PODCAST: A Brighter Future with Laidlaw, Episode 30 – What Elections Should Investors Make Heading Into 2021?

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In this episode Richard Calhoun, CEO of Laidlaw Wealth Management, discusses what sectors might benefit under possible outcome scenarios from the November 2020 election, whether the Treasury yield curve’s 2-10 year spread reaching 2020 highs represents a threat to the stock market recovery, the question of whether PayPal’s cryptocurrency moves strengthens the portfolio allocation argument for Bitcoin and other developments with Laidlaw & Company Chief Market strategist, David Garrity.

The topics discussed in this episode are: What sectors should investors favor under either a Biden “Blue Wave” sweep or a Trump second term?, Is the stock market vulnerable now that the Treasury yield curve’s 2-10 year spread is nearing its 2020 highs, and Should investors make an allocation to Bitcoin and other cryptocurrencies on the tail of PayPal’s announcement and Paul Tudor Jones endorsing Bitcoin as an inflation hedge? 

Please tune in for more timely insights.


Hello, and welcome to another episode of “A Brighter Future,” Laidlaw & Co’s Podcast Series.  I’m Rick Calhoun, CEO of Laidlaw Wealth Management, and once again I am joined by David Garrity, Chief Market Strategist for Laidlaw & Co. 

David, I hope you had a nice weekend, I can tell you I had the best weekend ever as I was the “Father of the Bride” for my beautiful daughter. It was truly a magical and perfect weekend, even my woeful Eagles managed a victory albeit against another team from the NFC Least 😊 

Rick, congratulations on being able to host a COVID-safe wedding over the weekend. I trust the blushing bride was able to wear a veil sans face mask and that all in attendance are safe and well. Family events are important for the ties they create and reaffirm, so again congratulations on the occasion. 

Meanwhile, having grown up in Washington DC as a fan of the now-generically-named Washington Football Team, I was appreciative of the assist they provided yesterday to the Eagles by drubbing the Dallas Cowboys. Even so, the Eagles only remain atop the down-trodden NFC East by the narrowest of margins. Talk about being the best house in a bad neighborhood, seriously. 

Question 1

David – last week following three consecutive weekly advances, stocks declined modestly. The news flow was dominated by headlines around the negotiations for another round of fiscal relief from Washington before the election, now one week away.  The 10-year Treasury yield rose to the highest level in four months amid expectations that a potential Biden win would lead to a larger relief package to support the economy. 

Aside from the speculation about potential election outcomes and policies, economic data for the week was encouraging to the long-term outlook, showing an improvement in jobless claims and continued strength in the housing market.  

Current conditions are prompting a perception among some investors that the election represents a binary outcome for the market. While I would agree that next Tuesday, November 3rd, may be viewed as a seminal moment in our country’s political landscape, when it comes to investing, it’s the much broader periods of time – not singular moments – that matter most.  In fact, history shows us that the market is not partisan over the long run, but hates uncertainty in the short run.  Elections bring uncertainty, but as that uncertainty fades, stocks reconnect to fundamentals which are influenced – but not solely determined – by Washington policies.

So, let’s start our discussion there today, first on a Macro, Broader level what can investors expect for the next four (4) years from a Biden Presidency and then the same question if President Trump is re-elected? 

Rick, as we now stand on the brink of the election next week, the outlines of what lies ahead have hopefully become clearer, namely for there to be significant change in political and fiscal direction the same party will have to control The White House, The Senate and The House of Representatives. A mixed election outcome will very likely result in further partisan conflict and paralysis in Congress at a time when the country desperately needs a consensus that allows us to move forward. 

That said, a second term for the incumbent should expect to see further cuts in the social programs put in place since the Great Depression. The Affordable Care Act will most likely go under the knife given the composition of the Supreme Court. Social Security and Medicare will be undermined as their funding is redirected or eliminated. Workplace protections will be reduced as employers are given blanket exemption from litigation under COVID. Bottom line, the foundations put in place to support the creation of the middle class society seen in post-WWII America will be broken. 

With income inequality likely to accelerate as a result of these developments, the chances of increased social unrest are high. Against the backdrop of a country with high gun ownership, the dangers of civil unrest are magnified as citizens believing there is no legitimate recourse may ultimately resort to violence. 

Meanwhile, a mixed Congress under a second term is likely to result in a weaker U.S. economy in 2021 and 2022 as chances are any additional fiscal stimulus will not provide a sufficient degree of support to stave off material reductions to capacity at various levels in both the private and public sectors.

Stock selection in this scenario favors the following sectors: Technology, Defense, Industrials, Staples, Beverages, Large Caps.

Under a Biden “Blue Wave” scenario, the likelihood is for there to be the sizeable $5+ trillion fiscal stimulus that the capital markets have come to anticipate and which has served to offset the negative headwinds from COVID infection rates rising worldwide. As you noted earlier, this expectation has not only supported the stock market, but done so to the extent that the down-trodden Value stocks have started to outperform. For this to continue, one has to believe that defeat will not be snatched from the jaws of victory. 

Nevertheless, this isn’t to say a Biden presidency with Democratic majorities in the House and the Senate will have an instant restorative effect on the U.S. economy. Substantial degradation of the U.S. government has occurred under the incumbent with important posts going unfilled either by deliberate design or outright neglect. Institutional capability must be restored. 

Furthermore, we believe that Democratic Presidential nominee Joe Biden prefers to act in a bipartisan manner if possible, something which will be especially important given how far U.S. politics have veered disastrously into partisan waters. While bipartisanship may not allow the fastest course of action, it most likely results in the more productive course of action over the long term. So, in this case, the likely course for the U.S. economy is one where the recovery strengthens steadily over the course of 2021 and into the 2022 midterm elections.  

Stock selection in this scenario favors the following sectors: Technology, Financials, Industrials, Small Caps.

Question 2  

David, let me stay with this theme of a Biden victory and get your take on something that has been creeping into the Bond Markets, the prospect of the Democrats winning both the White House and the Senate to add to their control of the House of Representatives or the Blue Wave.

The bond market appears to be anticipating the eventual enactment of more forceful stimulus in a Democratic sweep by pushing up longer-term Treasury yields. In fact, last week we saw the 10’s-2’s yield spread test its 2020 highs.

So, David is this a positive sign of a sustainable recovery, or a warning sign for an economy that depends on the twin stimulants of ultralow interest rates and record peacetime fiscal deficits? 

Rick, the return of a positively sloped yield curve should be viewed as a good thing and has had a salutary effect on the stock market performance of the Financials, among others. As mentioned earlier, the view of a Biden “Blue Wave” has images of massive fiscal stimulus dancing in investors’ heads with a view towards rotating into down-trodden Value names. 

Before we become fearful of what rising long-term interest rates might bring in terms of a sell-off in the highly-valued Growth names that have led the stock market off its March 2020 lows, remember that The Fed along with other central banks remain disposed to providing maximum accommodation for economic recovery. 

In allowing inflation to run higher than prior targets, the prospect of possible Fed intervention is less of a threat than in the past. That said, the stock market appears for the present to be immunized from the risk that rising interest rates may previously have posed.

Question 3

David, as we bring another episode of A Brighter Future to a close, I want to talk about something that has not been on a lot of people’s radar in light of the election, stimulus and the search for a vaccine – Cryptocurrency.

I bring this up because last week we saw Bitcoin, the world’s largest cryptocurrency, jump above $13,000 this week for the first time since July 2019.  

It appears the surge began when PayPal announced on Wednesday that its users will soon be able to buy, hold, and sell cryptocurrencies on its platform and it even prompted Billionaire investor, Mike Novogratz, to say that PayPal’s move was “the biggest news of the year in crypto.”   

Does much of the new interest in Bitcoin stem  from its potential use as a hedge against inflation?  It does make sense, as Bitcoin is  decoupled from monetary policy but would you agree with Paul Tudor Jones who on Thursday  said the coin was “the best inflation trade” and that he thinks its rally is only in its “first inning?

Rick, as we discussed back in May 2020, one of the major weaknesses in the case for cryptocurrencies generally and Bitcoin in particular has been a highly limited ability to use them for everyday transactions. In this way, while Bitcoin might have been considered to be a possible store of value given the limited supply that could be created via mining, it was a store of value that came with substantial friction as it could not be used for settlement purposes. 

Now, with PayPal being granted a conditional Bitlicense by the New York State Department of Financial Services, the path towards greater acceptance of Bitcoin and other cryptocurrencies for everyday use is being opened. As PayPal’s announcement notes, “Consumers will be able to instantly convert their selected cryptocurrency balance to fiat currency, with certainty of value and no incremental fees. PayPal merchants will have no additional integrations or fees, as all transactions will be settled with fiat currency at their current PayPal rates.” 

That a significant payment processor such as PayPal is now accepting cryptocurrencies in our view makes it only a matter of time before other processors such as Visa, Mastercard and the major clearing banks for competitive reasons become similarly licensed. What may seem like a small step for PayPal just marked a giant leap for Bitcoin and the cryptocurrency asset class. 

That said, I don’t know many investors who profited from going against Paul Tudor Jones and if you recall from our May 2020 conversation we highlighted then his whitepaper outlining the investment case for Bitcoin. With that, it may be time now to consider including cryptocurrencies as a possible portfolio holding in the alternatives category.