I couldn’t help myself, reading the news this week the old rock-n-roll song from 1989 came to mind. Politicians are debating, arguing, pontificating about what should happen in the economy. Of course, much of it is being spun in their party’s favor which does the country no good.
So, what are the facts? Well, they haven’t changed much. The stock market has made a great rebound, the bond market is stable. In both cases, volatility is way down, and the government’s money is working its way through the economy. This is all great news, but we still have a Global Pandemic, 35 plus million unemployed, and most likely no vaccine until 2021, which will help solve both of these problems. Of course, there could be a breakthrough because a lot of brilliant people are working on this problem. We believe that it is best to settle into this new normal and live life now.
So how do we manage investments? First, let’s recognize where we are economically. This is a chart from the Congressional Budget Office, a non-partisan US government department:
They are predicting a “Nike Swoosh” recovery. As the 2nd quarter data rolls in it is clear that we are in the worst recession since the Great Depression. Second, let’s not guess about investments. Currently, the stock market is trying to front-run this recovery and guess who the winners will be. This may be fine for a trader willing to take that speculative risk. But we don’t recommend this for most clients. By measuring data, we know what asset classes are trending positive; US Treasury Bonds, the US Dollar, Gold, and Crypto-currencies. And our models are holding 2 out of 4 of these. Third, we look to the future. When credit spreads signal that the stock market is recovering, we will look to invest in US large-cap dividend growth and US small-cap companies to lead the turnaround. We are building those portfolios now to be prepared.
This Pandemic has caused many of us to ask why, why God? Remember this verse, “Just as you cannot understand the path of the wind or the mystery of a tiny baby growing in its mother’s womb, so you cannot understand the activity of God, who does all things. Plant your seed in the morning and keep busy all afternoon, for you don’t know if profit will come from one activity or another—or maybe both. Light is sweet; how pleasant to see a new day dawning.” Ecc. 11: 5-7