“Be careful where you sit in the dark. The Dawn is coming.”
This is the second time writing this newsletter. With our modern computers, things are supposed to be saved as you go along, plus I have a backup that works continuously and backs up files in the cloud. The last time I lost a file to a computer mishap was literally decades ago. But 2020, what a year for disasters! I had four pages, data, personal anecdotes, a couple of jokes and a much different title and then “poof” it was all gone. My computer told me it had to restart Word, wouldn’t let me save my file, it wasn’t on the back up site, nothing. You, wonderful clients and dear readers, are not getting that newsletter. I claim not to believe in the supernatural, but something didn’t want me to send you that newsletter. You are getting this one, it’s going to be shorter, more upbeat and it’s being written as I try not to punch a hole in my office wall.
Joe Biden is going to be the next President of the United States. We still do not know which party is going to control congress however. Therefore, we still don’t know the scope of the changes that a President Biden will bring to our economic policies. We do know that at least on his economic team, he has appointed reasonably centrist figures, such as Janet Yellen as Treasury Secretary. For those fans of Bernie Sanders this may not be what you were hoping for, but the markets seem to like it. Biden has a lot of proposals on how he wants to reform the tax code and change what the government spends our money on, but once again, those plans hang more with the voters of Georgia than they do with him, and even with a Democratic Senate, the bills that come out of the legislative process are not going to look like the proposals that go in. So, we’ll just have to wait and see. The Biden administration is planning some Executive orders, but none of the current rumors about those orders seem to affect the majority of you in any substantial way. Congress has also been working on a modification of last year’s Retirement bill, that would push IRA withdrawals off to an even later age, 75 in this case. Where that stands right now, and why that is working its way through Congress when hundreds of thousands of people need pandemic help is a wonder to me. If that passes, we’ll talk about it.
Coming out of the pandemic induced panic in Late March / Early April of this year, a handful of tech stocks led the S&P 500 average back to its pre-Covid levels – while the rest of the index stayed behind. It was of course that long recognized group of FAANMG stocks, Facebook, Amazon, Apple, Netflix, Microsoft and Google along with a couple new ones like Tesla and Zoom. This meant that a diversified portfolio, that wasn’t concentrated in those handful of stocks didn’t perform as well as the overall markets. This process has been reversing itself as of late. The recovery has broadened, and these more diversified portfolios have played catch-up with those market leaders from four or five months ago. This is proof once again of why we should never panic and not try to time the market. If we had shifted portfolios to the stuff that was “working” over the summer, we would have gotten the money there just as the markets were shifting to other areas. Long-term, those few tech names, as well run as they are as companies, are very, very expensive even compared to their high earnings. Those few names have a Price to Earnings, or P/E ratio , over twice the level of the rest of the S&P 500 without those companies. That doesn’t mean there has to be an imminent collapse in those stocks or a roaring up of others – the markets don’t work that way. But it is more evidence for the need to diversify even if it looks like you’re underperforming for a couple months or even a year, compare to the overall averages. Your portfolio should match what your time frames and goals are – not try to guess what’s going to be the hot stock for the next six months.
By the time you read this, the Pfizer Vaccine should be approved for distribution in the United States, and the Moderna Vaccine either also has gotten approval or is only a week or so away. There are other vaccine manufacturers like Johnson & Johnson, AstraZeneca, and GlaxoSmithKline that are only a few weeks behind them. By February we should already have a large number of our health care workers and first responders vaccinated, and be working on the rest of the population by age and health conditions. This is a monumental effort and logistical puzzle to try and pull off. It’s not as simple as, ship and stick. We have to prioritize who gets vaccinated, we have to have the vaccine manufactured, we have to ship and store the vaccine – and with Pfizer’s version it has to be shipped and stored at low temperatures that require special equipment. Then of course, enough people have to be willing to take the vaccine to get us to that herd immunity we all want to reach. I very much hope by late spring we will be there, and at the very least we can go into summer of next year and the 2021-2022 school year back to the way it used to be. Even as that happens, the impact of this Virus is going to be felt for a long-time on our economy. Supply and demand being what it is, new restaurants will replace the ones that closed, but that will take time. And after an understandable surge of in person conferences and meetings, businesses may look at the necessity of large office spaces, in-person conferences and events and decide to scale back permanently their travel and event budgets while at the same time allowing more and more workers to do their jobs from home. Which means large hotels and convention centers along with commercial office space may never recover back to where they were in 2019. It will be interesting to see if we really do “go back to normal” of if we go back to something completely different.
We’ve almost made it through 2020, that in and of itself is an accomplishment. Going back and reading my final 2019 Newsletter I realized almost nothing I talked about really mattered this year. I mentioned some long-term trends like the growing wage gap and the aging of our population, and those things are still ongoing concerns, but as the old saying goes: Life is what happens when you’re making other plans. For all of you, I hope your “other plans” do come through this year and even in these strange circumstances you find a way to have a very Happy Holidays and a much-anticipated Happy New Year. As always, if you need anything we are here, for you or anyone else you may know.