The Backwardation of Joe Biden
If you’ve ever traded futures contracts, you likely know about the concept of “backwardation.” Backwardation is a condition where contracts for future months are decreasing in value relative to both the current and most recent months.
Backwardation is considered a bearish sign, as it indicates that traders expect prices over the long term to decrease. This term came to mind recently as I saw a host of presidential election polls showing the substantial lead in the race by presumptive Democratic nominee Joe Biden.
Former Vice President Biden is up nearly nine points in the Real Clear Politics Average of nationwide polls, and he is well ahead of President Trump in each of the key swing states that are likely to determine the winner.
In fact, even Wall Street executives are starting to brace for a potential Biden win as President Trump’s numbers are fading. But would a Biden victory in November represent a sort of “backwardation” for the country?
I definitely think the answer is yes, as I think that an administration which is intent on raising taxes, increasing regulations and pandering to the anti-capitalist social justice warriors in the “woke” wing of the Democratic Party would be bearish for America.
Yet, my experience of Joe Biden’s backwardation tendencies goes back to my personal experience with the man during a transcontinental airplane ride some 12 years ago. I first wrote about that experience in August 2008, and I have shared that experience in this column many times since.
Given the latest buzz about a potential Biden presidency, I thought I’d share my observations of the “backward” nature I observed from the then senator. Yes, my observations are intentionally humorous, but they also are designed to expose the inner workings of the man’s thought process.
So, let’s dive right in.
We All Scream for Ice Cream: A Joe Biden Tale
(August 27, 2008)
You can tell a lot about a man by the way he eats.
Some men like to sit down to a meal, take their time and savor each and every morsel of food and drink. People like this tend to be thoughtful, meticulous, confident and, in many cases, hedonistic. How do I know this? Well, I’ve been known to spend more time than most in getting through a multi-course, wine-paired meal.
Still, other men like to dig right into their prize, attacking the meal with fervor and a literal hunger for life that reveals their carpe-diem approach to the world. This type of person tends to be decisive, purposeful, driven and a born leader. My favorite example of this type of eater is my good friend and investment guru extraordinaire, Doug Fabian.
But what do you say about a man who eats his meal in reverse order?
That thought has plagued me ever since I sat next to Sen. Joe Biden on a flight from Washington, D.C. to my hometown of Los Angeles, California. Sen. Biden was on his way to L.A. for an appearance on HBO’s “Real Time with Bill Maher,” while I was returning home from my annual pilgrimage to the nation’s capital for a meeting with friends, publishers and the members of some of my favorite think tanks.
After exchanging pleasantries with the senior senator from Delaware, Biden wasted no time in digging right into his criticisms of the war in Iraq and what he perceived to be the folly of the Bush administration. I expected nothing less from the senator, as he’s known for his outspoken critiques and his shoot-from-the-hip commentary.
What I didn’t expect was a lesson in how to eat a meal backwards.
Now, since I had the benefit of being seated in first class during this flight, the flight attendants were very attentive when it came to serving what was a surprisingly tasty meal. The first course was a salad with Italian dressing, which was followed by a main course of a plump, well-seasoned chicken breast and a side of rice. The best part of the meal, for me, was the dessert, which was a generous scoop of gourmet chocolate ice cream.
I ate my meal with my usual casualness, and in the aforementioned order. Sen. Biden, however, took a different path. Biden accepted the salad, but he put it aside and saved it for later. When the main course came, he politely rejected it. But when the ice cream came, Biden’s fervent personality really came out. He emphatically asked for a serving, although he had not yet eaten any food.
Biden ate his ice cream while we discussed Kevin Phillips’ book “American Theocracy,” the then-latest critique of the Bush administration’s religious overtones. After eating the ice cream, Biden pulled out a hefty ham sandwich from his briefcase and consumed it in a deliberate and determined fashion. Once the sandwich disappeared, the Senator turned to the only remaining bit of food left on his tray table, the salad.
As I watched this reverse-order meal consumption, a thought occurred to me: Is this why the federal government is so screwed up? Is Sen. Biden’s backwards approach to a meal indicative of what’s wrong with Washington? Does this backwards-eating pattern explain why the government does everything less efficiently and less effectively than the private sector?
Given my theories on discerning knowledge regarding a person based on how they eat, what was I to make of Sen. Biden’s meal habits? The only logical conclusion is that Biden looks at the world — shall we say — differently from the rest of us. And while there is nothing wrong with a slightly different perspective on things, I don’t think I want someone a heartbeat away from the presidency who eats his ice cream first.
The next thing you know, this person will advocate raising taxes to stimulate the economy, negotiating with our ideological enemies as a means of portraying strength and railing against judges who think interpreting the Constitution is the only proper function of the courts.
Wait a second… that’s what Biden wants? I knew there was a reason why he ate the ice cream first.
ETF Talk: Consider Investing in Western Europe and Its Rebound Potential
(Note: First in a series on Europe-focused ETFs)
In our next ETF Talk series, we will highlight a few Europe-based exchange-traded funds (ETFs). European markets have been slumping for years, but the time for those countries to shine again may finally be around the corner as potential investments and renewed growth in European economies is beginning to take off.
SPDR Portfolio Europe ETF (SPEU) is about as close to a pure Western European investment vehicle as you can get, and it includes both large- and small-cap companies, though holdings are weighted by market cap. It is a simple idea aimed at investors who are looking to invest in the region broadly.
Over the last 12 months, this fund is down 6%. This is similar to the performance of other funds with similar investment theses, such as Vanguard FTSE Europe Index Fund (VGK). Western Europe has underperformed American markets over that time period, just as European markets have for years. SPEU holds $137 million in net assets. Its expense ratio is a fair 0.09% and it pays a current 2.36% dividend yield.
Chart courtesy of StockCharts.com
SPEU’s holdings cover a broad swath of industries. Its top holdings, by nation, are the United Kingdom, Switzerland, France, Germany and the Netherlands, though a number of other European countries are represented as well.
The top five largest individual holdings are Nestle SA, 3.36%; Roche Holding AG, 2.50%; Novartis AG, 2.20%; ASML Holding NV, 1.66%; and SAP SE, 1.61%. The top 10 holdings make up 17.5% of SPEU’s portfolio.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
In case you missed it…
A Tale of Two Quarters (In Pictures)
The Dickensian aspect. That’s a phrase sometimes used when one explores the financial, social and moral turmoil in a culture the way that Charles Dickens did in his masterwork, “A Tale of Two Cities.”
Here’s the epic opening to that novel. Once you read it, you’ll know why I chose it to describe what’s happened in markets and the economy through the first two quarters of the year:
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…”
As I wrote in the last issue of The Deep Woods, so far, 2020 is shaping up to be the worst year ever.
We’ve been hit with the worst global viral pandemic in over a century, a virtual shutdown of the American and global economies and we witnessed a gut-twisting plunge in the S&P 500 of some 30% in just a matter of weeks.
All of this pain was reflected in the worst first-quarter performance for markets since 1938. That drubbing can be seen here in the chart of the major domestic averages in the first three months of this year.
Yet through these “worst of times,” individuals, acting in pursuit of their own rational self-interest, took action and have largely ushered back in the “best of times” during the second quarter. The chart here of the major domestic averages in Q2 shows a virtual reversal of the big selloff in Q1.
Of course, it wasn’t just individuals who acted to pull the market up by its bootstraps. In March, the Federal Reserve announced unprecedented and virtually unlimited money printing that was designed to “rescue” the economy and the markets. Then, we had the federal government step in to issue massive, multi-trillion-dollar stimulus via beefed-up unemployment checks and Paycheck Protection Plan (PPP) loans to businesses.
Those combined efforts helped extricate stocks from their downward spiral. Though the trajectory in Q2 was occasionally volatile, by and large, the market staged a near-complete reversal of fortune from April through June.
Finally, let’s look at the widened view of the major domestic averages through the first half of this crazy year. As you can see, while the NASDAQ Composite is firmly in positive territory, the Dow Jones Industrial Average, S&P 500 and Russell 2000 remain in the red year to date.
As you can see, 2020 has been a year riddled with tumult, and one can easily apply the Dickensian aspect here, as it has been the best of times and the worst of times for markets.
So, what’s in store for the second half of this extraordinary year?
I think any real speculation here is mere folly, as the winds of change in this market are as unpredictable as the hot summer Santa Ana winds that blow through my beloved Southern California mountains.
Yet one thing I think we can say with virtual certainty is that this market, this economy and this society will continue to experience the best of times and the worst of times.
Consider yourself forewarned.
The End of Silence
Get yourself a break from self-rejection
Try some introspection
And you just might find
It’s not so bad, and anyway
At the end of the day
All you have is yourself and your mind
–Rollins Band, “Low Self Opinion”
The punk rock icon, writer, TV personality and fellow Renaissance man Henry Rollins hit the musical and lyrical bullseye with his 1991 album, “The End of Silence.” Every song on the album strikes your emotional core with the force of an upper cut from Mike Tyson, not only lyrically and vocally, but also via the overdriven guitars and aggressive drumbeats. The lead track, “Low Self Opinion,” exhorts those who are suffering from a lack of self-esteem to stop lamenting and start thinking. Because as Rollins correctly observes, at the end of the day, all we have is ourselves and our minds. That’s good advice for anyone, regardless of your self-esteem status.
Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.
In the name of the best within us,