March 1st, 2020

by Steve Stofka

Among the Democratic candidates for President are two mayors. Mike Bloomberg was mayor of New York City for the twelve years following 9-11. Pete Buttigieg just completed an eight year stint as mayor of South Bend, Indiana. Americans have never elected a recent mayor to the presidency (Badger, 2019). Will this year be different?

Mayors are responsible for everything that happens in their city – from policing practices to snow removal. John Lindsay, a former mayor of New York City, almost lost his job because of a snowstorm (Marton, 2019). Too many homeless people in Los Angeles? Mayor Eric Garcetti takes full responsibility (City News Service, 2019). Few residents write to the mayor to say that they are so happy that their streetlights are working. The lack of complaints tells a mayor that he or she is doing a good job. Mayors are a tough bunch with strong shoulders.

Do we take the same responsibility for our savings portfolios? If interest rates are too low, do we keep all the money in a savings account and blame the system? When the market goes down, do we rethink our risk appetite, or do we blame those invisible market forces?

 At nearly 11 years, this bull market is the longest running in the past one hundred years. The 400% gain since the March 2009 low beats both the gains of the 1920s and 1990s bull markets. Just a month ago, the investment firm Goldman Sachs estimated that there was still room for more price appreciation this year (Winck, 2020).

This week’s downturn was made sharper by several practical factors. In any abrupt downturn that last a few days or longer, margin calls prompt more selling. What is a margin call? Let’s say I borrow $50 from my broker to buy a $100 stock. If the price goes down to $90, my broker wants me to pony up another $5. If I don’t have the cash, the broker will sell some of my holdings to raise the cash.

The Coronavirus prompted investors to reassess projected earnings for this year and to assign a greater risk to their stock exposure. A lot of investors bought bonds with the proceeds from their stock sales. Worst time to buy long term bonds? Probably. An ETF of 30-year Treasury bonds (TLT) hit its highest price ever this week.

President Trump regards stock market performance as an important indicator of his success. What will he do if market prices decline another 10%? Will he attack Fed chairman Jerome Powell as he did in 2018? Has Mr. Trump become the most wearisome President in modern history?

Joe Biden took almost half the votes in the S. Carolina primary this week, but Bernie Sanders is still leading the roster of candidates with 54 delegates (Leatherby and Almukhtar, 2020). It’s a long road to the goal of 1991 delegates to secure the nomination. The delegates captured in the first four primaries are dwarfed by the 1344 delegates in play this week on Super Tuesday. 643 of those delegates are in California and Texas. It’s a reminder of the power of a few states in the selection of a President.

What about the mayors in the race? Pete Buttigieg is 3^rd in delegate count. Because Mike Bloomberg entered the race late, he set his sights on Super Tuesday and currently has 0 delegates. Elizabeth Warren and Amy Klobuchar have both worked long and hard, have enthusiastic supporters but have earned few delegates. Running for the top office is a hard job.

Will this week bring more downturns in the market? There was a big surge of investors willing to buy late Friday afternoon. It’s a good sign when large investors are willing to take a position before the weekend.  

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Notes:

Badger, E. (2019, November 18). Pete Buttigieg Tests 230 Years of History: Why Can’t a Mayor Be President? N.Y. Times. Retrieved from https://www.nytimes.com/2019/11/18/upshot/Buttigieg-2020-race-mayors.html

City News Service. (2019, August 26). Mayor of LA Promises More Help to Solve Homelessness Problem. Retrieved from https://www.nbclosangeles.com/news/local/streets-of-shame/mayor-garcetti-homeless-los-angeles-crisis-response/129407/

Leatherby, L., & Almukhtar, S. (2020, February 3). Democratic Primary Election Results 2020. Retrieved from https://www.nytimes.com/interactive/2020/us/elections/delegate-count-primary-results.html

Marton, J. (2019, January 28). Today in NYC History: John Lindsay’s No Good, Very Bad Snowstorm of 1969. Retrieved from https://untappedcities.com/2015/02/09/today-in-nyc-history-john-lindsays-no-good-very-bad-snowstorm-of-1969/

Photo by Mateus Campos Felipe on Unsplash

Winck, B. (2020, January 23). GOLDMAN SACHS: Lagging fund inflows can drive the stock market even higher | Markets Insider. Retrieved from https://markets.businessinsider.com/news/stocks/stock-market-higher-forecast-inflows-safe-asset-crowding-goldman-sachs-2020-1-1028840905