Boom! (Biden Goes Big)

At least one thing went right in 2020: Pharmaceutical companies came through. Thank you, science. source: Miracle on Ice (Bloomberg)

At least one thing went right in 2020: Pharmaceutical companies came through. Thank you, science.
source: Miracle on Ice (Bloomberg)

A potential economic boom in the making: 


President Biden wasn’t going to repeat the same mistakes made in the wake of the Global Financial Crisis (2007-2008). Then Vice President Biden (and Obama) had inherited the worst recession since the Great Depression. The housing bubble blew up, Wall Street bankers got bailed out, but American homeowners got screwed. What followed was the most sluggish economic recovery in the post war era. President Biden knows that for a genuine (and more equal) recovery, this time around, more must be done for The People. The price tag is massive, its far from perfect. But what’s the appropriate amount of stimulus to defeat a deadly virus that has killed 539,215 Americans? We spent nearly $5 trillion (in today’s dollars) to defeat the Nazis in World War II, and our economy boomed for the next 2 decades. We’ve spent nearly 2 trillion on Iraq and Afghanistan (6,695 military deaths, 2,977 victims on 9/11). And according to the Congressional budget office, trump’s 2017 corporate tax cuts will add $1.9 trillion to the national debt. If we can afford to give tax relief to Facebook, Apple, and Wall Street banks, and bailout the airlines, we should help our fellow Americans. This should expedite our economic recovery.

“…the recent Morning Consult/Politico survey shows overwhelming support (for Biden’s relief bill) - 90% - among Democrats, 71% support with Independents, and even 59% with Republican voters.”
— -- Yahoo News (3/10/20221)

The Fear of Inflation vs Real Inflation

Interest rates are rising for the right reason, we’re in an economic recovery. Our economy is no longer on life support, it does not require ‘free money’ or zero interest rates. Economist David Rosenberg and Scott Minerd of Guggenheim believe we will get inflation (rising prices) but it will be temporary and fears are overblown. I’ve said for many years that sustained high inflation is less likely due to big secular forces: aging demographics and technology. Perhaps investors are simply ‘selling safety’ (US Treasuries and gold are down this year after a huge run up in 2020) because they believe the consensus that our economy will grow more than 100% above its recent trend. Even with the recent rise in interest rates, stocks offer superior long term value. We agree and began reducing our bond allocation a few days after Pfizer reported their Covid vaccine results in early November. For perspective, the rate on a 30-year fixed mortgage today is 3.2%, it was 4.5% at the end of 2018. Money is still cheap. 

Investment implications:

  • the healthy rotation into ‘value’ stocks (away from tech/growth stocks) may persist…economically sensitive sectors are expected to outperform (financials, energy, industrials & materials)

  • for the first time in over a decade, we are overweight financials, which are historically the best performing sector in a rising rate environment

  • overseas stocks are more attractively priced after lagging US markets over the past decade

  • we began buying smaller companies (thru a low cost index) following Pfizers vaccine news in November

  • we continue to invest in our high conviction themes: Global Aging, Digital Revolution, Westernization of Asia and Cash Flow

  • we expect two hard hit industries to experience a robust rebound post-vaccines: travel and live entertainment (music & sports)

  • we believe the new administration and congress will benefit 2 emerging sectors: alternative energy and cannabis

  • we’ve reduced our exposure to bonds and gold

Of course, there is no such thing as a risk-free environment. Stocks are expensive by most historical measures; volatility should be expected. And just because the economic backdrop is highly favorable, doesn’t mean stocks continue their rally. We still have plenty of problems (although the economy’s not one). The Covid pandemic is a stark reminder of the importance of comprehensive wealth planning. We must always be prepared for the unexpected. 

Last Saturday my 6 year old son Jude played his first competitive baseball game in over a year.  My commute to the office today was an hour. Thanks to the heroic efforts of our science and medical community, normalcy is returning. I can’t tell you what the stock market will do this year, but a bull market in humanity is upon us. 

Thank you!

-randy

The opinions expressed in this newsletter are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult a financial advisor prior to investing. Any past performance discussed during this newsletter is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Hamilton Wealth, LLC is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Hamilton Wealth, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Hamilton Wealth, LLC unless a client service agreement is in place.