Georgia On My Mind: How the Runoff Election Will Affect Markets
About 20 years ago, I remember being incredibly excited to sit down and watch Ken Burns’ documentary on the history of Jazz.
Without a doubt, that class was by far one of the coolest that I took in college, and I was anxious to see what Burns — whose previous documentary on baseball was a favorite of my Dad’s — had to say on the matter.
On the whole, I found it pretty solid. But it was curious to me why he spent such an inordinate amount of time on the earliest years (particularly the 1920’s), when in my youthful estimation, later periods were way cooler.
I knew, of course, that his previous efforts on baseball and the Civil War weren’t so much “history” as they were a commentary on the development of America, and its associated struggle with racism.
But it wasn’t until later that I realized that at their core, these documentaries are really about the people who have made America exceptional, and more importantly, how they influenced others.
That’s crucial to remember as a financial analyst, because at the end of the day, economics is simply the aggregation of what all the people in the world are doing with their money.
Moreover, those people’s myriad interactions and inter-influences have given rise over the years to a (relatively) new field of study we have oh-so-creatively dubbed behavioral finance.
Or as I’ve written before — from time to time at some length — all business is people business.
And sometimes those people lead us in unexpected directions…let’s talk about some of them.
Going on Tour
Both Ken Burns and my jazz history professor spent a lot of time focusing on Louis Armstrong.
And rightfully so, because it was Armstrong’s time in his mentor King Oliver’s Creole Jazz Band — specifically, several touring stints spent in Chicago — that cross-pollinated the New Orleans native with northern colleagues.
Armstrong spent most of the years 1922-1924 in the Windy City, splitting time between Oliver’s band and playing with Ollie Powers — in whose quintet he met his future wife, Lillian Hardin.
Those connections led him to work with Fletcher Henderson’s ensemble on the East Coast the following year, which in turn introduced him to prominent sidemen Bix Beiderbecke and Frankie Trumbauer.
His work during this period — particularly the landmark recording Cornet Chop Suey — shot Armstrong into legitimate stardom. And if there is one thing that stardom breeds, it’s influence and imitation… even by other stars.
For instance, jazz composer Gunther Schuller pointed out the similarities between Armstrong’s solo in Potato Head Blues (around measure 25, if anyone cares to count) and the intro to Stardust by famed Tin Pan Alley songwriter Hoagy Carmichael.
I actually asked Schuller about whether that was conscious or subconscious borrowing at a master class I attended during college. And he quickly pointed out that Carmichael’s bandmates during that particular recording session were “very familiar” with that solo.
“Oh? Who were they?” I asked.
And amongst the names he prattled off… were Bix Beiderbecke and Frankie Trumbauer.
As it turns out, all business really is people business.
Amongst Hoagy Carmichael’s other, non-borrowed works include one of my all-time favorites, Georgia On My Mind. The original song — complete with an 8-bar Bix Beiderbecke solo – actually didn’t get much attention until it was famously covered by Frankie Trumbauer in 1931. After that, both this song — and 20’s-style jazz in general — fell out of favor for some time.
Carmichael, who wound up working in the burgeoning television industry, once told Downbeat magazine: “After rock and roll started, I never even got a phone call from an A & R [artists and repertoire] man about anything.”
Famous last words, of course, as just a few years after that interview, the brilliant Ray Charles (uncoincidentally, a Georgia native) released it as a single on his America-centric concept album The Genius Hits the Road.
That winding, homesick version not only became a #1 hit, it became so popular that the state of Georgia declared it the official state song in 1979.
On My Mind
Of course, I’m bringing this up because Georgia’s business happens to be this entire country’s business right now.
The outcome of today’s runoff election will not only decide the balance of power in the Senate, it will literally decide the direction of the country’s fiscal policy for at least the next two years.
And while I’ve already taken a look at the likely market effects of both Biden’s first 100 days and his overarching policy goals, that was assuming Republicans held the Senate.
Now, with polls essentially casting the runoffs as a coin flip, it means we also must consider the possibility of an incredibly liberal, accommodative fiscal policy.
Most analysts are still projecting the first 100 days to be primarily focused on fighting COVID-19 and re-establishing some semblance of normality up and down the Executive Branch. And while I largely agree with that assessment, I’d venture to guess that anything thereafter would look less like gridlock and more like a printing press.
While a job-creating infrastructure plan would likely still be the centerpiece, Democratic unity would suggest that stimulus be directed more toward the vague Green New Deal than at an integrated energy policy, and more toward cities and suburbs than more rural red states.
And given that Congress darn-near passed a $2,000-per-person stimulus with Republicans in charge, a Democratic Senate would all but ensure some form of universal basic income and the full-on implementation of Modern Monetary Theory.
In my mind, that leads us to two separate, diametrically opposed industries — green energy and mining.
The green energy sector has caught fire several times this year — Brookfield Renewable Partners LP (NYSE: BEP) is up 67.5% since we recommended it back in July. And while hydro will certainly fare well under an all-Democrat Legislative Branch, solar is more likely to outperform.
That means stocks like Enphase Energy Inc. (Nasdaq: ENPH), Solaredge Technologies Inc. (Nasdaq: SEDG), and Sunrun Inc. (Nasdaq: RUN) — already up as much as 600% since the start of 2020 — could soar even higher.
Source: Bloomberg
But the sheer amount of debt issuance required to offset something like universal basic income would dwarf the measures taken by both the Federal Reserve and Congress to keep markets afloat.
And a quick reminder… they’ve taken a lot of measures.
Source: Bloomberg, Federal Reserve Balance Sheet
The resulting debasement of our fiat currency has already caused a mass rotation into other asset classes, and there are more short bets on the US Dollar than at any time in history.
Source: Bloomberg, CFTC
And as I’ve written about a million times before, gold is likely to be the biggest beneficiary.
But that said, even after today’s election-related jump, the yellow metal is still trending lower.
Source: Bloomberg
Until it moves up above the November 9th high of $1,966 per troy ounce (the thick horizontal line in the chart above), this is just a lower high. And lower highs are most often followed by lower lows.
So for now, I’m waiting…with these lyrics in mind:
Other arms will reach out to me
Other eyes smile tenderly
Still in peaceful dreams I see
The road leads back to you
Because believe me, if the Democrats actually do pull off a sweep in Georgia, all my people business is getting transferred into the gold business.
All the best,
Matt Warder
