Jan 13 2021
January 13, 2021

Moving On….Looking Ahead

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We would all like to forget 2020 and move on.  But.  A friend sent me this text on January 8th of this year.  “I’d like to cancel my subscription to 2021.  I’ve experienced the free 7-day trial and I’m not interested.”

4th quarter was even more fun, simply different, from the first 3 quarters of 2020.  There was the election, questions about the election, COVID-19 news, more COVID-19 news, the vaccine, questions about the vaccine.  And the really bad news was the UT football team. 

The good news was the market rally through the 4th quarter.  Tech stocks took a breather in the 4th quarter after carrying the market through the 2nd and 3rd periods.  Then tech stocks returned to action and continued to hit new highs.  Small and mid-cap stocks along with the emerging markets and commodities came back to life in the 4th quarter along with our bond proxy positions in FSK and BXMT. 

Personally, I felt it was a safety issue to wear a helmet through the gyrations. 

So, what happens next.  The FED has indicated interest rates will stay at zero until 2023.  But inflation is beginning to show up in commodity prices (gasoline, food, building materials) and the benchmark 10-year government bond has climbed above 1% for the first time since April.  Stocks typically perform well during an inflationary period.  As interest rates go up bond prices go down.  Former bond holders become stock buyers and the market continues to push upwards.

I hear the frequent question about how high the market can go.  And the answer is, as high as it wants to.  And the market does not always correlate with what you see in the news.  The reality is the economy has been stifled in the US since the emergence of Covid.  Many areas of the country are still in shutdown.  The market is forward looking and sees the vaccine as the stimulus for pent up consumer spending to ring cash registers sometime in the near future.  Those in the business of selling stocks are projecting a phenomenal 2021.  Those who sell gold and bitcoin are very certain we are nearing the end times.  I have not wished for the end times since I was in that Columbia Record Club deal.  So, I am attempting to build a portfolio based on pent up demand being unleashed. 

Through the 4th quarter we were taking gains on the large cap growth position, SCHG, which is heavy on tech.  The gains and dividends received during the quarter were reinvested in small and mid-caps, emerging markets and commodities.  We have no bonds and will not add bonds while interest rates continue to move upward. 

If you have questions, I encourage you to call me.  I am always happy to hear from you.