As I have said in my letters over the course of this year, democracy is vital to your wealth because your wealth is tied to the strength of democracies where it is invested.  Countries with stronger democracies exhibit significantly higher valuations per unit of earnings than countries with weaker democracies.  If, for example, US valuations were to collapse to the same average price/earnings multiple of Russian companies, we would all be much, much poorer.

Public financial markets themselves rely upon democratic mechanisms.  Every day, buyers and sellers meet in the public marketplace and “vote” on asset valuations.  Sellers publish their “ask” offers, buyers publish their “bid” offers, and transactions occur when bid prices and ask prices overlap (or “cross”).  Imagine, however, if the stock exchange awarded shares not to the highest bidders, but to the lower bidders.  Further, imagine if the lower bidders, without any evidence at all, accused the stock exchange of fraudulently awarding shares to the higher bidders, and sued the stock exchange to force it to instead award the shares to the lower bidding plaintiffs.  If the plaintiffs were to prevail in court, no market participants would ever again enter the market to trade, and the market would collapse.  A single bad ruling by the highest “market court”, unable to be appealed, could literally destroy the entire market.

This, in essence, is what occurred in America’s political system over the past week.  Eighteen state attorneys general, 36% of the total 50 states, led by the Texas attorney general, sued four states - Pennsylvania, Georgia, Wisconsin, and Michigan - claiming without any evidence at all that their certified election results for President only were fraudulent.  These accusations made by trained and credentialed attorneys in front of the highest court in the land, were formally joined by a Congressional vote of 126 Congressmen, 28% of the 435 total House representatives.

Thankfully, the Supreme Court of the United States unanimously ruled against the accusations (seven justices refused to hear the case at all, and two were willing on principle to hear the case but not inclined to agree with the accusations).  Three of the nine justices are appointees of the President himself, and three others are appointees of other Republican presidents.  This nation can be very thankful that these highly accomplished jurists upheld our Constitution, which permits states to conduct their own elections fairly and under law.

Of all the distressing actions I have witnessed over the past four years, none has so concerned and disturbed me as this lawsuit and the wide support it received from elected leaders (including my own Congressman, who represents my badly disfigured, spermatozoa-like, gerrymandered district).  These actions - gerrymandering, vote suppression, and now the latest strategy, judicial nullification - strike at the heart of our democracy, and therefore at the heart of your wealth.  If America is not very careful in the coming years, not only will our politics resemble Russia’s, but our stock and bond markets may as well.  None of us, regardless of party affiliation, will appreciate the results.

New Capital is blessed to have clients in a number of American states including in Pennsylvania, Georgia, and Wisconsin.  To these clients, I offer my deepest apology for our Texas Attorney General’s efforts to disenfranchise your Election votes.  I want to assure you that, however you voted in this election, I honor and respect your vote, and I know that your state’s officials, whatever their party affiliation, would not certify your state’s vote if it was fraudulent.

On another subject, this Tuesday, we will host our final webinar of the year, and will focus on year-end planning strategies (such as charitable contributions and Roth IRA conversions), a look at tax implications of the incoming government, and a review of 2020 investment results.  I hope you can join us.

Finally, Time magazine’s Persons of the Year are Joe Biden and Kamala Harris.  I could not disagree more.  Time should have named our nation’s hospital workers, teachers, vaccine researchers, store workers, and other rank and file people who have worked, often at risk to their own health, to help others including our sick and our children.  Never has a group of people been more deserving of an award.  

On Friday, as the Supreme Court affirmed American democracy and the will of our voters, the Food and Drug Administration formally approved the first vaccine for emergency use.  As 2020 comes to a close, my hope is that we are emerging from a dark and cold tunnel into the warm light.  May you and your loved ones all feel the warmth and glow of this light during the holiday season, and may they grow yet warmer and brighter in 2021.  And as always, thank you for your confidence and trust, which are themselves bright and warm lights to all of us at New Capital.

Leonard Golub, CFA
Fiduciary Financial Advisor

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