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1st Quarter 2021 Market Commentary

1st Quarter Market Commentary

As we begin 2021 I wanted to share a quick story with you.  There is an area in the Swiss Alps called Lungern.  It is beautiful, surrounded by the mountains, vast green fields, and a pristine light blue lake on one side.  The landscape has changed drastically over the years due to some huge undertakings of the men and women of the area.  During the early 1800’s the need was for more farmland, so the Swiss people of the area took on the huge task of lowering the waterline of the lake thus reclaiming valuable farmland.  Nearly a century later in 1890, the Swiss realized the value in harvesting nature responsibly for clean energy.  They built a dam and two reservoirs for Hydroelectric power which raised that waterline of the lake.  They essentially created the first natural battery by creating reservoirs at two separate elevations allowing water from the higher reservoir to drain through turbines when electric demands are high and pumping water back up when electric needs are low.  As needs change and education occurs this community adapted and made good use of what was available to them.

The point of this story is that humans are good at adapting to changes in the world around us.  This past year has provided many examples of that.  Not the least of those was shown in the rapid creation of multiple vaccines for COVID.  These vaccines are unlike any previously developed vaccines.  Their rapid creation, testing and now distribution was possible due to the culmination of several different innovations that have taken place in just the last decade or so.  We believe this rapid innovation and implementation will be the continuing theme in 2021.

  • Starting Point
  • Potential Surprises
  • Great Expectations

Starting Point:

We will be starting the year in continued political turmoil here in the U.S. with more stimulus introduced with varying degrees of success.  A contested presidential election will likely continue to be a distraction and we still do not know for sure if the GOP will retain control of the Senate. 

We are also starting the year with two vaccines being distributed quickly around the world.  These are not just new vaccines for a new virus.  They are new in that they are made differently than ever before using RNA messaging to combat the virus.  As with anything that is new introduced into a complex adaptive system, we may not know about unintended consequences until much later.  All of this was made possible due to advances in CRISPR, genomics, artificial intelligence (AI), deep learning, and the use of big data.  With what is learned from these vaccines we expect exponential advances in the genomics and biotech space over the next several years. 

We are also starting off the year with some significant advances in the electric vehicle and self-driving space also made possible by recent advances in AI, deep learning, the use of big data and the Internet of Things (IOT).  Even the “dinosaurs” of the automotive industry are trying to get in on the game with one electrifying their iconic sportscar and another developing an electrified truck.

One less talked about advance unfolding is the electric and natural gas big rig trucking that is gaining traction.  This may drop the cost per mile of delivery substantially making trucking much more competitive compared to even rail transport not to mention significantly more friendly to the environment. 

Other new starts we expect to see in 2021

  • Last mile delivery enhanced with drone technology
  • Video conferencing enhancements and advancements beyond what we have seen in 2020
    • Advancement in E-learning including virtual and augmented reality
    • More companies will make remote work permanent causing more population migration
  • 5G finally becomes mainstream but not without some hiccups along the way

Potential Surprise:

None of those starting points for 2021 are a surprise.  What may come as more of a surprise is that we believe the energy sector may begin to show some signs of life.  Forced to innovate away from strictly drilling for oil, select “big oil” companies have been transforming themselves over the past decade and are now ready to potentially flourish in a new energy world.  Here we would caution that not all energy companies have made this shift equally as well.  

Another long-awaited leap forward could take place in 2021 is major advances in space exploration and new ways to capitalize on the economic opportunity. 

The last surprise we believe will be the businesses that have positioned themselves to profit the most in our changing world.  Some older, well established companies have positioned themselves to profit while others have quietly gone into what may be a permanent decline collapsing under their own weight despite having plenty of cash and looking healthy on paper. 

Great Expectations:

I confess that in my younger days I missed some of the major changes and how they impacted our economy and investing.  I remember seeing the personal computer as a bit of a plaything and the idea of being able to send messages over email instead of through the mail being a bit of a novelty.  I like to think that experience has taught me to be astute as the gray hairs accumulate atop my head. 

What I have come to understand a bit better over the years is that innovation takes a great deal of time and often shows up as a “plaything” of sorts.  Drones for instance showed up many years ago as something my boys and I played with in the back yard, but they have developed over the past decade into something of great economic value.

CRISPR was first discovered in 1987 but was not really understood until 2007 and first successfully tested on human cells in 2013.  Today we have our first widely distributed vaccines using this advancement.  Profitable innovation and advancement take a great deal of time and effort. 

What is not often fully understood however is that for advancements like CRISPER, self-driving electric vehicles, robotics, and others to fully develop you need several of these advancements working in conjunction with each other.  This means that some advancements must wait to move forward until other technologies catch up.  

Our expectation is that we are seeing several advancements catching up with one another and moving forward quickly in 2021 and beyond.  While all of this is bullish, we fully expect a correction in the market at some point during the year and remind investors that our investment horizon typically looks out over five years. 

The investment landscape will of course continue to change and evolve along with other industries and we are here to help you better understand how you can position yourselves to protect and profit so that you accomplish your goals in 2021 and beyond.