Notes on the Week Ahead

The Investment Implications of Biden Rescue Plan

Last Thursday, ahead of the inauguration, President-elect Biden outlined proposals which, if implemented, could have profound social and economic effects as well as impacts on the broad direction of fiscal and monetary policy.

The Price of Partisanship

At the start of a new week and a new year, investors have plenty to think about.  Despite the rollout of vaccines, the pandemic has worsened in recent weeks, dragging on the global economy.  U.S. stock markets ended at record highs on Friday and both bond and equity valuations look lofty.  And in the week ahead, the Congress will certify the election of Joe Biden as President, although with an unusual degree of political acrimony.

The Investment Implications of the Stimulus Deal

In Newgrange, just north of the River Boyne in County Meath, Ireland, there exists a giant burial tomb, constructed, it is estimated, around 3200 BC and measuring over an acre in area .  Little is known about the people who built it.  However, we can surmise that they had some knowledge of both astronomy and engineering since each year, only at dawn on this day, the Winter Solstice, a beam of sunlight shines through a specially contrived opening above the tomb entrance, illuminating carvings on the walls of an inner chamber.

What the Fed Can’t Fix

No parent can ever forget the day their child was born.  From that moment on, you’re completely responsible for another, entirely helpless, human being.  And so you do everything you can to love them, to nurture them, to teach them and to help them grow.  At the start, their problems are little ones and usually you can help them surmount them.  

The Need for Support more than Stimulus

A week ago, President-elect Biden hurt his foot while playing with Major, one of his rather rambunctious dogs.  Following a CT scan of his injury, it was determined that he had suffered a hairline fracture and his doctor suggested an orthopedic boot.  While it is, no doubt, an awkward piece of footwear, the course of treatment was not controversial.  If, however, his doctor had told him to just walk it off and instead prescribed caffeine and steroids, his competence would have been called into question.  Mr. Biden was clearly injured and in need of support, rather than tired and in need of stimulus. 

The Investment Implications of a Falling Dollar

Following knee-jerk flight-to-safety bounce as the pandemic struck, the U.S. dollar has fallen in recent months and is now down over 6% year-to-date against the euro and over 4% year-to-date against the yen.  This is a small start on a welcome journey. While some politicians and editorial writers will always proclaim their pride in a “strong dollar”, the truth is that an over-valued currency has been wreaking havoc on the U.S. economy for years, undermining our manufacturing sector, depressing demand for our exports and encouraging protectionist policies which inevitably retard economic progress both here and abroad.

The Winter Wave and the 2021 Rebound

Currently, a 7-day moving average of the number of confirmed cases of Covid-19 exceeds 170,000 while a 7-day moving average of fatalities is above 1,500.  While most people are very worried about this, spotty compliance with mask-wearing and millions of families getting together over the holiday season could well boost these numbers in the days ahead. This will sadly lead to traumatic scenes in hospitals and will also have a significant impact on the economy. 

A Long-Term Perspective on Investing

Of all the challenges facing investors in this blighted year, maintaining a long-term perspective may be the hardest.  In recent weeks, markets have swayed back and forth in reaction to case counts, vote counts, vaccine news and stimulus views, obscuring longer-term trends on economic growth, inflation, earnings and interest rates.  It has also been tempting to ignore the crucial importance of current valuations in driving long-term returns or to underestimate the potential for recently unloved assets to reduce current portfolio volatility and enhance long-term returns.

Mapping out the road ahead

There was a time, long before GPS or the need to select the accent of the artificial being that would bark driving directions at you, when people consulted road maps. On trips abroad, my wife, Sari, who’s more gifted with fast reflexes than geography, would take the steering wheel while I would unfold an oversized map on my lap, crinkling and tearing at the seams. However, as we buzzed along the road, no matter how urgently Sari would request information, there was always one unavoidable step in providing directions – namely, to first figure out where the heck we were.

Recovery Realities

A few years ago, just when I’d started training for a big race, I strained my Achilles tendon.  Being an Irishman, I couldn’t, of course, bring this evidence of age and infirmity to the attention of an actual physician.  However, I consulted the oracles of the internet and they were, for once, very consistent in their advice:  “Wait a few days until the pain has faded and then work steadily on ankle strengthening exercises.  Most importantly, lay off running for at least 3 weeks.”