The Good, the Bad and the Ugly: What We Should Take From 2020

All politics may be local, but the Georgia Senate runoffs have clear national implications, as we are seeing now how crucial they are for the markets. Much of my domestic forecast depends on stimulus. It's not only if we get stimulus, but how that stimulus money will be spent. So, Wednesday morning, we will be in better position to assess the outcome and clarify our domestic forecast. Springing off that political contest, let's look at how we came out of last year. The national elections and the Covid-19 pandemic dominated the year. There's no question, however, that the coronavirus has been, and remains, a tragedy of epic proportions. The death toll is mounting -- here and globally -- even as vaccinations get underway. With that backdrop, it is extremely difficult to point out the good that is coming out of 2020, but there are some bright spots that we can't lose sight of. First, despite the devastation of the pandemic, we appear to be witnessing a miracle of modern medicine. Investors can take confidence in the rapid progress made with vaccines and the battle against Covid-19. We can also apply this success of science to the broader advances in medicine -- we can have confidence that we can be successful with whatever we set our minds to. I can't help but think about the time our space program put Americans on the moon and the advances that brought later. We are positioned coming into 2021 to do some extraordinary things. Second, we can see the Treasury Department and Federal Reserve rose to the occasion when faced with the economic perils of the pandemic. They both worked closely together in a timely and aggressive manner. The support for the economy and markets was unprecedented, both in scope and its creativity. These actions have, rightfully, put a strong level of support into markets and should continue to do so, especially if Janet Yellen succeeds in becoming Treasury Secretary. And, finally, we have jobs, manufacturing, and the middle class. The year 2020 started with tariffs and trade dealing with China. Now this year is starting with a more refined view on what we need, both with China -- where national security will influence policy -- and across the board for jobs and the middle class, as the country grapples with equality and the so-called K-shaped recovery. This ties back to stimulus, so we should know a lot more by the end of this week. But we do have some doubts creeping into this optimistic outlook. My base case has been optimistic on stimulus and jobs. Away from the runoffs, here is where the doubt is starting to creep in: First, is the China Team. I felt we were making progress with national security as an issue to help bring jobs back. That is still my view as President-elect Joe Biden did talk tough during the campaign, but his administration is filling up with many who did little against China on these matters under the Obama presidency. Second is multinational support. In theory, reembracing our allies should be a good thing. During the Trump administration, the U.S. shifted to a more unilateral approach, which many did not like, but some of that approach was highly effective. Europe, as one example, has difficulty deciding what it wants (other than perpetually kicking the can down the road), so it may not be an effective ally. I am concerned that while coalition building sounds great, it might slow down some initiatives that need resolution sooner rather than later. Then, finally, we have agendas vs. practicality. Witnessing the recent stimulus negotiations gives me little comfort that we will develop plans that balance longer-term agendas with shorter-term practicality. A path to where we would like to see the country and the globe in 10 or 20 years is admirable and crucial. But that path must be realistic and carefully planned. Also, stimulus to address the downward sloping leg of the K-shaped recovery is possible, but any attempt to punish the upward sloping leg, likely through higher taxes, would be problematic for markets. Starting this new year, the economy might do better than markets, reversing the perception of last year. We will know a lot more by the end of this week, so sit on the sidelines for a couple days and then make aggressive, but well informed trades. And, remember my three alternative investments for 2021: special purpose acquisition companies, collateralized-leveraged loans, and bitcoin. These might be a good areas to consider as we wait until Wednesday.

The Good, the Bad and the Ugly: What We Should Take From 2020

As we have Georgia's runoffs in mind, let's see how advances in medicine, moves by the Fed and Treasury and progress on China trade should pull us up this year -- and what could be cause for concern.

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