The markets ended strongly green yesterday in anticipation of President Trump's return to the White House. At the open US markets are currently flat indicating that perhaps we are headed for a somewhat sideways trading week. With the Vice Presidential debate set for tomorrow and the need for the market to digest the uncertainties regarding the President's condition and actions (and their impact on the campaign) the appetite for risk among investors is certainly again, in question. 

Monday the Dow closed at 28,149, up 466 pts. or 1.68% which is positive indeed. The Nasdaq closed at 11,332, up 257 pts. or 2.32%, while the S&P 500 closed at 3,409, up 60 pts or 1.80%. A strong showing all around. Below is a chart of yesterday's action.

Chart: The New York Times

Understanding what to do in the market in 2020 continues to be a daunting task for TalkMarkets readers and contributors alike. This year has been an active one especially for gold bugs, who had "a told you so moment" when the precious metal hit an all time high of $2,074.88 per oz. in August.

Since then it has cooled off a bit and Margaret Yang writing in Gold Price Eyes $1,910 Resistance As Election Uncertainty Drags On USD gives us an overview of what we might expect from gold going forward, especially as relates to the strength or weakness of the U.S. Dollar.

"A falling US Dollar (UDN), alongside uncertainties surrounding the US presidential election may continue to serve as positive catalysts in the near term. The medium trend of gold prices, however, remains tilted to the downside as prices have formed consecutive ‘lower highs’ and ‘lower lows’ since early August..In the near term, the outlook of gold (GLD) largely depends on the direction of the US Dollar due to their negative correlation over the past 12 months (chart below)...From a long-term perspective, however, gold prices appeared to have entered a consolidation phase within a mega bull trend, with a major support level at around US$ 1,800. The macro-environment (ultra-low interest rates, QE and fiscal stimulus) remains accommodative to gold prices, albeit a short-term pullback is underway."

Gold Prices vs. US Dollar Index – Past 12 Months

In a two-part article, both of which are published on TalkMarkets today, the staff at Sigma Analysis, writing in Fed Stimulus And The Economy: A House Of Cards make the case that while the Fed (and other central bankers around the world) has been keeping the economy from sinking into depression via Quantitative Easing and other forms of stimulus, creating huge amounts of debt in the process, this can only last for so, long. Some examples they cite are as follows:

"...(While) elevated levels of stimulus kept the overworked market churning and reaching higher highs, the inflation-indexed cost of living continued to disconnect from the rate at which real incomes were growing. So while on paper, everything has been going well and people have been buying homes at a record rate, they haven’t really been affording homes; more and more are individuals heading into retirement with mortgage debt..(In addition) the stock market is morphing into a different beast as well that does not follow any of the conventional (economic) truths... it is becoming disconnected from the real efficient flow of capital and the cash conversion cycles meant to occur within a functioning society. There are many tells pointing towards this fact. Chiefly, the rising price of gold is historically meant to act as an uncertainty gauge in the economy, or the level of the VIX, which measures stock market volatility..." 

In Sigma's second article, Fed Stimulus And The Economy: A House Of Cards – Part 2 they write that "...the US debt-to-GDP ratio was roughly 80% pre-COVID and it is now estimated that debt will be greater than the size of the economy when the dust settles." Historically, this means that when the crows come home to roost, economies and societies head into a long winter of austerity where all funds available are used to repay debt and growth comes to a standstill. The authors cite the case of Greece where austerity has not helped them to dig out of debt (first taken on in the 1990's) and the Ionian hole seems to just keep getting bigger. So is this the future that awaits the U.S. economy? The authors are cautiously optimistic that this is not so and that technology will provide the growth to take us out of debt.

"The tech economy to solve very observable problems is where most entrepreneurs, large conglomerates, governments, and policymakers, and even the occasional billionaire have focused their attention to simply make things happen. Can it happen fast enough to offset the immediate burdens resulting from the multiple hits in this crazy 2020? Funny enough, the pace of tech growth is hyperfast. So long as capital feeds easily to where scarce resources are causing problems and real problems are identified allowing smart people to find practical solutions, we’ll have an economy that pushes all forward. It’s not only the usual centers of innovation like Bengaluru, Shenzhen, Tel Aviv, and Silicon Valley. It will be everywhere only because everyone now realizes that this tech bubble we’re in is a necessity."

The authors are certain that this is the way out of debt and the path to growth, though they conclude with an ominous note for those not "tech-inclined".

"Tech applied to any and all industries and at any and all locations is the economy of now and the future. For kids not working on their Python coding skills or too afraid to choose algebra or calculus in high school, good luck with the economy of now and the future."

How's that for a blessing and a curse?

Mitch Tuchman  in The COVID Grind Is Unbearable, But It’s Not Forever notes that currently "the economy seems to be finding a footing here and there...(though) for most Americans the reality of daily life is get up, try to work, try to keep your kids on task, care for relatives, neighbors and pets — and repeat, seemingly infinitely", things will recover.

Tuchman in that sense compares the current pandemic economy to the 2008 housing crisis, "What’s more, the Federal Reserve seems committed to keeping money cheap, likely for years to come. In that way, it’s reasonable to compare the pandemic to the 2008 housing crisis...It took a long time for us to fully recover from 2008. Yet the markets did recover, year by year, finally surpassing previous highs. The economy roared and unemployment fell sharply.

It seems our pandemic recovery will be similar. Barring some other black swan event in the meantime (aliens? an asteroid?) we will get the upper hand on COVID (vaccines, therapeutic treatments). The economy will strengthen even more than it already has, and stocks will continue to climb...In fact, the dizzying drop in stocks we saw start in mid-February was erased by mid-August, just six months later. Employment will recover. Schools will reopen. So will bars and restaurants and, yes, people will get on cruise ships and once again pack themselves into stadiums."

With regards to your personal portfolio, Tuchman who built a service for do-it-yourself investors to manage their own retirement portfolios, says this:

"Long-term investors should remind themselves what “long term” means: Decades, not days, weeks or months. If you were comfortable with your investments in January, you shouldn’t be questioning those choices now. 

If you weren’t, then a realistic review of your goals is always in order — pandemic or not."

TalkMarkets contributor Craig Birk in September Market Recap: COVID-19 Market Recovery Hits Pause has two main points for us to consider today:

1) "Since the pandemic began, headline stock indexes in the US are roughly flat but have been supported by gains in a narrow group of the biggest technology companies. The average stock in the S&P 500 remains down about 7% from the February peak. This suggests a successful vaccine in 2021 could present the biggest opportunity for stocks battered in 2020." 

2) "An emerging risk is a contested election, which could cause short-term pressure. Even if this occurs, we view it as highly unlikely that corporate earnings would be significantly impacted. For the rest of 2020, the success of congress to pass additional stimulus may be more impactful than the election results. Markets appear optimistic there will be a package, but for now the two sides remain far from agreement."

Again, with opinions as volatile as the markets it's hard to know where to invest to get good returns. This week Garrett Baldwin finds The 2 Best High-Yield Dividend Stock Funds To Buy Now. Read the article and see what you think. As always, buyer beware.

1) "The Calamos Convertible and High-Income Fund (CHY) invests in convertible bonds. Right now, the fund is trading at a more than 12% discount to the value of the portfolio. The fund is yielding 8.7%, and the dividend will hit your account every month."

2) "The Nuveen Pref and Income Opportunities Fund (JPC) invests in preferred stocks and convertible preferred stock to collect the income. The fund is yielding 7.5% right now, and the dividends are paid monthly. The fund's shares trade at an almost 6% discount to the value of the portfolio's investments. That is more than double the average 2.4% discount on average over the last year."

The champion boxer Mike Tyson said this about the need to be humble. "If you’re not humble, life will visit humbleness upon you."

Have a good week.