The Year In Review

2020 Brought heartache to Main street and joy to Wall Street. It was an exhausting year mentally, physically, financially and socially. Here’s a quick look back to see what we dealt with.

The year opened with fires ravaging through Australia killing thousands of people and animals. Congress present the Senate with articles of impeachment, but the President was later acquitted by the Senate. Britain officially left the European Union; the impact will take a while to be realized.

A virus emerged from Wuhan China that crippled the world economy, the U.S. shut down on March 16^th for 2 weeks bringing the U.S. economy to a screeching halt, and many cities around the country still have heavy restrictions because of a resurgence of the Virus.  Social distancing became the new normal, even with family members. We have redefined our social life, business practices by embracing zoom. We changed our grooming habits with salon closures, fashion statements are now defined by the waist up. Parents became school teachers to their children, there was a run-on toilet paper and disinfectant in supermarkets.

Millions lost their jobs, while others learned to work from home. Food banks saw record numbers of families looking for help. Congress enacted the CARES Act giving those that lost their jobs and additional $600/week on top of unemployment benefits, providing many with more money by not working than they did while employed. Household income rose by 2% and consumer spending went through the roof, so the CDC issued a moratorium on evictions and foreclosures.

Sporting events played to empty arenas; We lost icons Kobe Bryant, Chuck Yeager, Baseball legends Joe Morgan, Bob Gibson, Tom “Terrific” Seaver, Whitey Ford, & Lou Brock, Actors Sean Connery Chadwick Boseman & Carl Reiner, Musician Eddie Van Halen, Congressman John Lewis and legendary GE CEO Jack Welch.

Oil prices went into negative territory, as inventories hit all-time highs. Healthcare workers became our heroes for the risks they took treating us, but Nursing homes became a death trap for many seniors. We saw drive thru or drive-in style funeral services.  Fires ignited in CA again destroying homes, crops and lives.

Harvey Weinstein whose behavior fueled the “MeToo” movement, was convicted of rape and sexual misconduct. Riots broke out in Hong Kong over controversial control by China and even larger riots erupted throughout the U.S over the death of George Floyd by a police officer. People protested to defund police departments and corporate America decided to take a closer look at its culture & business practices to expand diversity at all levels.

Supreme Court Justice Ruth Bader Ginsburg passed away and Amy Coney Barret replaced her seat on the high court. Social distancing led many Americans to mail in their ballots for the election giving the country the highest voter turnout in history. Joe Biden was elected as the 46^th President of the U.S.A. However, accusations of fraud were investigated and are still being dealt with as President Trump has yet to concede the election. Social Media giants Facebook, Twitter and google face investigations by the government over questionable business practices.  People fled high rise apartment living and gobbled up homes at an astounding rate, boosting the prices of existing homes by 15%.

Cities like New York and Chicago that were once bustling with people at all hours of the day, became ghost towns over night as small business owners dealt with a knockout blow from state mandated restrictions.

 

Wall Street however, has been exceptionally interesting for investors. The Dow hit its peak on Feb 12^th at 29,568.97 and closed at 18,591.93 on March 23^rd. dropping close to 11,000 point in just over a month. Stocks then soared to new highs with the Dow closing the year at 30409.56, returning 6.18% during the year. The S&P 500 Index increased 15.33%, the NASDAQ 42.27% & the Russell 2000 19.12%. Pretty amazing numbers considering GDP dropped and unemployment soared.

Mortgage rates fell to new lows, Bitcoin, quintupled in price from March to $28,971 at year-end.  Gold jumped from $1,471 in March and is now hovering at $1,900/oz. Copper, silver, lumber, wheat, and soybeans have all exploded as well, to more than 5-year highs.

Federal Reserve calculation of future inflation expectations, projects CPI inflation to be 2.0% annualized over the next five-year period. That's an increase from the 1.8% expected a year ago and much higher than the 0.8% projected back in mid-March.
 
The monetary base has expanded by $1.6 trillion since February, the M2 measure of money has grown 25% in the past year, and the Fed says it doesn't plan on lifting interest rates until at least 2024. 
Meanwhile, the federal budget deficit soared last year, hitting $3.1 trillion in the Fiscal Year 2020, which ended in September, and looks likely to remain very large in FY 2021, as well. The United States, and other governments around the world, face huge fiscal issues in the years ahead.
 
Every penny of government spending is taxed or borrowed from the private sector. And these transfers of wealth and income from current and future taxpayers to the government distort the economy in massive ways. It's more than just deficits and debt. Those that think Modern Monetary Theory (MMT) allows the Fed to print money to finance this debt with no consequences are delusional.

Mervyn King, the former head of the Bank of England who says MMT is neither modern, monetary, or a theory. It's been tried before, by the Romans, the Weimar Republic, Zimbabwe, Venezuela...all with disastrous results. So, the question now becomes timing.
In the mid-2000s, people bought homes they couldn't afford with interest rates that were artificially low. Now, the government is doing this. This may be manageable for the time being, but we advise that you pay attention, disasters rarely come with a warning.
 

This past fiscal year, net interest on the US federal debt was 1.6% of GDP versus 1.7% in 2019 and about 3.0% in the 1980s and 1990s. Yes, you read that correctly: in spite of soaring national debt in 2020, as well as a plunge in GDP, the interest burden was smaller as a share of GDP than it was the year before, and roughly half of where it was 30-years ago. But the Principal burden on the tax payer is far greater now.
 
As a result, although the budget deficit is not good and not sustainable in the long-term, the US is not Argentina, yet. Just because the doctor tells you the problem with your weight isn't fatal today, doesn't mean it won’t be down the line. Take a look at New York, Illinois, California and other states, how many people and business are fleeing because of over taxation and other unfriendly business environments.