This is our weekly Market Alert video for the week ending September 17, 2021.
Once again this week, the market was characterized by volatility, anxiety, dread and worry. There’s an old expression about Wall Street that says people climb a “wall of worry.” I can tell you right now that we like it when people are climbing a wall of worry because when they’re climbing that wall, that means they’re investing scared. If you’re investing scared, it means that you’re doing your homework (or should be), and it means that you’re being very rational and making rational decisions about your investments.
What is scary is when people invest without any fear. They just go in without worry. Alan Greenspan once coined the phrase “irrational exuberance,” which was in reference to what led to the dot com crash. When people are investing when they’re scared or nervous, then presumably they’re thinking clearly while they’re doing it.
So, what is causing people anxiety? What is causing people to be climbing that wall of worry?
There are several things. One, of course, is the COVID-19 Delta variant. As we all know, that has been spiking, and the number of COVID cases has been increasing. Unfortunately, the number of deaths has also been increasing. Certainly, that is a worrisome thing. In fact, my wife and I went out to dinner at a restaurant that has been packed over the last few months. It was completely empty. When we pulled up, the parking lot was empty as if they were closed. We went inside and asked, “What’s going on?” The hosted said she had no idea because they’re normally busy during that time.
My interpretation is that people are starting to get more worried about the Delta variant, and they’re staying home to protect themselves. Well, that shouldn’t last too much longer if the Delta variant behaves here as it has in Asia and in Europe. What it’s done over there is that it has a big spike and there’s a lot of health issues. After peaking over two or three months, it then starts to come down. Hopefully that will be the case here, and we should see the number of cases now start to decline.
Another thing that people are worried about is inflation. We’ve been talking about this for a while. This is caused by a mismatch between the demand as people come out of the pandemic—there’s a strong demand for products and services and the supply isn’t enough.
The interesting thing on the product side is that when people go home and stay home, they tend to buy more stuff. So durable goods see an increase in demand, and the problem is the supply isn’t keeping up. What’s also interesting is that the reverse happens with services when people are staying home. They aren’t eating out, traveling, and those sorts of things. This reverses when people do feel safer and start going back out and start consuming more services. Therefore, we need employees to do that, so the unemployment numbers become important. Then they buy fewer durable goods because they’re not sitting at home buying stuff. It’s kind of a pendulum that swings back and forth. Be that as it may, our economic systems are designed to find that balance between supply and demand—so we don’t think inflation is a long-term issue.
The unemployment issue, which is causing the problems I just described, should abate when the number of COVID-19 cases starts to decline.
The other thing that is weighing on people’s minds is the taxes President Biden is proposing. Our view on that is that it is very unlikely that we’ll see increases in taxes this year. It is possible, but we see it as a very unlikely event. President Biden is dealing with pollical fallout from Afghanistan, and now the market is experiencing a sell off because he’s raising. Increasing taxes may not be the most strategic thing for him to do politically when the midterms coming up, so doing it early next year is more likely. He could eliminate a possible stock market crash in the near future, so the tax hike will probably not happen until after the political season is over. Because of all that, we don’t see taxes as a big issue for now.
Now, we are concerned about capital gains taxes going up next year, and we are considering the possibility of taking some gains this year. Our investment committee is discussing those details strategically to determine what we should we do. We do think that capital gains rates will go up next year, and it may be a good idea for us to take advantage of the lower taxes this year. We’ll keep you posted on that.
Another thing that is causing concern is whether interest rates are going to go up or not. The Federal Reserve has reiterated over and over and over again that they are not going to raise interest rates until the economy is fully mended. So, we should see cheap money continue to be available, and we should see a recovering U.S. economy as well as a recovering global economy.
Put that all together, and we still feel the future has more all-time highs in it between now and the middle of next year.
This was a long video, but there’s a lot to talk about. The important thing is we don’t think what we’re seeing right now is anything more than people climbing the wall of worry. We don’t see it as the beginning of the Big Bad bear market, or resurgence of a recession—it’s just a slow-down.
Please let us worry about all of this for you so you can enjoy your second childhood without parental supervision. Share this video with your friends, your business associates, etc., and be sure you subscribe to our podcast. You can do all those things so we can keep you informed about what’s going on.
We wish you all the best and look forward to seeing you soon. Take care.