Dear Valued Client:
Gratitude in 2020 was a rare commodity. Our freedoms have been curtailed by unprecedented circumstances. Sacrifice of both personal and business autonomy is the new normal after increasing lockdowns and economic disruption. We recognize our heroes who selflessly serve in the medical field all the way down to the neighbor who delivered groceries. It has been a procellous year and we predict more volatility to come.
This year we should expect a continuation with hope of recovery in sight. We have seen an advantageous year for active over passive management as you may notice in your portfolio (S&P +16.26%, DJIA +7.25%). With indices correcting greater than -30% in Feb/March, any positive number for the year should be considered a win. Another prediction made last year came true, the increased speed of the cycles. If you missed out on 5 of the best recovery days in the market then you could still be negative on your result. We need to stick to our long term strategy and holdfast to the way we have been doing business for 38 years.
Our Job Is: Understanding the rules of the new financial landscape and advising on how to benefit from these rules without political bias.
We are dealing with a term I have come to call corporatism vs. capitalism. Capitalism is a free market system that allows the best companies to compete in an open market where good ideas succeed and profit while bad ideas fail. A true capitalist society would have seen banks fail in 2008 when their “bad” idea about ignoring the risk they were taking on with our money proved disastrous. That ignorance did not reap the appropriate capitalist penalty because the government bailed them out.
Few would argue the negative effects this pandemic has inflicted on businesses, as well, and many have gone belly up, but for the vast majority stimulus from the government has allowed continued operation. Generally, lobbyists and campaign money control the candidates and elected officials, who in turn control the money supply, who in turn help businesses. It's a fortuitous system for the business owner. Allow me to remind you that you are one of these business owners. Owning stock puts you ahead of many who do not have assets that produce for them in this capacity. The key in this system is to never bet against the Fed.
Understanding this structure is essential for our long term economic outlook. This year, last year, and hundreds of years before, business ownership has been the most consistent way to benefit from an economy. Some years have corrections, and many years a single type of asset such as precious metals, real estate or any new crypto currency will temporarily outpace the market. However, over long periods, diversified investment has proven to be the best way forward in obtaining and preserving wealth. Failure to participate will cost our legacy considerable opportunity.
In conclusion, I expect volatility in 2021 and some type of correction as the market is detached from the economy. The recovery from that correction will be within the new normal of rapid recovery cycles and impossible to time. Overall my economic outlook for 2021 is positive. I expect a broad recovery as we see the vaccine allow us to move back into expansion. The next 100 million people entering the middle class, will be from developing nations outside the US. Thus maintaining exposure to global markets is still key even though the recent decade has seen the US market dominate. I expect the Fed to keep interest rates low (less than 5%) for another 10 years and expect the raising to be gradual and not for another 3 years. In zero interest rate situations the companies that benefit the most are those that are efficient at being cash flow generative and have the fastest turn around (ie. tech companies). It's also a good time to remember that since this recession was caused by a disruption to the economy not related to business cycles (global pandemic), that we should expect the cycling out of defensive positions to look unique in comparison to other recoveries.
This firm is holding strong on ideals and philosophies that have been maintained for over three decades. We keep fees minimal, mitigate risk with diversification and active management, and help you to achieve your goals. We treat every investment choice as if it were our own to make. We view every referral as an extension of that trust. We hope that you will use us to your full advantage.
You honor us with your trust and your business,
Michael Wyatt Holland, President of International Research Securities