BRETTON WOODS
closer proximately to the virus and for greater lengths of time than they might otherwise receive in a restaurant establishment. It seems that states that are locking down are doing little to improve their overall health picture while simultaneously limiting their own economies in unprecedented ways. And the measures will come with significant side effects. “This little piggy went to market, this little piggy stayed home, this little piggy ate roast beef...” and these little piggies gorged on federal taxpayers’ earnings to line the pockets of special interests and foreign pet projects! The Hangover The economic consequences of the 2020 pandemic will be severe – and I don’t believe they’re entirely priced into equity markets yet. Granted, I’m always happy to be surprised, and nothing would please me more than to see America get back to work in a meaningful way, complete with another surge in stock prices... But when California, the fifth-largest economy of the world in terms of economic output, ahead of India, the U.K., and France, shuts down as it has... the effects are bound to be felt.
So, forgive me for being just a little skeptical as our market powers higher. We began January in territory never seen before on the Dow, Nasdaq, and the S&P 500. And while I’m not here to ruin the party – in fact, I don’t quite believe it’s ready to end and suspect this rally has room to run thanks to all the expected money printing – I just don’t love what’s fueling it. You see, the old adage “Don’t Fight the Fed” is important. And, in the case we are about to see – in the new Washington of Joe Biden and Janet Yellen – there will be a merger of monetary and fiscal policy that could fuel another leg up in these markets. Politicians (and I blame the Right and Left for this) have never met a spending package they didn’t love. Sure, some Republicans will feign to care about fiscal responsibilities in an effort to court the old Tea Party which has seemingly disappeared, but for the most part, they just can’t resist a little here and a little there. As such, the spending feels increasingly like the nursery rhyme, “This little piggy went to market, this little piggy stayed home, this little piggy ate roast beef...” and these little piggies gorged on federal taxpayers’ earnings to line the pockets of special interests and foreign pet projects! Really, how else can you explain a spending bill with such provisions as these: • $1.3 billion to Egypt for the country and Egyptian military, who President Trump complained, “will go out and buy almost exclusively Russian military equipment.”
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January 2021
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