It has long been declared that the only constant in life is change and nowhere is this more apparent than in the market, particularly regarding recent developments. Our goal is to help ConCappers understand the current environment, so we have delved into a few key topics that can help you be better prepared for the uncertainties that may lie ahead.
Russia Cyberhack
At the tail end of December, the U.S. Cybersecurity and Infrastructure Security Agency reported a comprehensive cyber security attack on U.S. governmental agencies and private firms by the Russian government.1 It was further revealed that this hack had been unnoticed for the previous 9 months. There has been little about this in the news due to the unnecessary drama related to the election, but it is imperative that you all know about this. This infiltration worked by surreptitiously installing malware and cyber bots through system software updates.
So far, there hasn’t been federal guidance regarding this issue, but as far as we know this is a matter being handled by the federal and private authorities themselves. Also, as far as we know, none of our systems were hacked or compromised. Regardless and rest assured, here at ConCap℠, we have invested in several layers of security measures to ensure that unauthorized access to your accounts does not happen. Of course, that doesn’t guarantee it won’t happen, but it is very unlikely.
Stimulus Checks
In the early part of this month, many of you may have received stimulus checks for half the amount as the ones initially deployed at the beginning of the pandemic. Essentially, if your AGI as a single person was under $75,000 in 2019 or if your AGI as a married couple was under $150,000 in 2019, you would receive $600 per person and child.2
If you have not received your checks yet, you have two options. You can either claim them on your 2021 tax return as a refundable tax credit or you can check their status by going here:
https://www.irs.gov/coronavirus/get-my-payment
The 2020 Election and what it means for the market in 2021
Suffice it to say, that this has to have been one of the strangest elections in our nation’s history. Dangerous indeed is a nation that is operating under two totally disparate set of facts. The cries for election fraud and the subsequent lawsuits, of which 61 out of 62 were categorically dismissed3, culminated on January 6th in one of the most shameful and embarrassing attacks, this time instigated by the President, on the Capitol building itself.
In normal times, these levels of uncertainty and turmoil should be causes for tremendous concern particularly in the stock market. Instead we have seen equity markets continue to rally with the S&P 500 and Nasdaq rising 8% and 13% respectively since Election Day. Even lending markets have gone crazy. In June 2020, the Austrian Government issued debt worth $2.3 billion at an interest rate of 0.88% for 100 years!4 What kind of investor would line up for such an issue is totally puzzling.
This total disregard of investment fundamentals amid a deluge of bad news is particularly noteworthy as it reveals a deep disconnect between the stock market and the functioning of the real economy and the rest of the world. Usually this is a sign of what Alan Greenspan termed “irrational exuberance” in the run up to the Dot Com Crash of 2001.5 The current activity closely resembles a bubble-like environment, and as with every bubble throughout history, this one too will end badly. Due to the Fed’s interest rate policy, bondholders have essentially been forced into riskier assets like equities. The unraveling is just a matter of time and of the right catalyst.
In the meantime, those equities, which are trading at sky-high Price/Earnings multiples, may continue trading higher as ignorant and uninformed traders essentially buy from each other and play out the Greater Fool theory. So even though we may definitely see the market go higher from these levels, it is not at all because of healthy economic sense, but because of speculative frenzy and foolhardiness. In other words, buckle your seat belts and prepare for some sort of market crash or market correction to precipitate. It is truly difficult to time these market movements, unfortunately, so all we can do is to wait, stay invested, and buy into quality equities when the crash comes.
One final note regarding the election. The Biden-Harris administration has promised a change in the tax code and it is likely that the estate tax exemption may be changed.6 We will keep you posted once we see changes occur, but some of you may have to employ some estate planning tools in order to accommodate the changes depending on what those new rules end up being.
Vaccine Deployment
Unfortunately, the speed of the Pfizer and Moderna vaccines rollout has not met expectations up to this point. The U.S. is currently averaging 970,000 vaccine shots per day. At this pace, it would take 2 years to vaccinate the entire population.7 Initial estimates which projected a majority of the population to be vaccinated and a return to normalcy by spring of this year has been pushed out to fall of this year.8 The Biden administration is promising 100 million vaccines in the first 100 days, but even that may not be enough in for a nation of 330 million.
We remain cautiously optimistic but with a worst-case scenario view in mind that we may have a bit longer to go. Whenever we emerge from this pandemic, several ailing industries should, however, rebound strongly once we have returned to normal, particularly the hospitality, leisure, and travel sectors.
As always, we will keep you all posted as we have further developments. In the meantime, please stay safe and let’s hope that we can get out of this pandemic sooner rather than later and see a much-needed return to normalcy.
If you are not a ConCapper, don’t hesitate to reach out to us to see how we could help in your financial independence journey. Visit our Requirements page to get connected. We invite you to like and follow our company Facebook and Twitter pages to get real-time access to our new articles and company updates.
Sources:
1 https://www.npr.org/2020/12/15/946776718/u-s-scrambles-to-understand-major-computer-hack-but-says-little
2 https://www.nasdaq.com/articles/what-to-do-if-you-havent-received-your-%24600-stimulus-check-2021-01-16
3 https://www.usatoday.com/in-depth/news/politics/elections/2021/01/06/trumps-failed-efforts-overturn-election-numbers/4130307001/
4 https://www.bloomberg.com/opinion/articles/2020-06-24/austria-100-year-bond-pays-less-than-1-interest-it-s-normal-now
5 https://www.federalreserve.gov/boarddocs/speeches/1996/19961205.htm
6 https://taxfoundation.org/joe-biden-tax-plan-2020/
7 https://www.buzzfeednews.com/article/danvergano/national-covid-vaccine-rollout-biden
8 https://www.businessinsider.com/fauci-degree-normality-fall-70-85-vaccinated-by-end-summer-2021-1
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The opinions expressed in this commentary are those of the author. Comments concerning the past performance of [e.g. monetary instruments, investment indexes or international markets] are not intended to be forward looking and should not be viewed as an indication of future results.
