February 1st – 6th

THE WEEK IN REVIEW: Jan. 31 – Feb. 6

The game has stopped, but the virus is still here

The mayhem seemed to subside last week, and markets took on a more orderly look. A strong upward bias replaced the manic swings of the prior week as volatility came way down. What changed? Big tech and big money joined forces to put down the unruly retail investment crowd. Sure, that garnered outcries of market manipulation, hypocrisy and unfairness. There was plenty for everyone to be offended by, but in the end the “short squeeze” drama faded from the collective conscience and markets continued their upward trend. Nothing to see here, folks, just keep movin’.

The coronavirus is still with us but appears to be slowly easing. Vaccine distribution is still bumpy, and my take is that by the time the vaccination process is running smoothly, Mother Nature will enforce her will in the form of spring and we will be in a much better place. There are also hopes that we will have additional vaccine options soon; in fact, Johnson & Johnson applied for use of its single-dose vaccine with the FDA on Friday.

The good news is that things should be much improved by April, and our politicians will probably take credit since nature tends to be mute on the subject. We still need to address a few things to return our economy back to normal, and one of those things is full-time, in-person schooling. After months of criticizing officials who did not “follow the science,” teachers’ unions in some cities are refusing to do the same and return to school. Remaining remote will continue to have a major impact on communities, especially in the form of elevated unemployment levels since parents cannot return to work with kids at home. It also results in depressed economic levels; with businesses locked down, people aren’t working — and people who aren’t working aren’t spending. Not returning to classrooms has a far-reaching impact on our intertwined economy.

Markets bounce back to near-record levels

The markets were primed for stimulus last week as we returned to near-record levels. Just what that stimulus will look like is anyone’s guess. As I watched Congress push a nearly $2 trillion package forward via reconciliation, where are all the calls for unity and doing this together for the good of the country? Executive orders and reconciliation do not feel like inclusion and compromise to me.

I couldn’t help but think of prior administrations which lost focus and concentrated on different crisis’s in the past from, the recession in the early 90’s, to 9/11, to the financial crisis when I think about the current stimulus discussion. To me, this stimulus package seems to be more of the same. It may be too early to tell, but there seems to be a lot of similarities between what we are seeing today and what we saw in the past. Back then, it was a keen desire to provide a response to terrorism or universal health care while forgetting to focus on an economy reeling from yet another recession or a global financial crisis; today it is lack of focus on the economic effects of the shutdown.

It seems like the focus is on undoing all things related to the former administration rather than policies that will get the virus under control and our economy reopened ASAP. Bad policy and trying to look busy instead of fixing our economy will impact the markets. We will experience less productivity, higher debt levels and higher inflation and the markets will not respond well.

From a market perspective, more government spending will be welcomed just as much as the continuation of lower interest rates. Economic growth appears to be moderating and January jobs numbers were anemic, although overall unemployment has dropped to 6.3%. Despite that, I cannot say we are on an upswing. Markets did pretty well during Obama’s first term, so I am not concerned just yet. I think it was Mark Twain who said, “History doesn’t repeat itself, but it often rhymes!”

Welcome to Coup 101

Let’s talk about a coup done old-school. In Myanmar, they had an election, and an exiled, house arrested, jailed opposition leader won. The military was unhappy with the result, took back power overnight, arrested elected leader Aung San Suu Kyi, declared martial law and locked down the country for a year. The world is outraged and full of condemnation – but won’t do anything. The broader implications will be less democracy and free markets in the region and just at a time when we need access to natural resources we will have a less open and accessible partner in the world. The coup in Myanmar has the potential to roil emerging markets at a time when emerging markets were beginning to be the only bright spot on the international investment scene.

Coming this Week