I don’t think many of us will miss 2020. From the global pandemic…to mandatory state lockdowns…to some treacherous days in the markets back in March–it’s clear, 2020 is a year everyone is anxious to forget.
The good news is–at least from a market perspective–things are already pretty sweet. I mean, hey, Dow 30k?! No one thought we’d be there.
Nonetheless, the even better news is; the markets are currently well positioned to move even higher. After all, investors love stimulus and we have stimulus, stimulus (and yes, even more stimulus) to help them ride this market right into the roaring 20s!
Granted, there is a valid argument to be made that too much stimulus will undoubtedly create a whole set of unintended consequences that could plague investors in the future. Trish Intel contributor, the noted investor, physicist, attorney, mathematician and vineyard developer (yes, a true Renaissance man) Neil Grossman argues in his recent piece, “Money For Nothing, ‘Checks for Free'” that there will likely be some very serious and even systemic problems as a result of so much fiscal irresponsibility.
Nonetheless, the short term reality–is this: Markets like stimulus. Whether it comes back to bite them in the future is, as Neil rightly points out, a conversation that must be had. However, in the interim, investors want to make as much money in the markets as they can, and there are two major institutions in place to help them do exactly that.
- The Federal Reserve Will Provide Massive Monetary Stimulus
Federal Reserve bankers just can’t help themselves. Even those Fed officials perceived to be relatively hawkish, apparently can’t resist the temptation to interfere in the marketplace all in an effort to lend a helping hand to the markets. Whether its QE, innovative lending vehicles, or plain old low interest rates, the Fed had already signaled it is ready, willing, and able to do its part to assist the economy.
- The Federal Government Will Provide Massive Fiscal Stimulus
Heck, they already have. On Monday evening, Congress passed a Covid-19 relief package for an estimated $900 billion dollars. This comes on the heels of the nearly $3 trillion already spent and, President-elect Joe Biden is signaling that there will be more on the way.
Meanwhile, with the former head of the Federal Reserve, Janet Yellen, poised to be the next Treasury Secretary, it is clear the nation will have a person in the federal government that is highly accustomed to assisting the markets and the economy in innovative ways. While Yellen’s ability to act could be hindered should the Republicans keep the Senate, one could still assume that there will be some political urgency to providing stimulus. (And, when was the last time a politician was willing to turn down free money?)
Two-tiered Economy (a la 1920s)
If we head into the roaring 20s all over again, one question that must be asked is; are we at risk of fueling a bubble while simultaneously disenfranchising millions of Americans that, due to lack of savings, will be unable to participate in any market gains. Income inequality (which is not a precise term because let’s face it, there are cities like Detroit with hardly any income inequality but that doesn’t mean we want the rest of the country to be like Detroit) nonetheless, income inequality grew exceedingly worse during the 1920s as those with assets benefited from the ballooning stock market while those that lacked money could not participate in the upside.
All the stimulus in the world still won’t do enough to address the fundamental issues of economic inequality in the U.S. Indeed, part of the problem with stimulus, especially monetary stimulus, is that it rewards those with capital the most. As a result, only those invested in the markets and those invested in hard assets (like real estate) tend to benefit. During the Obama years, Ben Bernanke and his successor Yellen were both highly aggressive on monetary policy – yet, there was little growth. The rich fared better thanks to their investments, while the poor and middle class stayed both poor and middle class.
Government’s goal should be to ensure that all Americans can partake in prosperity. This means addressing the systemic challenges that persist in poorer communities throughout the country, while simultaneously addressing issues like trade to ensure more opportunity for American workers.
Nonetheless, these are problems for another moment in time. For now, let’s rejoice in the coming new year with the knowledge that markets will likely benefit from the stimulus. As such, it’s wise to be invested in the future.
Happy almost 2021!