As someone who once worked in fixed income (I started my career at Goldman Sachs in emerging debt markets where we traded sovereign debt instruments), I’m a little biased. To me, the bond market knows things long before the equity markets do. In fact, if you watched where yields were heading on CDIs in 2006 and 2007, you’d have been tipped off to the looming financial crisis. Nowadays, I’m watching the 10-year on treasuries. So far, so good. It’s hit the 1.7% mark but hasn’t stayed there. Technically speaking, we ought to be more at 3% on the 10-year. So, I’m not too worried – yet. In the meantime, I encourage you to get creative. I’ve long been fascinated with digital currencies thanks to the incredible blockchain technology that they employ. It’s possible that as we move increasingly into a digital world, and as people increasingly seek ways to develop ease with transactions away from the government glare, bitcoin and other cryptos will play an important role in transitions in our future. Check out my latest bitcoin podcast and watch this webinar for some critical answers to crypto questions. There is a massive change underway. Ultimately, I expect the American public, who are far more centrist than our politicians give us credit for, will reject this social remaking of America. President Ronald Reagan famously said, “Government is not the solution to our problem. Government is our problem.” Now that’s a chorus I can get behind.
Now that Biden has some rocket fuel (via at least one major stimulus package more than twice as much as Obama’s) with an expected additional influx of cash on the way, we’re again getting set up for a fragile bull market. BULL IN A CHINA SHOP There are countless ways to “burst” this growing asset bubble. What happens if Biden is successful with an increase in the capital gains tax? His team has pitched taxing investment as income. If they move forward with this plan, it will take the wind out of this market’s sails. What happens if Biden is successful with an increase in the capital gains tax? His team has pitched taxing investment as income. If they move forward with this plan, it will take the wind out of the sails of this market. What happens if corporate tax rates go up? If the Biden team is successful in raising corporate taxes to 28% (from the current 21%), the U.S. will once again be one of the most expensive places in the world to do business. These higher rates will hurt earnings (and thus, possibly equity valuations) and could damper enthusiasm from investors in U.S. markets. My recommendation is always to stay vigilant. Be aware of the policies at play and their possible effect on your dollars and investments. For long-term investors, I encourage people to watch for opportunities to buy as markets fall – but even as S&P 4k seems totally normal, it’s critical investors remain focused on any emerging trends in the fixed income markets.
American Consequences
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