How Will the Banks Fare in a Non-Stimulus Quarter?

We are starting to see weakness in pricing again with senior secured floating rate debt, commercial mortgage debt, especially as it pertains to commercial assets.

We've talked about these assets and these areas of the market repeatedly. These assets have very low pricing right now, relative to the value of the underlying assets. The yields are very, very high, and so for people with risk tolerance, this is an interesting time to consider purchasing some of these assets.

Still, it's going to be awhile to wait out this storm because the real question is, have we just put off the inevitable with defaults and bankruptcies in regard to the economy with all of the shutdowns?

A Quarter Without Stimulus

Let's admit it. First quarter, we started shutting down, the shutdowns were in full force in the second quarter, but we also had a mountain of stimulus money.

Individuals, unemployed folks, businesses with PPP and EIDL - all of that money came through primarily in the second quarter. In the third quarter, Washington could not get their act together, and so everybody left town and didn't get another round of stimulus through during July and August.

Now we're coming up on the end of the third quarter and the big question is going to be, "What does no stimulus in a third quarter do for corporate earnings?" That question mark is what's driving the market down about 8 to 10% right now. That's what's causing some of the spits and spots, fits and starts, on the technology indexes.

That's what's causing the canaries in a coal mine, those bond prices, to come back down a little bit. They're not back at all time lows. They're not retesting those lows from the March timeframe, but they have come up off of their recovered highs.

A Personal Note on Preparation

We're watching these conditions very closely. If you are concerned, please don't hesitate to reach out to us. If you have cashflow needs in the next three to six months, you probably want to raise that cash now.

Opportunities We Are Watching

Still, we want to be greedy when we see opportunity. If we see some assets that plunge in value here, we want to just be acquiring more shares because ultimately that's how you build your wealth.

You accumulate more shares when the prices are depressed. Use the cash on the sideline that you don't need in the near term. Use the cashflow from your portfolio. Such occasions give us the opportunity to move assets into the market and acquire more shares for what we expect will be a rebound post-election.

Anticipating Market Response to November

To be clear, we're not taking positions on who should win or who will win the election. The market doesn't care.

The one concern, the one asterisk I would put next to that is that if we have a protracted non-event where we come out of election day and we don't know who won. It may be that we get some kind of a constitutional crisis. That's probably worse for the market than either one of these guys winning.

All the same, get ready. We're in the middle of crazy season, and October surprises are sure to abound on both sides. Everybody's going to have a surprise. Everyone is going to say, "This time is for the soul of America." Right, left, blue, yellow, purple, red, whatever. It doesn't matter.

Let's get through election season and the cacophony of October surprises and look forward to better days. It will hopefully be smoother sailing as whoever wins starts to figure out their administration and their decisions for 2021 and beyond.

If you have questions, don't hesitate to reach out. We're always here with perspective for the decisions ahead. Have a great day, have a great week. Enjoy the changing of the season here this week. Happy fall. Take care.