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November 2020 Economic Update

Welcome to one of the most unique election years we have ever seen.  Voting started early giving new meaning to the Chicago mantra, vote early and vote often.  The election combined with pandemic news, possible inoculations, and the possibilities of more government stimulus has the market understandably searching for direction.
 
The main thing to keep in mind is that most of this news is short term noise.  Siphoning out the long-term trends is what makes businesses successful and investors in those businesses successful.  That is our focus here at Guardian Rock.

 

  • Where Are We Now?
  • Governmental Stimulus – Taxes and Inflation
  • Exciting Opportunities Ahead


Where Are We Now?
 
We are in flux.  The near-term economic data has turned positive.  Understanding economic data is a bit tricky and requires an understanding of how and when data was collected.  It is also important to understand how the data is displayed and not to view it in isolation.  Long-time readers know that I believe the economy is a complex adaptive system.  This means that each event, each data point, and the collective and emotional decisions of every consumer impacts immeasurable possible outcomes.  Currently there is more new data than normal from around the world.  Jobless claims have fallen from earlier this year. The latest numbers were revised lower, which is a good thing, but what is behind those numbers?  How many decided to step out of the jobs game and retire and how many accepted underemployments?  Business activity is moving higher as evidenced by increased manufacturing activity which is also good for the economy.
 
The reality, as I see it, is that we are recovering but probably not as quickly as it appears.  I can also tell you based on decades of experience that the stock market and economy are nearly always disconnected.  Equities tend to trade in advance of the economy by at least four months.  In other words, broad stock market indices tend to be a leading indicator.  The key for investing in any market environment is to own businesses that are well positioned to profit in any environment over the long term.  Therefore, we do not typically utilize broad based indexes when we design personal portfolios.  We also refuse to time the market which is a fool’s errand in our opinion. 
 
Government Stimulus – Taxes and Inflation
 
With interest rates essentially at zero and more government direct stimulus likely on the way, we forecast that regardless of the election outcome inflation and higher taxes will eventually happen.  This is not the place where we give individual investment advice, but please call us if you would like to know some tactical moves you may want to make now to position yourself to profit.  Note that while we forecast increased taxes and inflation, we are NOT suggesting that either of those things happen immediately.  These are longer term forecasts.  Particularly in the case of taxes, the form in which those taxes take place is open to long and fruitless debate.  This is simply something to be aware of so we are not surprised in the future. 
 
Exciting Opportunities Ahead
 
Few times in my career have I been more excited about the long-term investment opportunities we see ahead.  We have been watching not just one or two game changing innovations come online in the past decade but several that all comingle and work together for tremendous opportunity.  We have seen major innovations change our global economy in my lifetime and before I was even alive.  Railroads, interstates, the telegraph, cell phones, personal computers, and the internet were all game changers for our economy.  All of these changes have contributed to more efficient movement of information, goods, and services.  These innovations arguably make life more convenient and allow us to focus on new ideas.  I still remember when the first cell phone came out.  It was so big and heavy that we called it the “Brick” phone.  Talking to someone in another country through something we are wearing on our wrist was something out of Star Trek.  We never considered this a possibility at that time.  We are at that same point again only this time we have several new major technologies coming at once.  
 
If you have any questions about the information discussed here, please schedule a call with us by clicking here.