Dec 2020 Economic Update

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December 2020 Economic Update 

What a difference a month makes!   The election craziness may be getting closer to an end (we hope).  We have viable vaccines (plural), and yet, we also have an increasing number of COVID-19 cases throughout the U.S. and the world.  With the increase in COVID-19 cases, looming lockdowns are rearing their heads with no stimulus package yet in sight.

The markets trade in a forward-looking way, so we continue to see gains as investors remain optimistic about the items we mentioned above.  Also helping is that the market generally likes political gridlock, and unless the Democrats can scoop up two seats in Georgia’s runoff election, it appears that will continue for some time.  Gridlock aside, both sides of the table seem to recognize the need for another round of stimulus, which warms the market’s heart.

• Where are we now?

• What is the Prudent Investor to do?

• Is this the 4th Industrial Revolution?

Where are we now?

We are slightly less “in flux” than when we wrote the last update.   We have been through an election.  A strange and convoluted one with mail-in ballots and attestations of fraud, but we did get through it.  We have two, and what looks to be a third, viable vaccine for COVID-19 and much of the economic data remains positive.  But where are we really?  COVID-19 cases are on the rise around the world as the weather gets colder.  Parts of the world, including the US, are again entering initial phases of lockdown putting already severely damaged small businesses, particularly in the travel, tourism, and entertainment areas further into harm’s way.

We see on the near horizon a rash of mortgage and small business loan defaults, not only in the directly impacted industries but in those industries that support them.  As the first stimulus programs fell off in October, the late notices went out in November, and the 60- and 90-day late notices will go out in December and January.  Even the Landlords are, in many cases, in danger of defaulting.  Some investors who planned well are running out of those emergency funds at this point.

Due to the delay in getting the stimulus package out the door, which we believe will happen, some of the market’s gains are at risk.    We also believe the vaccines will get approved and distributed, but fear that we may still have many months to go before widespread inoculations can be accomplished.  In the short term, we may see another drop in the market, but remain firm in our belief that timing the market is a fool’s errand.

What Does the Prudent Investor Do?

As a general rule of thumb and depending on your personal financial situation, an investor should do nothing particularly different now than at any other time.   This is not the place where we give individual investment advice, which we reserve for one-on-one conversations that address your personal situation.  That said, here are some general ideas to consider:

1. You may want to take advantage of refinancing at lower rates to become more liquid in your financial situation if you fear losing some or all your income in the coming months (this can be a risky strategy and bears careful analysis, i.e. you should consult your financial advisor before taking this action.)

2. Consider harvesting some gains if you are in a lower tax bracket but believe you will be in a higher one in years to come.  Also, if you harvested losses earlier in the year, your appreciated positions can be used to offset them. (Again, please consult your tax advisor before taking this action.)

3. Given the incredible change in technological innovations we continue to see, it may be a great time to survey your portfolio with your financial professional.  Examine those companies you have held for many years to see if they are likely to be able to continue to perform well in the new world – this sets the stage for our next point.

Is This the 4th Industrial Revolution?

Innovation is generally not recognized at the time it begins.  It is usually ridiculed and called science fiction.  Innovation proceeds very slowly at first, and then gains speed exponentially causing many to miss great opportunities.

At the risk of sounding like a broken record, we remain excited about what we see as the beginning of the fourth industrial revolution.   Furthermore, the pandemic, in many cases, has accelerated some of these new technologies.  Precision medicine was fast-tracked with the development of these new vaccines.   Medical experts can now finely tune their approach with the aid of Artificial intelligence, big data, and even robotics.  About a week ago, a private company sent its own crew to the International Space Station while another private company was able to recover a reusable rocket after it delivered its payload.

Blockchain cybersecurity is quickly changing the way we work with any number of industries and, in particular, our finances.  While “big data” was all the rage several years ago, no one even five years ago really knew what to do with all this data.   Today with advancements in Artificial Intelligence, big data is being used to great effect.  There are technologies that are coming online today that scientists were experimenting with back in the 1990s.  (By “coming online,” we mean commercially viable, profitable, and useful.)

We are finding opportunities both in newer companies and some consistently forward-thinking, innovative “old faithful” companies.   Just because a company has been around for decades does not mean it is being left behind (although that is sometimes the case).  Rather, in many cases, these old-line companies who have remained open-minded and consistently innovative are often in the best position.  This is one reason why we avoid index funds and most other packaged products for our clients.  Most indices and packaged products are filled with companies that are not consistently forward-thinking and innovative; even worse, indices can be significantly overweighted in five or six companies.

If you’re looking at your investment statement and you see a large percentage of fixed income or packaged products, you may want to get a second opinion. Position yourself with a forward-looking advisor to profit in what we believe will be the next industrial revolution.  Click here for a free private one-on-one review of your portfolio and plan.