“An unusual thing happened a week ago … It has never happened in our history that our customers as a whole are net short the market.” -Thomas Peterffy, CEO Interactive Brokers CNBC Interview December 29, 2020
So, after the Capital Riots I got my bible out and read about the 10 plagues of Egypt. I started checking things off. Got it, got it, need it, got it.
What a year! Why, oh why, is the stock markets doing so well? We have discussed this at length and have come to the following reasons.
1. Economic Stimulus -Massive amounts of money has been spent keeping individuals and businesses solvent. Loans have been released by the SBA into small businesses. (The payments on these loans start in March but are at a 3% interest rate.)
2. Federal Reserve has lowered interest rates to 0% and purchased a crazy amount of bonds, pushing investors toward equities. Federal Reserve Balance Sheet in 2007 was $865 billion dollars. It is now at $7.3 trillion dollars!1 (See the chart in the footnote 1)
3. Taxes are low and may stay that way, for now. Despite changes in the Senate, it doesn’t seem likely that Biden will be able to pursue an aggressive tax policy. But really with US debt at $28 trillion, taxes will rise eventually, but maybe not yet.
We have concerns about the markets, but the economy seems to be doing well. Employment has weakened, is not a trend yet. We found the chart below interesting.
Those who are shorting the market in December, must be disappointed right now. We are less worried than we were but will be cautious going forward. One positive is an increase in US savings rate and a decrease in consumer debt. We still favor equities but will make some changes to our allocation model for 2021. Our biggest concern at this point is inflation.
We increased cash over the last 2 months and intend to begin feeding it back into investments over the next couple of months. We will shift to Value from Growth. One big asset we are adding are TIPS. (Treasury Inflation Protected Securities)
“It’s tough to make predictions, especially about the future.” – Yogi Berra
New Office
Sometime in March or possibly April, we will be moving from Suite F in the office complex to Suite A and B. We are currently remodeling the space and will keep you updated when the change happens. The new space will be a definite upgrade and we will hold an open house in Spring/Summer or when it is safe to do so.
New Custodian Available
For our brokerage clients, we use Interactive Brokers to custody funds and to trade investments. We began offering Schwab as a custodian to our clients in the fall of last year. Schwab is a 47-billion-dollar company and a household name for investment accounts. Schwab offers $0 dollar trade cost5 and .05 second average trade execution speed. We will not require any client to move to Schwab but rather offer this custodian as an option. Call us if you have any questions.
Sources Citations Bibliography:
⦁ https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.html
⦁ https://usdebtclock.org/
⦁ Herb Morgan Efficient Market Advisors Economic & Market Commentary 1/11/2021 & 1/19/2021 see his website for video commentary. ⦁ http://www.efficient-portfolios.com
⦁ To read further on TIPS see Investopedia. https://www.investopedia.com/terms/t/tips.asp
⦁ The standard online $0 commission does not apply to large block transactions requiring special handling, restricted stock transactions, trades placed directly on a foreign exchange, transaction-fee mutual funds, futures, or fixed income investments. See the Charles Schwab Pricing Guide for Individual Investors for full fee and commission schedules.
⦁ The guarantees we refer to are backed by the full faith and credit of the Insurance Company providing the guarantee and its claims paying ability. These guarantees do not carry protections from FDIC and are not bank deposits and are not insured by any federal agency. Some policies lose cash value over time, leaving the investor with only the income guaranteed by the Insurance Company. Review the company issued illustration and the benefit terms carefully and the company’s credit ratings before investing.
Supplemental Disclaimers:
This article is informational only and is not investment advice. This is not an offer to buy, hold, or sell investments like securities or insurance products.
Securities and Investment Advisory Services are offered though Toro Bravo Investment Advisors, LLC. Life Insurance and Annuities sold as an insurance broker are not a fiduciary relationship and are not offered by Toro Bravo Investment Advisors, LLC.
Securities or Insurance are not FDIC/SIPC insured and investments contain risk plus could be subject to loss.
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