The massive increase in federal fiscal-deficit spending during 2020 and now planned for 2021 will create several unintended consequences. Most immediate is the recognition that the reflation trade is under way and may last for years. Secondarily is the inflation effect, or lack of it, that the Federal Reserve Board wants to create, to impose within the investment community an even greater benefit to holders of stocks. Please don’t make the mistake of thinking I am just an apologist for stocks. I am very happy to talk about utilities, treasuries, municipal bonds, annuities and certificates of deposit. If this was a period of high savings-rates I would be discussing the net benefits of safety after tax and inflation. Today however, the federal government has created an environment in which equities are the primary beneficiary of an investment world in which low taxes, low inflation, and low cost of capital are supporting asset prices. Moreover, the real returns on fixed-rate investments is negative. This is particularly onerous to the retiree since negative returns grow more negative as inflation, which is the stated goal of the Federal Reserve, increases.
If you know a friend or acquaintance who is struggling with this dynamic and is confused with how to step away from this fixed-income trap, do let them know that both Robert and myself are happy to discuss with them their growth and income alternatives. It’s not too late. The economic cycle is still young. We are open to new business, a business that is unique in offering truly personal portfolio management.
Millions of the world’s citizens are looking for the right mix of risk and reward. This is not easily accomplished without the circle of daily assessment, implementation, monitoring, reassessment and back to assessment, or what’s working and what’s not a part of the solution, and so on. So, thank you again for your continued confidence in the seasoned strategic thinking and implementation I engage in with staff to deliver to you peace of mind and results.
To keep the economy from going into a lengthy recession during the pandemic, the federal government has allowed spending as a percent of nominal GDP to expand to a number four times greater than what it was in November of 1993. Now monetary and fiscal authorities are looking beyond 2020 to spend trillions more.
The most significant risk of this policy reach may be overreach. The unintended consequences of massive fiscal and monetary policy could be the rise of much sharper inflation. This could lead to a total loss of confidence in U.S. government finances or the efficacy of economic policies. Any or all of these outcomes would hurt the entire economy. Still, a quick return to another severe recession would cause the greatest pain for the poor, least-skilled, elderly (living on pensions), and disenfranchised segments of our population. Some demographers believe inflation concerns are significantly overblown since an expansion of the worker base from immigration would be necessary for a much sharper rise in inflation to ensue. We shall see. For now, take a moment to be thankful for a young economic cycle. When thinking about improving your income and maintenance of lifestyle, participation is over half the battle. I say this in recognition of corrections to come.
Investors should be aware that there are risks inherent in all investments such as fluctuations in investment principal. Past performance is not a guarantee of future results. Asset allocation cannot assure a profit nor protect against loss. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this newsletter may not reflect the views of Bolton Global Capital or Bolton Global Asset Management. The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. VW1/VWA0257 15260