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Capital Ideas: A Shot in the Arm

We have all increased our thresh­old for the inconceivable.

It’s only the end of January and we have already expe­ri­enced armed riots on the Capitol, the demise of the famous 21” restau­rant, a record breaking 22 exec­u­tive orders signed by President Biden in his first week in office, the death of Larry King and Hank Aaron, and Tom Brady return­ing to the Super Bowl.

We have also witnessed one of the greatest short squeezes of all time in GameStop stock. A short squeeze is a rapid increase in the price of a stock owing primar­ily to tech­ni­cal factors in the market, rather than under­ly­ing funda­men­tals. A short squeeze can occur when there is a lack of supply and an excess of demand for a stock due to short sellers covering their positions.

The Federal Reserve has pledged to keep short term interest rates low indef­i­nitely and has contin­ued to purchase $120 billion of secu­ri­ties in the market­place, monthly. Pile this onto an upcoming Biden stimulus plan, and it could mean a poten­tial boost for the stock market. Some may say that equities are fully priced, but who can accu­rately predict the impact of approx­i­mately $2 trillion dollars of govern­ment stimulus?

We are concerned that the funding for infra­struc­ture, educa­tion, and capital improve­ments may not be suffi­cient to drive the economy forward. If too much of the stimulus is just consumer driven, the effect might be coun­ter­pro­duc­tive in the long term. The tension between these two narra­tives may cause increased volatil­ity in the markets, and given this backdrop, we feel that investors should stay diver­si­fied and remember to inform us of any changes in their finan­cial circum­stances which might lead us to adjust their invest­ment risk profile.

The new Administration is likely to seek higher corpo­rate, estate, and indi­vid­ual tax rates. The impact is diffi­cult to assess, however, it might be tempered by all of the addi­tional liquid­ity in the economy. Nevertheless, with the deficits that are being created, it will be diffi­cult not to ratio­nal­ize raising taxes – espe­cially on upper income families and families of wealth who have bene­fited from the appre­ci­a­tion of their finan­cial assets.

I have written this before, however it is worth repeat­ing. Protecting port­fo­lios from infla­tion or defla­tion is an impor­tant goal. In this envi­ron­ment, it is diffi­cult to deter­mine if either might occur but wee are deter­mined to provide good outcomes, no matter what occurs.

With the vaccine rollout having been less than stellar, we hope that President Biden can deliver on the 100 million vaccines in the first 100 days as promised. The sooner we each receive the shots in the arm, the better off we will be.

Our port­fo­lios gener­ally performed well last year, and we are grateful to our staff who directed the allo­ca­tion, analysis, and execu­tion of our planning. We are most grateful to our clients who entrust their resources to us and allow us the ability to perform our craft.

We thank you for your contin­ued confi­dence and look forward to a produc­tive year.
The chal­lenges ahead remind me of Albert Einstein’s quote Life is like riding a bicycle. To keep your balance, you must keep moving”.

We are moving ahead with realism and optimism. The best is yet to be!

Stay well — stay safe.

As always,
Seymour W. Zises