Written by Michael Forrester – Founder, President, and CIO of High Note Wealth
Last night in Minnesota was an apocalyptic horror show. There is no way to sugar coat it. After a couple of nights of demonstrations and protests, things boiled over at sunset and quickly spun out of control. On East Lake Street, rioters took over the area and fires started popping up all around with firefighters unable to enter. Just after 10pm local time we received word that the Minneapolis Police Department was forced to evacuate the 3rd Precinct because it was being overrun. Moments later the Precinct went up in flames. A chilling scene to say the least. On the other side of the river, University and Snelling in St. Paul was attacked with stores looted and buildings engulfed in flames. Watching from traffic cameras because there were no reporters on the ground, for a moment it appeared that Allianz Field was in jeopardy. Minneapolis Mayor Frey addressed the media around 1:30am with very few answers and little semblance of a plan. Around 3am, the National Guard finally entered the areas and took control of the streets putting an end to one of the worst nights in Minnesota history.
We woke up Friday morning to find out that the Minnesota State Police had arrested a CNN journalist covering the story. Governor Walz held a press conference with very little to offer in terms of a game plan and the hits keep on coming; all in the midst of a pandemic. One of the police officers involved in the death of George Floyd was arrested and charged Friday in what feels like an appeasement to the carnage that occurred on Thursday. It is hard to know if this will settle down the public emotion when the sun goes down on Friday night.
The intention of these updates is not to break news. We know that everyone is plugged in. The idea is to give perspective on how things like this directly relate to investment management and your financial security. This is a hard event to process, but we think it does point to a couple of things. First, let us be very clear that the contentious relationship between citizens and police departments is not new in this country and is outside the scope of our discussion.
With that in mind, one takeaway is that citizens were willing to push it to extreme levels and the local government was without answers. Perhaps this push to extremes is 100% attributable to a build-up from past events. It very easily could be the case and current circumstances had nothing to do with it. However, adding in the ingredients of high unemployment, people stuck inside for a long time and a continuing wealth gap and you have a recipe for disaster. This brings up the second takeaway; it would not be a surprise to see more events like this whether in Minnesota or elsewhere. While the stock market did not seem to react, that will not always be the case. It’s disruptive and damaging to local economies that are already under financial stress with COVID fallout bringing us to the third, and obvious, takeaway; taxes are not going down any time soon. Maybe the federal brackets will move around, but state and local governments are going to have to figure out a way to pay for all of this.
While we much prefer vertical stock markets and lower taxes (like everyone), it is important to remember that we have a plan for when that is not the case. Whether the world chooses to go through door #1 or door #2, there are ways to preserve and grow capital. The recovery from March lows has been significant and the market is most definitely embracing optimism. With everything going on in the world that can change quickly so our guard is continually held high. As states across the country continue to open back up, there is reason for us to be cautiously optimistic. Besides, pessimists are exhausting.
Before the trouble in the Twin Cities popped up, this week was going to be much about the U.S. and China relations. It is an important piece in all of this and will continue to stay at the forefront in coming weeks, so we wrote a little below if you would like to read. If not; safety first. Call us if you need us. Have a great weekend. All the best.
Financial Media Idiom of the Week: “Bluster”
Was it just bluster? Was it not just bluster? Let’s debate. What all this bluster talk is about, of course, is whether the rhetoric from President Trump on China is all talk or if the talk has a little walk with it. What’s the difference? Well, with US/China relations already cool the question becomes if it leads to World Cold War II. The good news is that the USA is 1-0 in major cold wars. The bad news is that cold wars can lead to real wars.
The former Soviet Union was a legitimate cold war foe in the 1980s, but China represents a different challenge as they are economically much more advanced. While the players are different, the game is still the same, we simply replace “military superiority” with “technological advancement.” The issues are deep, the history is complex, and the stakes are high. After years of globalization, if the path forward is more isolationist, the world will look much different and there are financial ramifications everywhere.
The US and China have been a couple of Grumpy Old Men the past couple of years. They need each other. They go fishing together. They constantly argue and fight and cheat, but figure out a way to find companionship when it is all said and done. Throw a global pandemic in the mix and things have gotten downright chilly. Fingers are being pointed and actions are being taken. Textbook economics would say that globalization is central to stimulate growth not just in the US, but around the world. This narrative says that the two most important economic powers must work together to drive growth. On the other side, there is a building contingent that has been cautious on the relationship. Former White House Chief Strategist, Steve Bannon, has been beating the drum and going as far as saying it’s his life’s mission to take down the Chinese Communist Party. As we know, President Trump campaigned on tough Chinese rhetoric and has spent much of his first term imposing sanctions and tariffs while trying to get a new trade deal. Well, that was all pre-pandemic and now the stakes have leveled up.
President Trump held a press conference on Friday to formally address China relations and the recent action to tighten control on Hong Kong which is a long point of contention. While he mainly stuck to the script, the language was direct and aggressive. He blamed China for causing the global pandemic and trying to cover it up. He denounced the tightening of control on Hong Kong which was expected. What he did not state was any new actions today, so we will call it bluster for now. There will be a retort from Beijing at some point so we will be watching to see if cooler heads prevail.
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