Thursday, April 8, 2021

“It’s Tough to Make Predictions, Especially About the Future” – Yogi Berra

Every time I read the quote from Yogi Berra above, I have to nod my head in agreement.  He definitely had a way of simplifying complex subjects.  Predictions are difficult when the facts are unknown and the conditions heading into the future are unpredictable.  We found ourselves in that exact predicament one year ago, in March 2020.  Rarely have I seen as much fear by investors than I saw in that month when the first lockdown occurred.  

At that time, investors were falling all over themselves to get out of the market and into cash, which was earning nothing.  I tried to assure them that the economy would quickly turn around and the stock market would react positively with the economic support of the federal government.  When you throw basically $3 trillion into the economy at one time, that money is going to get spent and is going to create economic activity which will lead to higher profits and higher GDP.  

Ava celebrating winning first place in
 her Figure Skating division

So Yogi, we actually projected that one correctly.  If you look at the time period from March 2020-2021, the S&P was up 56.3%.  The NASDAQ Composite was up 73.4% and the Dow Jones Industrial Average was up 53.8% over that one-year period.  Those types of gains are not normal.  They are extraordinary gains based on extraordinary circumstances.  The one thing we absolutely know when it comes to economics is that money creates spending and spending creates profits.  Remember, the most important driving force in making stock prices go up is earnings. 

As I sit here today reading all the financial information, I am blown away by the positive nature of the economy, yet the negative nature of so many investors.  All around, commerce is returning to normal, yet for some reason there is a high level of skepticism by the public based on fear or unknown economic circumstances that I am not aware of.  I will attempt to cover some of those items as well as some other information that I find interesting.  

As I must provide in all my postings, here are the rates of return for the month.  The Standard & Poor’s Index of 500 stocks was up 4.4% in March.  Year-to-date it is up 6.2% and as mentioned up 56.3% for one-year.  The NASDAQ Composite was basically breakeven at 0.5%, year-to-date is up 3% and for the one-year period is up 73.4%.  The Dow Jones Industrial Average was up 6.8% during March, up 8.3% for the year 2021 and up 53.8% for the one-year period.  Just for purposes of comparison, the Bloomberg Barclays Aggregate Bond Index was down 1.3% for the month of March, down 3.5% for the year 2021 and for the one-year period was up a measly 0.4%.  During the month of March there was this highly publicized conversion from growth into value type stocks.  As you see the excellent month that Dow Jones Industrial had, that is because many of its components are value-related stocks.  I think that will be a temporary shift and as earnings start to come in during the month of April, investors will convert back to growth investments.  

Cameron, 13, enjoying virtual “band class”
 while his parents are at work

Everyone asks me about the so-called axioms of investing - the unwritten rules of traders.  One of those axioms that has been illustrated lately is the concept that if interest rates go up, you sell growth investments.  The theory goes something like this.  If interest rates are going up that means the Federal Reserve is doing so to slow down the economy.  If you slow down the economy, then growth instruments would clearly suffer.  Therefore, one of the axioms that is held dearly to trader’s philosophy is that once interest rates start to go up you must sell growth and buy value-related investments.  

As we all know, axioms sometimes fail because they are not supported by facts.  In this particular cycle, we already had the Federal Reserve telling us that they have no intention whatsoever to increase interest rates until 2023.  We are in a situation now where the economy is exploding with growth and the government keeps throwing gasoline on the fire with new stimulus and governmental spending.  In March of 2020, the U.S. came into that month with a deficit of roughly $22 trillion.  Over the intervening 14 months, if the infrastructure bill is passed we will have added another almost $6 trillion in debt over a one-year period.  If you truly don’t believe that $6 trillion is going to move the economy, then you do not really understand economics.  If the GDP in the United States is $23 trillion this year, but you dispose another $6 trillion worth of stimulus into the economy, whatever the Federal Reserve does to try to slow that down would be a complete waste of time.   

I am not sure where most people get their economic facts, but as we sit here today this economy is getting ready to explode upward.  As we have learned, the most important component to making the economy come back is the vaccinations.  As of this morning, roughly 162 million Americans have been vaccinated.  Based on the last 30 days, we are newly vaccinating 3 million people a day and the simple arithmetic would be that by the end of April we should have at least 250 million Americans vaccinated out of the 330 million population.  I am absolutely positive that everyone will not get vaccinated, but we don’t need 100% to reach herd immunity.  

Reid and Caroline at 
Drive, Chip & Putt

Everywhere you look the economy is picking up.  The Employment Report that just posted yesterday was nothing short of gangbusters.  That report showed that not only was the hiring of new employees paramount, but we also saw hiring in such industries as entertainment, restaurants and hospitality.  You may rest assured those employers would not be hiring if they did not feel safe after vaccination.  

You are getting ready to see a tsunami of spending occur in America.  All the money that has not been spent over this last year for travel, vacations and outside entertainment has accumulated in people’s checking accounts.  It is estimated that today there is roughly $5 trillion in checking accounts waiting on some sort of resolution for the future.  It is my best guess that as we get closer to the summer you will see an explosion of spending unprecedented in the United States for many years.  

It was only announced this week by the CDC that if you have been vaccinated it is safe for you to travel again, yet airline travel is up dramatically over the last few weeks and it is reported in the hospitality industry that vacation hospitality has reached the level similar to that of pre-pandemic.  All of that is interesting but should also lead you to the conclusion that earnings will follow all this money.  If you have the general public taking vacations, flying on airplanes and staying in hotels, it will benefit the hospitality industry, the restaurants and everything in between, which is exactly what is happening today.  

Caroline, Reid and Flat Stanley 
resting in the park

Just so you do not think that I have lost all perspective in connection to basic economics, I will explain my position on the economy. There is absolutely no question that all the stimulus that the Federal government has put into the economy will help businesses put people back to work and help America grow.  It is, however, a wonderful short-term asset, but a very much long-term negative for the U.S. economy.  When the Federal government goes out and prints $6 trillion, at some point someone has to repay that debt.  At the current time, interest rates are extraordinarily low and it does not take a whole lot of money to serve as the debt structure to keep that debt in place.  That will not be the case forever.  While I focus on the positives in this newsletter, I just want you to be aware that all of these positive moves in 2021 will more likely be negative moves in 2031.  However, for now let’s just enjoy this runup of the stock market.  

While there are many states in the U.S. that have already recovered, it is now estimated that there are roughly 1.7 million jobs in the U.S. that cannot be filled due to lack of qualification by employees.  One of the strange coincidences that is happening is with all the federal government funding of unemployment, there is a high disincentive for people to go back to work in lower paying jobs.  If you can make more money at home with unemployment, why would you actually go back to a job that doesn’t pay a livable wage?  It was hoped by many employers that the unemployment subsidies would run out but with the newest stimulus package, even those employment benefits have been extended to the end of 2021.  

But it is fairly clear that some states are already back to normalized rates.  In Florida, only 4.7% of their population is unemployed.  Nationwide unemployment is at 6%, but to clarify there are still 8.4 million less jobs than there were at the start of the pandemic.  Even the state of Georgia now has unemployment of 4.8% and every client I know is seeking new employees but cannot find them.  Recently our firm advertised for a CPA for our company and we did not get even a single resume of a qualified CPA looking to change work.  If you get into the more technical areas, the number of people that can fill these jobs with expertise are just not available.  

There is no question that certain states are actually falling well behind this unemployment report.  You could argue that it is self-inflicted, however, I guess we will never know exactly the reason.  As you compare Georgia’s unemployment report at 4.8%, California is 8.5%.  If you compare Florida’s unemployment report at 4.7%, New York is at 8.9%.  Therefore, much can be done to bring the economy back to normalized, but it is these larger states that will have to do the most.  It can clearly be argued that roughly one-half of the states are already back to pre-pandemic levels, while the other half are dragging behind.  

Ava showing off her favorite horse
 “Why the long face?”

So the general consensus is that if you throw $6 trillion into the economy, by necessity you will have to create inflation.  Yes, it is true enough that in recent weeks the long-term interest in the 10-year treasury has gone up to 1.7%.  At the current time, that 10-year treasury rate of 1.7% is equal to the dividend rate of the S&P 500 index.  Many would argue that numerous investors will leave the 500 index and invest their money in 10-year treasuries because the income component is the same.  I find that assertion to be absolutely ridiculous.  

One of the reasons why bonds have returned negative rates of return, as illustrated above, is because interest rates are moving up and will likely move up further.  Also, I do not believe that a 1.7% treasury rate will actually draw money out of the stock market to buy that bond yield.  There will be a time when interest rates will be high enough where money that is currently in the stock market will be drawn into the bond market.  However, I think we are a long way from that point.  So therefore, should we fear inflation as we go forward in the current environment?  

As many of you know the Federal Reserve sits down every six weeks and makes projections of the future economic circumstances.  Remember these are very conservative members that make up the Federal Reserve.  They are not one to exaggerate or even take extreme positions on any economic event.  At the most recent meeting of the Federal Reserve each member was asked to vote relative to their projection on GDP growth and in the United States for the year 2021.  As unbelievable as it sounds, the average projected GDP rate by the Federal Reserve was 7.2% for this year.  If you take that into consideration, that number is so over the top as to be clearly unbelievable.  

The last time the United States enjoyed GDP growth of that rate was in 1984 when Ronald Reagan was President.  Those of you that lived through that period know that the first two years of the Reagan Administration were recession years designed to break the back on inflation, which it did.  As the economy turned in 1983 and 1984, we enjoyed a period of hyper-economic growth, but it was more a reflection coming out of the economy than anything.  We are not in that situation today.  While the economy was bad during the pandemic, it could be argued that we only had recession for two months during that time frame.  If the economy actually generated returns of 7. 2%, that means a large portion of this economic growth will occur at the end of 2021.  All this falls in place with my projections above.  Six trillion creates a lot of economic activity.  

Ava reveling in the snow
 in Akron, Ohio  

As we get into the summer months, the fear of the pandemic will ease with the vaccinations which have proven to be extraordinarily effective.  As more and more Americans utilize their capital, to travel, visit their grandchildren or just go on vacation, it will improve the economy everywhere.  Already we are suffering through severe shortages of components in the supply line to produce products.  Over the last few weeks, the automobile companies have been closing production because they cannot buy enough semiconductors to build cars.  Think of that term for a second.  With all the semiconductors produced in the world we cannot buy enough to keep automobile production running.    

We hear about the major docks in California and along the Eastern Seaboard where ships are lined up to get in, sometimes having to wait weeks to be unloaded.  I happen to know someone who works on the docks in Los Angeles, and they are working 24/7 trying to unload the boats.  Why are all these boats coming to America at this time?  It is a very simple concept - money draws products and products go where money treats it best.  Already the economy is turning to a consumption economy and is growing so quickly we cannot even supply the products.  If you assume that the consumer is 70% of GDP, all this plays into a higher GDP rate of 7.2% for this year.  

So here we have the situation where the economy would be hard pressed to be in better shape.  It is fairly clear that the corner has been turned and with the excellent effectiveness of the vaccines, more and more people will feel comfortable with traveling and spending more money.  If all of that is true, which the evidence is overwhelming that it is, the byproduct of all this spending will be higher earnings which will bring higher stock prices.  

Cameron heading back to school
 after one very long year

If the government had not already provided enough capital, now we are discussing a bill that would provide infrastructure to Americans.  Who could possibly not be for better roads, highways, and airports?  That is almost as good as American pie. However, it is a very precarious time to be putting more stimulus and more debt into the American economy.  In reading the most recent bill proposed by the President, it only allocates about $500 billion a year for these types of repairs.  In respect to a bill of $2.3 trillion, that is relatively a small amount.  It might be worthwhile to postpone that passage of the bill until the economy is more stabilized, probably in a year from now.  

So those who would argue that the government has spent too much money would have a stable platform, however, no one will ever know because Yogi Berra and I cannot forecast it.  As an example, in 2008, when the economy clearly collapsed the government stepped in and provided support for the banks, but not the general public.  That was a very painful recession that lasted for two years and many people got hurt.  

Reid and Caroline waiting patiently
 to tee up at Augusta

During 2020, the government stepped up immediately and funded the economy with $3 trillion, which brought back the economy after only 90 days.  I had clients call in during this timeframe and ask my opinion on how long I thought this recession would last.  I continuously quoted a 90-day time period for this recession, which turned out to be pretty close.  Not that I was any better than anyone else forecasting the future, but I did know that if you throw $3 trillion in the hands of consumers, it would create profits.  

So, the argument could be made that the government is injecting all this money into the economy, which will clearly create inflation.  No one wants inflation like we had in the 1970s, where inflation was growing double digits per year, however the last thing you want in this country is deflation.  Deflation is much more difficult to come out of than inflation. If you study the 1930s in America and the Great Depression, it was principally caused by deflation more that any one item.  Deflation is the most difficult of all economic events to satisfy.  You may recall that in the 1930s, we suffered through deflation and 25% unemployment in the United States for over 11 years.  Not until the U.S geared up for World War II was the back of deflation broken.  

In summary, the economy is actually quite good and anyone that tells you otherwise really has not been reading the current numbers.  As America wakes up and gets on the road again in the coming months, economic activity will accelerate.  As I projected earlier, this economic activity will lead to more commerce and higher earnings and almost assuredly higher stock prices.  If you are not invested, now is the time without question.  

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins 

Wednesday, February 10, 2021

There Is Light At The End Of The Tunnel ... And It Is Not A Train Coming

There is so much good news to report this month that I am bewildered by the overall tone of the news you read every day.  I guess it has become so commonplace to be negative that people just cannot see the good from the bad, so this month I would like to talk about things that I believe you would be interested in and my projections regarding the U.S. economy.  I will discuss the extraordinarily good news regarding housing in the U.S, the pent-up demand that will come at the end of the pandemic and will stun you with the current earnings of Big Tech in America today.  I will also give you a heads up on the inflation that is coming and its causes, and the extraordinarily good news regarding the economy.  It is hard to keep down the excitement as we see the economy shift from a total shutdown to accelerating and growing again. 

I also must discuss the facts regarding the pandemic and what the scientists told us.  All of this affects the economy in a way that should get you excited about the upcoming year.  We finished the year 2020 with one of the best financial years of all time.  A gain of 18.4% is certainly something to be proud of in a pandemic.  Given the extraordinary circumstances of 2020, who would ever have expected that the stock market performance could be one of the best.  I have so much to report on and so little space, I guess I need to get started.  


Ava on her first day of school in 2013 and in 2021 – they grow up so fast!

As I always do before discussing more interesting things, I need to give you the scorecard for the stock market for the month of January 2021.  The S&P 500 was down 1.0% for the month of January, however its one-year return is still excellent at 17.3%.  The NASDAQ Composite was up 1.5% during January and its one-year performance is at 44.1%.  The Dow Jones Industrial Average was down 2% for the month of January, but up 8.5% for the one-year period.  Just as a basis of comparison, the Bloomberg Barclays Aggregate Bond Index was down 0.7% for the month of January and has a one-year return of 4.9%.  

It is hard to believe that we are not even at the one-year anniversary of the true start of the pandemic.  So much has happened over the last year, it is hard to believe it has only been 12 short months, seems much longer.  As I wrote in the first quarter of 2020, to solve the issue of the pandemic we need to turn loose the American Spirit and let corporate America solve the issue of this current virus which turned into a pandemic.  In this short one-year period, we saw our Federal government step up and fund research that led to vaccinations being approved at a record pace.  Even though we are not at the one-year anniversary, during this one-year period we not only created and tested a vaccine, we rolled it out to many Americans.  

As I write this posting, there have been 42.4 million Americans already vaccinated for the virus.  In addition, there have been roughly 27 million cases in the United States.  With a combination of the two, we have roughly 69 million Americans that already have some form of protection from the virus continuing to spread.  Whether you realize it or not, just a short 6 weeks have elapsed since the first vaccination and we already have close to 20% of the U.S. population that has some sort of protection from additional spread.  This is a remarkable rollout by anyone’s definition.  Whatever the newspapers and television media are talking about – I have no idea.  

But the best part is only beginning.  This morning Pfizer announced that they were increasing their production of vaccines by a full 50%.  Johnson & Johnson will receive their emergency approval of their vaccination this month.  By some accounts, there are roughly 15 additional vaccinations in the final stages of approval.  We will have more than enough supply; the implementation will be the challenge.  What is even more fascinating to me is that, as of today, there are 20 million doses of the vaccine sitting on shelves that have yet to be administered.  We are currently vaccinating at a rate of 1.5 million people per day.  This will be a low point as we roll out vaccinations in the coming weeks to the common man in drug stores and then retail stores.  It is now estimated that 40,000 drug stores and retail stores have applied for licenses to administer the vaccination in the coming weeks.  As we provide the supply of vaccinations to the drug stores, I fully expect the number of vaccinations a day to increase substantially.  

Caroline Schultz (7) celebrating her birthday weekend

From March 1st until June 30th, there are 122 days.  If you assume that we can continue to vaccinate 1.5 million people at a minimum per day, that is another 183 million vaccinations to be added to the ones already completed.  It is fully conceivable that by June 30th we will have vaccinated nearly everybody in the U.S. who actually wants to be vaccinated.  Whenever that day comes, you will see such a rush of spending and increase in commerce, unlike anything we have seen in this country in many generations.  It is going to be exciting!  

Notwithstanding all the negative news you hear about the vaccine and its rollout, no matter how hard you squint, or what angle you look at it from, the coronavirus vaccinations are an overwhelming triumph.  You want the actual proof of their success?  With only 20% of the U.S. population currently vaccinated, the number of new cases in the U.S. over the past two weeks is down 35%.  There are some states now that have only a few thousand active cases.  For all the things that have gone wrong and for all of the criticism levied on the Federal government over the last few years, the vaccinations themselves have shattered even the most ambitious expectations.  Not only has the American Spirit pitched in to solve a pandemic in record time, it also bodes well for the future where vaccinations can be created, tested and implemented over a short period of time.  Unquestionably, this will lead to a healthier world population due to the experiences learned over the last 12 months.  

It is already true that the economy is improving dramatically.  The unemployment report for the month of January indicated an unemployment rate of 6.3%.  There is no question that there are still 10 million people unemployed, but the government has funded these unemployed with lucrative benefits of unemployment and continues to extend those unemployment benefits well into 2021.  As the vaccinations roll out in the spring, you will see restaurants reopen and retail stores get back to full employment.  It would appear to me that employment should move up dramatically in only a few short months from where we sit today.  

Caroline enjoying her sweet birthday treat

Every day I read about the pandemic and all the various mutations of the virus that could bring down the world economy.  I am not exactly sure where these people get their facts since the scientific evidence, overall, is quite overwhelmingly positive.  It is now estimated by some that the GDP in the United States will exceed 7.5% for the year 2021.  That rate of growth has not been accomplished for decades in the U.S.  What we now know from prior investing experience is that the one sure-fire reason that the market will go down is due to a recession forthcoming.  Nothing that I have indicated so far would call for anything close to a recession in the year 2021.  

I read with great interest that so many of the experts were forecasting the demise of Big Tech in America.  Surely since the stocks had run up during the year 2020, we would see a gigantic pull-back in the performance of these large companies.  After reviewing the fourth quarter earnings of the largest tech companies, it was almost breathtaking.  Just look at the quarterly net income of Big Tech.  During the fourth quarter, Apple earned a net profit of $29 billion.  That was not gross, that was net.  Add to that Google and Microsoft both had net profits of $15 billion for the quarter.  Lowly Facebook, that sells no products only advertising, had an $11 billion net profit.  And Amazon clocked in with a profit of $8 billion.  By any definition, those performances were beyond extraordinary.  

Take into comparison the former most profitable company in the world, ExxonMobil, which had a loss in the fourth quarter of 2020 of -$20 billion.  At one time, it was thought that Congress was going to create a windfall profit tax because Exxon was making too many profits.  It is now known that Apple makes more profits now than Exxon ever dreamed about in its heyday.  

If you want good news about your home, then you do not have to look very far to get it.  During December, existing home sales are up 22%, but more importantly, the average home price had increased a cool year-over-year at 12.9%.  If you think about it for a second, an increase of almost 13% of the value of every home in the United States is a staggering amount of money.  New home sales were also strong, going up 19% with the median price increasing by 8%.  Keep in mind, the consumer’s net worth is directly linked to the value of his real estate.  

As the value of someone’s home goes up, the value of their net worth increases, and their disposable income is freed up for consumer goods.  This increase in housing prices bodes well for future spending by consumers.  Now it can be said that home prices are directly attributable to the low interest rates we enjoy today, and I am sure that is true.  However, never before have we seen interest rates stay this low for such a long period of time.  You can attribute that directly to the Federal Reserve’s stated intent of keeping interest rates low for the next two years.  

As we change administrations, you have the unwelcome influence of government, which is a negative in many aspects of our economy.  Newly elected President Biden during his first week in office made moves to restrict the exportation and drilling of oil in the United States.  By immediately canceling the Keystone Pipeline and revoking leases on the drilling of oil on Federal land, we all know (including him) this will lead to higher oil prices in the future.  In fact, in a period of less than three weeks, the price of oil has gone up $10/barrel due to these actions.  Part of the increase, I am sure, relates to the anticipated stronger economy coming this summer, but when you restrict exportation and drilling coupled with a stronger economy of people wanting to travel after the pandemic, certainly you will see higher oil prices.  

There is not a more critical component of future inflation than the price of oil.  The price of oil figures into virtually every aspect of every item we purchase.  Due to transportation and the cost of manufacturing, this increase in the price of oil will be passed along to consumer goods, which almost assuredly will increase inflation.  

Ava and Josh at the Statue of Liberty

So, what we are already seeing is that an increase in interest rates is taking place.  The 10-year treasury now is up to 1.017%, considerably higher than it was less than 90 days ago.  The 30-year treasury is still trading below 2%, but it is nearing that level for the first time in over one year.  As explained here many times before, this increase in inflation will diminish the return on bonds, since they move inversely to the increase in these rates and very likely will provide a negative rate of total return for bonds for the year 2021.  As I have predicted before, there is a high likelihood that cash will outperform bonds during this year of 2021.  

We all understand the concept of political payback and we understand why President Biden moved quickly to support the environmental cause of many of his supporters.  However, if he had moved more slowly and announced these changes to come up in the future, we probably would not have had this shock of inflation so quickly.  The real danger, of course, is that if inflation starts to gain momentum, we could see the Federal Reserve change its theory of prolonged low interest rates and begin to increase them again.  

If, by chance, the Federal Reserve started increasing interest rates, prior to their stated timetable of constant rates through 2023, that would certainly have a negative effect on the U.S. economy.  Oil producing third world countries around the world must be applauding President Biden’s actions.  The super-producers in the Middle East and Russia will receive instant gratifications of higher rates with these actions in the U.S. with President Biden doing more to support the economy in Russia in one week than President Trump did in four years.  

What we know about the pandemic now, is that it was a terrible tragedy for the United States - for both the people who got sick and died as well as for the U.S. economy.  What is fascinating to me, is the amount of conflicting information we received at the beginning of and during the process of the pandemic.  You will recall, there were projections that we may lose as much as 5% of the population who would die from this pandemic.  That would have been a death rate close to 15 million total.  In the United States, we have tragically lost 473,000 deaths due to the pandemic, although many of those deaths were inevitable due to old age and ill health.  But certainly, nowhere close to 5% of the population.  

Partners Danielle Van Lear, Robby Schultz, 
Joe Rollins and Eddie Wilcox 

We were told that if you lock down your economy, you will prevent the spread of the virus and on the other end of the lockdowns, you will isolate and come out quicker.  Just take the case of New York, where they proved the opposite to be true.  Even though New York went through an extended period of lockdown, they have one of the worst records in all the United States.  They are still mostly on lockdown today.  In the process of shutting down their economy, they have destroyed their hospitality industry and have crippled their tourism business, maybe forever.  And to what end did they accomplish this draconic shutdown?  

New York has the largest number of deaths of any state in the union with almost 45,000.  The state of Georgia, which has roughly 50% of the population of New York State, has lost a tragic 15,000 lives, but has a much better record than the state of New York.  Florida which has a larger population than the state of New York, which did not put its economy through long periods of lockdown, had only 28,000 deaths as compared to New York’s 45,000 deaths.  So, with the expressed desire to shut businesses down, they have accomplished virtually nothing positive in fighting the pandemic.  Today Disneyland in California is still closed while Disney World in Florida has been open for months.  

The poster boy for doing what is right during the pandemic was Governor Andrew Cuomo, who argued that he needed 40,000 ventilators, which he never used to fight the pandemic.  Yet, his state has the worst record of any state when it comes to controlling the pandemic.

None of us know really what the long-term effect of children missing an entire year of school will be.  My 9-year-old will go to her first class on February 8th.  I guess you can say that this year was a total waste of her education, since clearly sitting in front of a computer for seven hours a day was not the equivalent of in-person educational instruction.  That is a year of education that can never be recovered.  

There are many lessons we have learned over the last year that hopefully will be beneficial in the future.  What we now know is that large, enforced shutdowns were not the answer and clearly should not be in the future.  But we have learned lessons regarding medicine that will benefit all of us going forward.  In a record amount of time, we have created vaccines that not only work but are relatively inexpensive and are highly efficient.  It is now believed that these vaccines can be adapted and used for many things which can be highly beneficial to future potential pandemics.

Partner Robby Schultz with 35-year client Mary Trupo

I just do not know how you can get more excited about the economy going forward.  The economy is already building steam and it is highly likely that by late spring anyone who wants to go back to work would be allowed to do so.  The projections of GDP growth in 2021 at 7.5%, which is almost too high to believe. Notwithstanding the very positive prospects of future economic growth, Congress and its ultimate wisdom will likely approve a $1.9 trillion stimulus sometime in the coming weeks.  

If you recall the last stimulus about one year ago, was roughly $3.2 trillion, the one right at Christmas was close to $1 trillion and you have another $1.9 trillion this year.  There is no question that putting this amount of money into the economy will be an economic boom of commerce and of individual consumer spending.  As this money starts to flow through the system in the spring, along with the reopening of the economy and the hospitality and travel industry, you should see an economic explosion unparallel in multiple decades.  

Ava and Dakota with 35-year clients
 Gerry and Allen Davidson

While stock prices are clearly high, you must compare them with the extortionary low interest rates.  Given that my projection is that bonds will have a negative return in 2021 and cash will earn virtually zero, stocks have become the only game in town.  If compared to long-term interest rates, today stocks are actually not overpriced, but rather fairly priced.

In retrospect, when you think about it, the Federal government has or will put roughly $7 trillion worth of stimulus in the economy over the year; it is a mind-blowing reality.  People ask me all the time how it is that they can create $7 trillion of new money.  When you own the printing presses you can virtually create any amount of money you want.  

Sheryl Matton, Gary McDade, Kathryn and 
Mark Keramidas celebrating Mark’s
 birthday in Deer Valley, Utah

There is absolutely no question that this is a long-term negative for the United States economy, but there is also no question that it is a short-term positive.  No one knows what the future holds, but at some point, that $7 trillion will have to be repaid by future generations.  You would expect that this flooding of the economy creating demand for commodities such as oil, food and housing will certainly increase the rate of inflation.  Moderate inflation is actually good for the economy in many regards.  It is not good if it is out of control.  The combination of higher inflation and the potential of higher rates to reduce inflation will almost surely be a negative for the economy in 2023 and 2024.  However, that is two years away and we need to enjoy the ride until the ugly inflation gauge stars to go higher.

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins