Year-end Summary 2020

The economy at present is performing as well as could be expected under the circumstances. Housing is booming given the lowest mortgage interest rates in a century. The main factor holding back the economy is not a lack of disposable income; indeed areas where people are free to spend are also doing quite well. Rather, the curtailed growth is heavily concentrated in services where social distancing is a problem. The Fed continues to be as accommodative as possible and recognizing its own constraints to stimulate growth, is literally begging Congress for more fiscal stimulus and is encouraging even more than that which Congress is presently considering. The Fed, after trying and failing for a decade to get inflation to rise enough to meet a meager target of 2%, and now in the midst of a pandemic, has virtually abandoned any inflation concerns it may have had.

Congress at present is trying to agree on the content and size of an upcoming fiscal stimulus. The 2018 tax cuts based on old “trickle-down” economic theory, while high on promise failed to deliver as the economy began to decelerate even before the pandemic arrived. The conclusion drawn is that capital investors were already flush with cash, and apparently in hindsight, were not willing to invest in new plant capacity or additional hiring until they could see rising demand for additional product. They aren’t now, and never were, going to produce goods to sit in warehouses. The occurrence of the pandemic was fortunate in that it forced policy makers to test new theories previously regarded as economic heresy, namely, “trickle-up” economics by giving cash directly to consumers to sustain growth and to stimulate aggregate demand. The theory now is that increasing consumer demand will automatically cause capital investors to invest in new plant capacity and to increase hiring to meet the new demand. Going forward, we expect to see ongoing monetary stimulus from the Fed and fiscal stimulus from Congress in the form of a combination of both business and consumer relief to meet both consumer and capital needs. The path of the pandemic or of new strains of the virus now entering the population are the largest variables in determining the longer-term direction of the economy, the markets, and other policy initiatives that may be forthcoming.

As always, we remain cautious and vigilant. Please remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.

Very Best Regards,

Joseph L. Toronto, CFA

2nd Quarter Update Summary

The stock and bond markets have continued to stabilize as volatility slowly ebbs away. The returns we have seen recently are unlikely through the remainder of the year as a full economic recovery will take some time. The markets have been buoyant primarily because it is readily apparent that close-to-zero interest rates will be with us for the foreseeable future. The markets also detect that the massive stimulus from the federal government to get us through the epidemic will not be ending abruptly anytime soon.

The abrupt shock to the economy has already caused many dislocations, but this also presents a rare opportunity to re-invest and reconfigure for a future economy in terms of transportation, energy, education, entertainment etc. The market is counting on continuing stimulus and investment going forward. Congress has been talking about infrastructure renewal for many years with no action due to worries about funding. Now we know, quite by accident, that the funding is there and has always been there. Our priorities are changing, in some cases quite dramatically, because social trauma in the form of an epidemic has this way of forcing re-evaluation of our priorities and our place in the world.

Going forward, the economy and the markets will remain highly sensitive to the national epidemic, whether it subsides or expands, and, whether and how long federal monetary and fiscal stimulus remains available to mitigate its effects. We anticipate that the epidemic will eventually subside as individuals will become sensitized to the seriousness of it and individually adopt precautionary preventative measures together with acceptance of governmental measures to control its spread. This proved to be the case in the Northeast where the epidemic has already subsided substantially.

We remain cautious and vigilant. We continue to maintain significant cash balances in most accounts. However, we recently invested some cash in a diversified mutual fund after the market collapse and as it began to recover. We do not anticipate making other targeted or strategic portfolio changes until the economic outlook becomes much more clear. Please also remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.

Very Best Regards,

Joseph L. Toronto, CFA