January 4, 2021
Happy New Year! This time last year, we were talking about the prospects another late-90s type of boom for the economy and for stocks, as the Fed was forced to reverse course on overly tight monetary policy (making 2019 similar to 1995).
We also entered 2020 with the introduction of 5G on the agenda, the end to the trade war, and global fiscal stimulus underway (beginning with Japan).
With this economic-boom cocktail, it looked like another "roaring twenties" was ahead. Instead we kicked off the new decade with a global pandemic. But the ingredients remain in place for another roaring twenties.
Just as the 1920s were defined by innovation (the automobile and widespread access to electricity), the 2020s will be defined by innovation (omnipresent connectivity via 5G). Add to that, we now have trillions of dollars of new money floating around to fund this next wave of the information revolution.
Now, we also had economic shock risks as we entered last year (even prior to the virus), with an escalation of U.S./Iran tensions.
This new year, we have plenty of risks to consider.
Tomorrow we get the state senate runoff in Georgia. A democrat sweep would open up a scenario of a Biden presidency and aligned Congress, which would likely lead to a multi-trillion dollar clean energy spend. That would add even more fuel to the asset price fire, putting "inflation risk" (and more likely hot inflation) in the crosshairs. We saw some of that view materialize in markets earlier today with gold and broad commodities higher, the dollar lower. Going into tomorrow's election, both the oddsmakers and the polls have the edge going toward both democrat candidates.
On January 6th, Congress will formally count the electoral college votes. The expectation is that it will be objected by members of the Senate and the House. It should be a wild day — and stocks have just started pricing-in some of that risk today.