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 

Wednesday, January 13, 2021

“Bull Markets Are Born On Pessimism, Grown on Skepticism, Mature On Optimism and Die On Euphoria” – Sir John Templeton

I often refer to the above quote by the famous investor Sir John Templeton to explain what is currently going on in marketplaces. Not a single day goes by that I am not confronted by the question from clients regarding the ever-advancing stock markets. It seems that everyone would like to project the decline in the market since everyone now has become an expert on valuations of stock. In each of those cases, I attempt to talk clients out of any rash moves since we all know that “market timing” is virtually impossible, but it is really difficult to convince clients of that fact. So in this writing, I thought I would explain why we have not reached the level of “euphoria”, referred to above, by Sir John Templeton. 

While it is certainly not 1999 again, for too many reasons to explain, I will give you the basics of the difference between then and now. And we certainly cannot party like it is 1999 any longer. Also, I want to reflect back on the incredible year of 2020, which none of us are sad to see pass. If you are not excited about the upcoming 2021 year, you really do not have a firm concept of basic economics. In Economics 101 we learned the importance of supply and demand. We all learned that if the demand is higher than the supply, then prices will most assuredly rise. We learned many other basic economic provisions during those years in school that will come into play during the 2021 year. I will try to explain all of those. 

Ava (9) and CiCi enjoying a Florida Christmas

At the beginning of every year, I try to make a projection for the upcoming year. If you refer to my blog posted in January 2020, you will note that I projected that the S&P 500 Index would be at a level of 3600 at the end of 2020. That projection reflected a total gain in that index of 13%. I am not disappointed to report that I actually missed that projection by roughly 5%. The S&P 500 Index finished the year at 3756, with a total return of 18.4% for the year 2020. But quite honestly, that does not tell the entire story. 

So many investors have been lured into the mistaken concept that they can invest strictly in an index fund and outperform professionals who actually manage money. The year 2020 was a clear example of how flawed that concept really is. Most of the actively managed mutual funds with professional management teams outperform the S&P 500 Index by a multiple of 1.5 to 2 times that rate of return. It was not unusual to find many actively managed growth funds that returned 35%-45% during 2020, far exceeding the level of index funds. There are many reasons for this outperformance, some of which I would like to point out later in this writing. Of course, I want to give you my projection for 2021, which is always based on my reading of the economic data. If anyone could accurately forecast the future, they would certainly be too wealthy to write this monthly posting. 

The Wilcox family taking in the view
 from Rabun Bald 

I have so much to discuss and so little space, but I must give you the excellent financial results for the year 2020. Who would have ever thought in March of 2020, when the markets declined over 30%, that we would end the year setting all-time records in virtually all indexes? I guess you could say maybe I projected that, but even I had an uncertain comfort level with that projection. As the markets came roaring back in April through the rest of the year, there were many that fought the concept of higher returns and did not participate. In many cases, I talked until I was literally hoarse to convince clients to stay invested, but many elected otherwise. They missed the basic concept of economics that drives stocks higher. In this period of time liquidity exceeded the number of stocks available to buy and coupled with the avalanche of cash the government threw into the economy, stocks moved higher, notwithstanding the economy. 

During the year 2020, the Standard & Poor’s Index of 500 stocks had a total return of 18.4% for the year. The five-year annual average for this index is 15.2% and the 10-year at 13.9%. The Dow Jones Industrial Average returned a total return of 9.7% during 2020 and has a five-year average return of 14.7% and a 10-year average return of 13%. The NASDAQ Composite, once again, was the leader having a sterling return in 2020 of 44.9% with a five-year average at 22.1% and a 10-year average at 18.5%. As you can tell, all of the one-year, five-year and 10-year numbers were excellent rates of return. Just to form a comparison, the Bloomberg Barclays Aggregate Bond Index was up 7.8% for 2020, has a five-year annual increase at 4.5% and 10-year annual increase of 3.8%. As you can tell, the bond index has not kept up with the sterling returns that the stock indexes have returned over the last decade. 

The Schultz family spending their Christmas
in beautiful Amelia Island, Florida

Recently, the 10-year Treasury Bond jumped over 1%, which by any definition is a historically low level. However, with the flush of cash provided to the economy by the Federal Reserve, almost assuredly we are facing inflation going forward. You could not expect that the Treasury furnishing $3.5 trillion worth of liquidity into the economy would not create a supply and demand issue related to certain hard assets. When this demand for hard assets exceeds the supply, you will eventually get inflation. It is my projection that by the end of 2021, the 10-year Treasury Bond will be closer to 2% than the 1% it is today. If that forecast is correct, during the year 2021, there is a high likelihood that cash earning the meager rates that it currently earns, will outperform the total return on bonds for the year 2021. 

For those of you that are concerned about the current chaos in Washington, the only comfort level I can give you is that with the Congress being equally divided in both houses, there is hardly any likelihood of major change that will occur very quickly. It would be a miracle of legislative speed if a tax bill could be approved by Congress within a two-year period. Given that the Senate is exactly 50/50, it only takes one sitting Senator to make any bill impossible to pass. I think it speaks very well for the economy that Congress is likely to be in a period of chaos for some time to come. As we all know, the best years ever in investing occurs during times when the politicians do not affect our pocketbooks. 

I have so many people that try to give the impression that the year 2020 was like the year 1999. Most investors today really weren’t around in 1999 and did not understand the dynamics of the market. That was a time when Dr. Alan Greenspan, as chairman of the Federal Reserve, was very concerned about the Y2K problems and flooded the economy in 1999 with a ridiculous amount of liquidity in order to avoid any potential risk of a Y2K meltdown. During that time, the so-called “dot.com” stocks came on selling at many times their value, given the potential of the newly formed internet. You can easily see where a company coming out of nowhere that can reach virtually everyone in the world at no cost would have huge potential. What we now know is, of course, many of these are not real companies and the run-up in the dot.com marketplace quickly failed in the year 2000. However, the major difference did not relate to any of these matters. The major difference related to what the Federal Reserve did to close down the dot.com era. In March of 2000, Dr. Greenspan immediately restricted the money flow and “choked” the financial markets to a major correction. Just as he hyperinflated the market in 1999, he deflated it in 2000. The strangulation of the economy was solely at his desire to burst the bubble of speculation in the dot.com era. Fortunately, we do not have a similar situation in 2020. 

Caroline (6) and Reid (5) Schultz taking 
Santa’s chair in Rosemary Beach, Florida 

As the new Congress comes to be at the end of January 2021, you can expect that the spigots of governmental spending will explode. You can expect another stimulus package of higher rebates to taxpayers and more than ever before governmental spending for municipal projects and supporting municipal governments. If we had a Federal Reserve that was conscious regarding reducing the speculation, they would not have announced that there would be no significant rate increases through the end of 2023, three years from the beginning of this year. 

As I have pointed out before, the decade that ended in 2019 was the only decade ever in the history of American finance that we did not have a recession. We actually did have a recession in 2020 for a couple of months, but the Federal Reserve dumped $3.5 trillion into the economy and, in turn, the economy came roaring back. Just in the last couple of weeks, Congress has approved to add an additional $900 billion stimulus directly into the economy. Along with that, I project, we will see a couple trillion dollars more in stimulus will come almost immediately. All of this money will create a gush of cash in the economy which will not only bring the economy back to life, but will almost assuredly lead to higher stock prices. There are many commentators that have pointed out that cash levels sitting in checking accounts are at all-time highs. One of the reasons for this is when the economic fallout occurred in March of 2020, the average citizen in the U.S. was concerned about their future employment and the savings rate spiked to an all-time high of 35% in April of 2020. At the end of 2020, cash levels sitting in checking accounts were 15.3% higher than they were at the beginning of 2020. Now we are not talking about money in investments, we are talking about actual cash sitting in checking accounts. What has been proven over and over again is that cash sitting in checking accounts is not a savings vehicle, but rather a spending vehicle. It is only a matter of time before this cash will be put back to work, either in additional consumer goods or that cash will be invested. Even though we are standing at record levels of cash today in checking accounts, this number is only going to get larger as the Federal Government flows through additional stimulus that will end up in people’s checking accounts. 

Jennifer, Harper (11) and Lucy (9) Wilcox 
admiring the festive light display

So, what we can assume in 2021 is that as we move forward, we are going to see less of the influence of the virus on the economy. As of this writing, it is believed that 23 million Americans have already contracted the virus and roughly 10 million have been vaccinated against the virus. Therefore, we have already reached a level of 10% of the population that has some level of immunity going forward. It is believed, and I concur, that there will be vaccination rollouts to the general public, which will lead to vaccinations of roughly 1 million per day going forward. If we are able to vaccinate 100 million people in the U.S. before the end of the first quarter of 2021, along with the people that have already contracted the virus, we will have reached the level where businesses can reopen, and a level of normal activity can return. 

It is now projected that corporate earnings would increase roughly 38% in 2021 over earnings in 2020. What you will see almost assuredly is a flood of Americans this summer wanting to go on vacation and spending money for pleasure that they have missed during the pandemic and a rush to visit restaurants, movie theatres, cruise ships and airlines. All of this bodes extraordinarily well for earnings and the economy, and ultimately for stock prices. 

What we will not see like we did in 1999 is the Federal Reserve pulling out the rug and tripping the economy. The Federal Reserve has already committed to long-term low interest rates and they intend to allow the economy to continue to accelerate which should be nothing but great for stock prices. I fully anticipate that the current euphoria in real estate prices will continue as more and more money chases hard assets such as real estate. We are seeing the effect of supply and demand on virtually all commodities. You are seeing record prices in copper, gold and other commodities that give you the impression that certainly inflation will eventually follow. 

Printing all this money that the Federal Reserve is pushing into the economy is certainly a long-term negative and a short-term positive which, at some point, some generation will be tasked with the obligation of repaying. However, that is likely decades, rather than years, away. At the current time, the need to stimulate the economy was important in March 2020 but it appears that the economy has quickly recovered on its own and an additional stimulus will probably only accelerate asset appreciation in the coming months. Even though the negative for the future is well documented, we have years to prepare for that and we should participate in any market increases that occur due to this flooding of cash by our Federal Government. 

Mia Musciano-Howard and her
family enjoying their annual, 
traditional Christmas PJ picture

Sometimes, I like to reflect upon the growth of our firm here in Atlanta. In 2015, CNBC ranked our firm the 20th best financial advisor in the country. This is not an award that we asked for, applied for, paid for, or even actually knew was even going on. At that time, the information they utilized was from our SEC filing that listed our assets at $274 million. Today, five years later, we are approaching $1 billion dollars in assets with clients all over the United States, as well as clients in Europe and Asia. It has been a remarkable run of accumulation of assets and we are truly blessed with the clients that rewarded us with their hard-owned assets and allowed us to grow those assets for them. 

At the beginning of every year, I give you my projection for the upcoming year for investing. It is impossible to project for 2021 based upon any type of documented price/earnings ratio. All these calculations are totally out of whack because of the extraordinarily low interest rates that we are enjoying today and the earnings that were unfairly punished during the pandemic in 2020. What would be different in 2021 is that we expect the earnings to come roaring back as the economy loosens up and we return to a normal lifestyle in the second half of 2021. But interestingly, we do not anticipate a large increase in interest rates which would normally be the result of a strengthened economy in 2021. 

Morgan Miner and her cat, Drake, 
who is on the naughty list this year 

Since the Federal Reserve has essentially guaranteed low interest rates for three more years, it appears that will allow the economy to accelerate based on its earnings without interruption of governmental intervention. Therefore, I expect that during 2021 we should see another excellent investment year that will be very satisfying for your long-term retirement needs. I see the S&P 500 Index ending the year at a level of 4400, which would mean that it would gain 644 points during 2021. This would be a total increase of 17%. In addition to that, the annual dividend rate of this index is roughly 2%. So, I project today that the total return for the S&P 500 for the year 2021 would be a total return of roughly 19%. This would be another extraordinary excellent year. I really hope I am correct. 

What I do not expect to happen is that this really nice gain in 2021 will be straight up. I fully expect that it will be choppy along the way and there will be periods of time where there will be extraordinary volatility. Once again, I want to point out that any short-term disruption in the market is likely to be very short-term. While you will always have traders attempting to move the market to their benefit, just exactly where are they going to go to invest? As illustrated above, we do not believe that bonds form a reasonable alternative to stocks and the very low rates of returns on cash are not very attractive. Therefore, while the traders may move in and out of stocks, it is unlikely that they will be out very long. So, while you may see major swings of the market, these will only be temporary and will lead to a very satisfactory year before year-end. 

We are also seeing strength throughout the world as the economies recover. Already in Asia, their economies are back to full capacity. You are seeing major advances in Vietnam, Indonesia, Malaysia, and Southeast Asia. Already China is back in full production even though their political issues continue to overwhelm their financial markets. While Europe is not fully recovered, they are making significant progress. With the advent of the rollout of vaccines throughout the world by the summer of 2021, virtually all economies will have at least stabilized and start to move higher. All of this will lead to a worldwide rally in stock markets which is likely to be unprecedented in its coordinated move higher. Make no mistake that this coordination of higher economies is solely due to the assistance with the central governments of all those countries flooding their economies with liquidity. If for whatever reason the central governments elect not to continue to fund the economy, this projection may change. However, I highly doubt that any change will be in the offering in 2021. 

Musciano-Howard twins, Mitch and Marti (16)

So, in summary I am very optimistic for 2021 as compared to the pessimistic view held by many. One of the things I have been able to do to successfully invest, is to separate my feelings regarding most everything and rely upon all my instincts of economics regarding stock prices. Every time I hear a client express the negativity of restaurants not being open as a reason why the economy will not succeed gives me greater confidence that I am correct. As we went through 2020, we suffered huge economic declines, buy yet cash continued to accumulate in peoples checking accounts. Even though many will forever distain the activity of 2020, the vast majority of investors have benefited even from the turmoil of that year. 

I fully expect 2021 to go through major ups and downs, but by the Fall of 2021 the outlook should be much clearer and more positive than today. For those of you that are not invested and refuse to invest due to your perceived conceptual idea of stock prices being too high really are not taking into account the economic benefits of the gusher of money reaching the economy by the Federal Government.      

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