E A Few Thoughts

The bull market rolls along setting records almost every week. A combination of trillions in federal spending and aggressive monetary policy from the Fed is powering stocks ever higher. The supply of money over the last year had its largest annual percentage increase since 1943. Expect that to continue...until it doesn't.  

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In the past, similar policies and excesses ultimately ran their course, but they didn't end well. The excesses of the 1920s led to the Great Depression. The combined cost of the Vietnam War and LBJ's Great Society triggered a surge in inflation through the 1970s. Stock investors suffered.   

The good times for investors will be with us for a while. In addition to fiscal and monetary stimulus, a powerful tailwind is the plunge in COVID-19 cases. A seven-day rolling average of cases is down 40 percent over the last two weeks and down 71 percent from early January. The number of people in U.S. hospitals is half what it was a month ago. The 63 million vaccine doses given (13 percent of the U.S. population) combined with those that already have immunity must be playing a role. This good news is reflected in stock prices and will soon be reflected in economic data. 

The Congressional Budget Office (CBO) agrees. They forecast 4.6 percent GDP growth this year (Goldman Sachs sees 6.6 percent). The tailwinds are government spending, vaccines, pent-up demand, very easy monetary policy, anything goes fiscal policy, and strong manufacturing and housing sectors.  

Amid the bull market, one red flag is the rise in commodity prices. The implications are clear, i.e. rising inflation and with it higher interest rates, signs of which are already appearing. Many times in our history we've seen periods with huge deficits, extremely loose monetary policy, and low-interest rates. Those led to extreme speculation as traders chased "hot" stocks and in-vogue sectors. Now we have millions of short-term investors chasing a handful of stocks with large short interests. Most recently they chased marijuana stocks, with the Alternative Harvest ETF (MJ) jumping 42 percent in three days only to fall 26 percent over the next two days. 

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Disclaimer: David Vomund is an independent investment advisor. Information is found at vomundinvestments.com or by calling 775-832-8555. Clients hold ...

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