- the source for market opinions


January 1, 2021 | The Plan

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

New Year ’s Day. The old calendar is trashed. Nobody will regret seeing the butt-end of 2020.

But wait. How did the worst year in a generation (or two) treat investors? What’s the score coming out of this satanic mess of a dumpster fire annum?

As you know, 2020 started off all shiny and hopeful, then collapsed in a virus-induced funk. Stock markets were whacked as the economy shut down, culminating in the fastest bear market descent in history. Equities plunged more than 30% in just a few weeks, and capitulated on March 23rd.

Meanwhile governments started turning on the spending spigots, central banks crashed interest rates as never before and immediately began quantitative easing operations. That meant gobbling up government bonds to inject oodles of liquidity into the economy, avoiding a 2008-style freeze-up, and also suppressing bond yields to keep loan costs in the ditch.

This blog’s advice at that time was to keep your perspective.

On the day we now know the market hit the bottom, here’s what was published:

First, governments and bankers are going nuts trying to mitigate this. They have only started. There is absolutely no fiscal or monetary discipline at play here. Society will be awash in liquidity, complete with unprecedented corporate bailouts and social support payments. Remember that the US president is up for election and our guy leads a minority government. Expect no brakes.

Second, pent-up demand will be stunning. That house, haircut, new car, spring outfit, Harley, garden tractor, puppy, kitchen reno or vacation that you’ve lusted for will soon be available. The spending will be epic, despite job losses.

Third, pandemics pass. So do oil wars. You know this. We all know it.

Finally, we are nearing capitulation. Just read the comments on this blog over the last few days. The number of people forecasting millions of bodies and years of 1930s-style depression is stunning. The bottom comes when most folks shed hope. It seems we’re not far off.

Not exactly prescient (nobody knew then the virus would still be with us in 2021 and the spending boom would have to wait for a vaccine), but close enough. The advice was to stay invested, have faith that stimulus measures would work, not go to cash, grow a spine and ignore the noise.

Now, more than nine months later, the pandemic is worse than ever but financial markets have fully recovered even as bond yields stay depressed and the economy’s being shut down once again. Yes, stimulus worked. All $20 trillion of it around the world. Plus we now have vaccines and can forecast with more certainty how 2021 will play out. The US presidential circus is behind us. There’s a massive tech boom sweeping markets and society – spurred on by the pandemic. And an entire new generation of hoodie investors has been gushing money into financial assets.

Ah yes, there are risks. And you should expect a boatload of volatility. Biden may raise corporate taxes. Covid is mutating and could take longer to corral, doing serious employment damage. The airlines might fold. China might invade Taiwan, now that it gelded HK. Trump could still flip out and totally poison the new admin. And the hoodies could push valuations to video-game levels and hasten a mash-up on Wall Street.

Despite that, there’s giddiness in the air. Listen to the latest from veteran analyst Ed Pennock:

One-Third of workloads are on the cloud. By 2022 that will be more than 50% Amazon, Microsoft, and Salesforce leading the way. 5G is finally upon us. That’s another monumental “Refresh Cycle”. And the Internet of things. With that in front of us, we can’t see anything but another good year for stocks. Perhaps even very good. Then add to that,the Productivety explosion brought on by this WFH.  Add Machine Learning and AI. This is the biggest train we’ve ever seen.  It’s leaving the Station. Get on Board. Enjoy the Ride.

Well, nobody knows what comes next. Just like a year ago. That’s exactly why you should have a properly-weighted, balanced, ETF-based, diversified, global and liquid portfolio and stick with it. Rebalance when those weightings are dislodged. Otherwise keep your mitts off. The 60/40 plan that we detailed here returned 7.5% in 2020, or slightly more than planned. The five-year average is 8%. The ten-year is 7.4%.

There’s already enough in the world to worry about. Don’t screw this up.

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January 1st, 2021

Posted In: The Greater Fool

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