. Non-college degree Republicans act like battered codependent wives who cannot admit they are being abused by their sick husbands. When you live in shame from years of lies abuse, you often end up stuck in a self-destructive cycle of faulty thinking and dysfunctional anger.

As the neo-fascist Trump Republican era finally loses much of its allure, any "conservative" supporters who are wise enough to see the "gullibility cult" that has permeated the MAGA Republicans must make every effort to look at the truth - that their economic and daily social reality after four years of ugly Trumpism is a delusional lie.

Recent elections have proven that Democratic voters are wiser about what their political leaders are - at least compared to Republicans.

Democrats know their party leaders are largely BS artists run by a "gerontocracy" of lobby money controlled politicians who promise nirvana but rarely deliver. But they also know the current Democratic Party is a lot more sane than the deeply authoritarian cult that the Republican Party has morphed into.

As their 1-6 Capital terrorist attack shows, Republican voters are now dangerously gullible and self-destructive when it comes to acknowledging the reality that many of their politicians are sick con artists who ultimately care little about their economic interests - their work, their family's health care, and their environmental safety.

The obvious big lie inherent in the minds of many Republican Party voters is they actually believed the sick wannabe dictator Donald Trump was their great white hope, that he was "better" for their economic interests than the economic policies of, say, the corporatist Jeb Bush.

In fact, Trump was ONLY better at tapping into their misplaced anti-government anger, their chronic scapegoating of others, their white supremacy sentiments, their unfounded paranoia of losing sane gun rights, and their intense desire to blame anyone but themselves - for their own self-sabotaging life decisions.

Sure, middle class Republican voters get their anti-abortion judges, their Militia weaponry, their extremely meager and ultimately useless tax cuts, and their bogus evangelical victimhood outrage.

Yet the majority of Republicans – especially the "uneducated" blue collar worker class - never  get what's really most important for their lives - good long-term jobs, fair livable wages and benefits, reliable health care for themselves and their families, and a sound public health and worker safety infrastructure that ensures clean water & air quality for their children and grandchildren.

In fact, Republican leaders treat their blue collar constituents like dumb hicks. Unfortunately, their blue collar voter patterns seems to prove them right!

It's high time blue collar Republican voters stop lying to themselves and look at the truth and facts of their everyday lives in a serious way. Instead of seeing bogus conspiracies everywhere - promulgated by their own predatory politicians, they might start to see reality again and realize just how self-destructive their newest MAGA belief system has become.

The Democratic Party Equivalency 

All that said, if Democrats and the never Trump Republican supporters of Joe Biden think everything economic will be kosher again by electing him (and getting control of the US Congress), they will be disappointed when they see their own endemic institutionalized Party corruption in action.

The Democrats badly need a serious overhaul of their macroeconomic values and priorities, especially their willingness to deconstruct the largely "legally corrupted" system of corporate and elite special interest lobby money that they have helped to enable.

Then, maybe once the Republican Party finally leaves behind its deeply racist past and once again separates itself from the big government social fascism of right wing evangelicalism, the corporate two-party duopoly can work together and, at minimum, help Americans stuck in debt prison, a cycle of unlivable wages, reduce untenable racism and militarism plaguing America's legal system and law enforcement agencies.

From what I see, the Democrats are now futher along in this effort, which we saw with the 2020 election of a more diverse group of faces making up the new Democratic majority.

The Republican Party, on the other hand, went self-destructively all in with the big MAGA Trump nightmare and will surely partially self-destruct now that they lost the White House and the Senate.

Our Investments

Regarding our investments, readers should remember these simple historical stock market facts:

From a competency and responsible leadership standpoint, every President has a crisis or a disaster they must deal with. George W. Bush had both 9/11 and the tech bubble. Obama had the Great Recession recovery. Clinton had the US hedge fund collapse, the post-communist Russianeconomic collapse, and Newt Gingrich. 

Ultimately it is how each President manages a crisis or a market crash - and what the economy looks like after their political stint.

Using this metric, we now see how the racist charlatan Donald Trump failed miserably in dealing with every crisis he has faced. And now his seemingly still gullible MAGA cult needs to deal with their self-destructive addiction to lies, false promises, and racist scapegoating.

MAGA must stop the suicidal scapegoating of their own failures and enter into an "gullibility addiction" intervention program

Even now the MAGA Republicans are trying to blame Biden and/or "antics" for their own Capital mob seditious behavior. This a very telling sign that Americans need to seriously worry about these mentally deranged citizens.

Not surprisingly, after the MAGA mob takeover of the Capital on 1-6, the political terrorist politicians in the Republican Party like Mo Brooks and the right wing extremist hate media like Fox News, OAN, and NewsMax are once again lying to the MAGA Republicans that "antifa" - disquised as the real MAGA insurrectionists are secretly responsible for the storming of the Capital.

Make no mistake: The in-action responsibility for the traitorous US Capital siege lies directly with Donald Trump, his most vile boot-licking Republican Party enablers, and their dangerously gullible MAGA white nationalist cult. 

It's time to label these deranged brown-shirt MAGA street thug groups like the Proud Boys, Oath Keepers, the 'Base', Patriot Prayer, the 3%ers, Q-Anon, and all the other armed BS militia groups for what they are: Domestic Terrorists.

In fact, sane Americans should be and must always be “antifascist" - or at least not allow themselves to be duped into demomizing someone other than the true perpetrators of what is clearly a new movement of racist right wing fascism.

As a dedicated "global" anti-fascist, I will always donate and stand strong against America's resurgent white supremacists, the antiquated romanticizing of the Confederate pro-slavery past, and the soulless evangelicalism that now threatens what remains of America's corporate democracy.

Going forward, Americans who refuse to demonize protestors against racism, police brutality, violent misogyny, and the white supremacy hate groups like the Proud Boys - are the real patriots who want 

In direct contrast to the ridiculous and wholly unproven "radical far-left socialist"  fear-mongering rhetoric we hear constantly from Trump and MAGA scapegoaters, it is the far-right white supremacy hate groups – Proud Boys, Oath Keepers, the 'Base', Patriot Prayer, and the 3%ers, etc. – who are the real "domestic terror" groups. Even the current FBI states this fact very clearly.

Not "vigilante" groups.

Vigilantes, in the best definition of the term, mostly go after bad guys, in their often disturbed way. But these white supremacy "street gangs" are nothing more than racist thugs who pretend they have some noble political philosophy to save "good Americans" from the "bad."

Of course what they mean by "bad" are Americans who loathe white supremacy, right wing neofascist white nationalism, and other forms of hate and religious bigotry!

These MAGA hate groups are documented and dedicated anti-Semites, racists, violent homophobes, and view women as breeding cattle - who ultimately adhere to a genocidal male white supremacy philosophy. Some of these groups still idolize Adolph Hitler and his insane world view.

To learn more about how to combat racism and all others versions of violent political or religious extremist hate, check out the Jewish Anti-Defamation League (www.ADL.com) and the Southern Poverty Law Center (www.SPLCenter.com) for further information.

Rocky Boschert

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