We recognize that we may occasionally add to the cacophony of market commentary from time-to-time. Here, in one place, we wanted to present what we believe are the most important facts and our current opinions.
- Consumer net worth was, remarkably, up 10% in 2020 and is now at an all-time high at $130 trillion
- Personal savings is roughly $1.3 trillion greater today than it was one year ago
- The $1.9 trillion fiscal stimulus package is about 9% of nominal GDP; more than $1 trillion will be spent in the next five months
- Believe it or not, State and Local budgets are currently in surplus
- 2020’s fiscal stimulus package amounted to about $3.3 trillion or just shy of 16% of GDP
- Each package on its own would be the biggest fiscal package in the past 50 years
- More than 56% of U.S. debt owed to the public (`$20 trillion) matures within 3 years; the weighted average coupon of that debt is 1.38%
- One would need to go back to World War II to see deficits as a percentage of GDP rise this quickly
- M2 is currently growing at 25.8% at an annual rate
- The Fed has increased the size of its balance sheet by nearly 90% since last year (roughly 35% of GDP)
- The total number of people on nonfarm payrolls is 143 million today, 9.5 million lower than it was one year ago
- Current estimates place average unemployment benefits at roughly the equivalent of $23 an hour
OPINIONS – Consensus (C) & Non-Consensus (NC)
- Real GDP will reach levels last seen in 1983; nominal GDP could reach 10% this year – 7% real plus 2.5% inflation if we’re lucky (C)
- Running high single-digit revenue growth through an S&P Income Statement yields profit growth of nearly 30% in our models (NC)
- The Fed is currently only focused on one part of its mandate – full employment; higher inflation will be tolerated this year (C)
- An inflation scare is inevitable given the level of savings, stimulus payments, re-opening, and wage competition from unemployment benefits (C)
- Long-term inflation depends on how productively our spending will be used in the next two years (NC)
- World War II may be the best historical analog to the magnitude of fiscal and monetary stimulus being introduced into the system. Fed pegged the entire yield curve to help pay for the war. (NC)
- Other periods being used for comparison are the Roaring 20s and the Great Society President Biden is bearish for oil drilling but could be bullish for the performance of Energy stocks (NC)
- Sustainable investing will be a boon for commodity prices. EV batteries, solar panels, etc., are all commodity intensive (C?)
- The biggest danger of Bitcoin is the regulatory one – we don’t believe government authorities will allow it to compete with fiat currencies without significantly greater oversight and taxation (NC)
- Equity risk premium (earnings yield minus 10-year Treasury) suggests the market could withstand meaningful back-up in interest rates (NC)
- Sector and style rotation – growth to value, large to small, domestic to international – likely to continue (C)
- Greatest Risks to Market Forecasts: 1) End of filibuster gives way to significant tax increases and fiscal drag in 2022; 2) Inflation expectations become so unanchored that Fed must tighten (C)
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.
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