Given the way Christmas and New Year’s Day fell on the calendar, the past two weeks have been pretty slow in the investment industry, at least relatively. Judging from trading volumes, along with other data, it seems investors tied up a lot of their loose ends the week of December 14th. That isn’t to say people haven’t moved some money around, made some last-minute charitable gifts, and raised cash to make year-end gifts, they have. I simply saying, when compared to previous years, the last two weeks have been less hectic than usual.
So, instead of trying to come up with something clever about this week, I am going to make a few reflections on 2020 and a couple of predictions for the upcoming year. Some will be professional, and others might be personal. However, I present all in good faith.
Here goes nothing:
- By the time the dust settled, the smoke cleared, and the cows came home, the domestic financial markets had a terrific year. Who would thought it possible the first week in March?
- There is an old expression in the industry: “don’t fight the Fed.” This was doubly true in 2020, as the markets turned around sharply after the Federal Reserve essentially gave the financial system a ‘blank check’ on March 23rd. From that day through the end of the year, the S&P 500 rallied almost 70%.
- When black swan events happen, like pandemics and government-mandated economic lockdowns, Wall Street analysts’ estimates are basically worthless. The range of estimates for most economic releases in the Spring and early Summer were laughable, as no one knew how to dissect the information correctly. When had the government ever willingly shutdown the economy?
- Yes, it is possible to be productive when working at home, with one caveat: limit your communication/interaction with your spouse and children as much as possible. Although you might be working, they will think otherwise, and assume you are available to run errands, help with schoolwork, settle disagreements, etc.
- With the economy at various stages of lockdown throughout the year; with everyone yelling past one another in Washington; with people rioting in the streets, and with some weird virus floating around, the best thing to keep from going crazy was/is to turn off your favorite form of media and pick up a good book.
- You can sell more umbrellas when it is raining, or so the old expression goes. Mainstream media outlets made sure it rained a lot in 2020 by inundating us with negativity and divisiveness all year.
- In 2020, I found I don’t really care about professional sports. I didn’t watch a single dribble, layup, free throw, or dunk during the NBA season. The same goes for shots on goal, saves, slapshots, and icing calls in the NHL. I watched one half-inning of the World Series, and I don’t watch the NFL unless the Saints or Titans are playing. Even then, it is only with one eye open. While I understand I am not in the ‘target audience,’ these leagues can’t afford to have a bunch of people just tune out.
-
Low energy prices and low interest rates have always been positive for the US consumer, and the US consumer drives the US economy. There is no reason to believe this will change in 2021.
- Between Washington and the Federal Reserve, the powers that be have pumped roughly $6 trillion into the economy and financial markets to keep things from falling apart. This includes the various relief packages, increases in unemployment insurance, growth in the Federal Reserve’s balance sheet, etc. According to the CDC, as of 12/30/2020, there have been 337,419 COVID-19 related deaths in the US this calendar year. Divide $6 trillion by that number and you get: $19,666,666.67, which is a taxable estate. That is just the math.
- When there is money to be made, American investors will make it. When the Fed and the Congress flood the system with liquidity, voila there is money to be made. That about sums up the head-scratching, positive returns in 2020.
- All the tariffs and harsh words with China seem to have had an effect. Our trade deficit with the Chinese HAS appeared to have leveled off somewhat. Unfortunately, the Taiwanese, Vietnamese, and Mexicans have really, um, stepped it up. Also, interestingly (perhaps not so much), our trade surpluses with Hong Kong and Macau have both shrunk precipitously. Hmm. I wonder how that could be. It seems, all the bluster DID lessen our dependence on the PRC; however, it hasn’t yet resulted it massive ‘onshoring’ of production…yet.
- At this time, except for periodic short-term currency fluctuations, I have a hard time determining the long-term attractiveness of European investments (in aggregate). Of course, this can change.
- I really wish Billie Eilish would keep her mouth shut. That would be so great.
- Although the Chinese brought much of their misfortunes of the 19th and 20th Centuries on themselves (failure to adapt to and adopt advancements in technology; Cixi; Taiping, Nian, Du Wenxiu, and Dungan (Muslim) Rebellions, the Warlord Era, general KMT corruption and ineffectiveness, the Great Leap Forward, the Great Proletarian Cultural Revolution, etc,), the average Chinese (let alone Beijing and the CCP) puts significant blame on the West and Japan. While the US was arguably one of the lesser ‘culprits’ at the time, it is now the embodiment of ‘the West’ in the PRC. Collectively, the Chinese have a long memory, and tend to think in decades, centuries, and/or reigns. It has no love lost for the West and the US, and intends to beat us at our own game as a form of recompense. Hopefully, the Biden Administration has some good ‘China hands’ on his staff, because Xi Jinping is the new emperor and he is playing to win.
- In my opinion, social media does more harm than good, especially Twitter. The promise of social media is overwhelming. However, too many people use ‘it’ as an anonymous platform to foment discord, create divisions, and degrade others. Please use it sparingly.
- I have long maintained “politicians get too much credit for the good times and too much blame for the bad.” In 2020, I have had to amend this to: “politicians get too much credit for the good times and too much blame for the bad, except for when they arbitrarily shut down their economies.”
- There seemed to be more ‘celebrity’ or famous deaths in 2020 than usual. By no means were all of them COVID-19 related. For some reason, Eddie Van Halen’s death bothered me the most. I guess it just hit a little too close to home, having grown up when that band was at its peak. Interestingly, I like Van Halen more now than I did back then.
- In 2021, the health of the markets and the economy depends on the speed with which we can distribute the COVID-19 vaccines. The longer the process, the worse the impact on societal morale and the greater the potential for more government imposed economic lockdowns.
- Outside of an unforeseen disaster, the Federal Reserve won’t make any major changes to monetary policy in 2021. This will put some pressure on longer-term interest rates, as investors anticipate a slight uptick in inflationary pressures moving forward. This could actually be good for the economy, as lenders’ net interest margins increase and banks extend more credit.
- In 2020, I have read probably 30 books, and have started and finished two this past week alone. I hope this habit persists moving forward.
- Also, in 2020, I made the following things: one table, one bench, one coffee table, two end tables, a bed frame, five gallons of hard cider (in one-gallon increments), one gallon of hard lemonade, and numerous coasters using 2” Mexican tiles and cork. The craftsmanship on each was average, at best, but I had a lot of fun doing these projects. For 2021, my wife and kids have told me to focus on one outside project: finally writing a book. We shall see.
These are just a few of the highlights, if you will, from 2020 and projections for 2021. Oakworth’s Investment Committee will publish a far more thorough review of last year in January! Please be on the lookout for it.
I hope all are well, and I hope everyone has a Happy New Year!
Okay, maybe one more Bitmoji.
John Norris
Chief Economist
As always, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our investment committee, are subject to change without notice. Finally, the opinions expressed herein are mine alone and are not necessarily those of the reset of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.