When I was a child my father would bring home computers he no longer needed in the office.\u00a0 These were some of the very first computers for businesses.\u00a0 The first one I remember didn\u2019t have a hard drive or a disk drive, but instead had a cassette player to load programs.\u00a0 Some of you may have to google what a cassette player is.\u00a0 I would dive into them and see what I could make them do. Inevitably I would \u201cpush\u201d them a bit too hard and let\u2019s just say it ended with \u201cDad, don\u2019t you think you need a new computer at the office?\u201d<\/p>\n
<\/p>\n
Like most kids with computers I spent a lot of time playing video games on those computers.\u00a0 Those initial experiences left me with a lifelong appreciation for playing video games which I still do to this day (although not as much as I once did, much to my occasional chagrin). Most video games these days have a list of \u201cAchievements\u201d. It\u2019s basically a way to show others that you completed something fairly difficult.\u00a0\u00a0 Sometimes Achievements are only possible for a limited time or under very specific circumstances.\u00a0 If life were like those video games 2020 would be chock full of possible Achievements, although unlike the ones in video games, many of these we would have rather missed.\u00a0 Let\u2019s look at the world in the 3rd quarter and what we see in the 4th.<\/p>\n
<\/p>\n
The COVID-19 Pandemic<\/strong><\/p>\n Cases are starting to tick up a various locations around the world, including a number of U.S. States.\u00a0 This kind of ebb and flow of cases is not a surprise and will be with us for the foreseeable future.\u00a0 While we do not presently see a return to lockdowns in the United Stated, it is being discussed in various other countries.\u00a0 One very important piece of good news is the mortality rate has dropped. When and if a vaccine comes out, it will take time for it to be distributed and for people to be convinced to take it. Our view is COVID-19 is going to be with us for longer than we wish and we will continue to adapt to it from both a business and personal point of view.<\/p>\n <\/p>\n We are already seeing some of those adaptations starting.\u00a0 We are beginning to see signs of a migration from large cities which may or not be permanent.\u00a0 There is a new focus on moving manufacturing, especially medical manufacturing back \u201con-shore\u201d.\u00a0 That will take some time to happen as building medical grade manufacturing does not happen overnight.\u00a0 Business travel is basically non-existent, although vacation travel will likely bounce back sooner.\u00a0 Finally, people working from home will probably be with us for the foreseeable future.\u00a0 This will have lasting impacts on many different parts of the economy and we are just starting to see them.<\/p>\n <\/p>\n The Election<\/strong><\/p>\n The upcoming election is on the forefront of everyone\u2019s mind.\u00a0 The recent debate certainty did not help calm any nerves about the election.\u00a0 The most important point I can pass on here is: Making investment decisions solely based on the outcome of an election is almost always a bad idea. Raymond James, our broker\/ dealer, has put together some great information about the effect elections have on markets. \u00a0It points out many of the things we think always happen when one party or another wins an election are not written in stone, and while there can be market volatility after an election, it usually subsides in fairly short order. Please contact me and I will share it with you and we can schedule time to go over it together.<\/p>\n <\/p>\n The Economy<\/strong><\/p>\n The economy is in the middle of a reallocation of resources.\u00a0 Some of this is due to COVID-19, but some of it is due to trends that existed long before the pandemic and have been sped up.\u00a0 During periods like this we can expect to see employment continue to bounce up and down as businesses not able to adjust close and new businesses spring up to take advantage of new opportunities.\u00a0 This will likely be a painful process as historically pandemics have upended both social and economic orders[1]<\/sup><\/a>. One positive point is there seems to be a commitment from both the Federal Government and the Federal Reserve to provide broad support for the economy.<\/p>\n <\/p>\n The Federal Reserve<\/strong><\/p>\n The Federal Reserve has kept interest rates low and there is very little possibility that they will raise rates in the next 12 to 24 months.\u00a0 In recent history the Federal Reserve has operated under the understanding that if inflation rises above 2% then they would raise rates and take other actions to make sure it does not go up much further. In September, they changed that framework.\u00a0 They will now wait to do something if they see higher inflation, especially if they do not also see high employment.\u00a0 Given our current and expected employment stats this means they will probably not raise rates for a while, perhaps a long while.\u00a0 The \u201cFed\u201d has also highlighted the need for additional fiscal stimulus.<\/p>\n <\/p>\n The Federal Government<\/strong><\/p>\n The U.S. Government has injected $2.3 Trillion into the economy thru stimulus funding. Let\u2019s write that out, $2,300,000,000,000.\u00a0 If we stacked those dollars on top of each other, it would reach two thirds of the distance to the moon.\u00a0 Finally, by comparison during the 2008 Financial Crisis, the government stimulus was $152 Billion.\u00a0 Not even 1\/20 of the distance to moon.\u00a0 That is a lot of money.\u00a0 This begs two questions.\u00a0 One, is where does this money come from, and two, will it cause inflation.\u00a0 The answer to the first question is easy.\u00a0 Some comes from current revenues (taxes, etc.), but most of it comes from debt issuance[2]<\/sup><\/a>. We are issuing more debt than ever and it will likely not stop any time soon.\u00a0 The inflation question is harder to answer.<\/p>\n <\/p>\n Inflation vs. Deflation<\/strong><\/p>\n Inflation is the process by which things become more expensive over time.\u00a0 We all are familiar with this.\u00a0 It seems every time we checkout at the grocery store our bill gets a bit larger.\u00a0 It brings up visions of wheelbarrows full of Weimar Germany Deutschmarks to buy a loaf of bread and of 100 trillion-dollar banknotes from Zimbabwe.\u00a0 For some it will bring up memories of the 1970\u2019s in the United States when inflation reached 14%.<\/p>\n Deflation on the other hand is what happens when things become less expensive.\u00a0 The last time the U.S. saw serious deflation was during the Great Depression.\u00a0 On the surface sounds great as \u201cour dollars will go farther\u201d; in fact, it\u2019s a horrible thing.\u00a0 During deflation people don\u2019t want to spend money at all.\u00a0 If the value of your money goes up without you doing anything, when do you spend it?\u00a0 The answer is you don\u2019t.\u00a0 You hoard it because it will be more valuable tomorrow.\u00a0 If everyone does this, the economy grinds to a halt.\u00a0 Remember, the money you spend is someone else\u2019s wages.\u00a0 If people stop spending, then people stop getting paid, which tends to feed on itself.\u00a0 It is very hard to get out of a deflationary spiral.\u00a0 Japan has been experiencing deflation for almost 30 years.<\/p>\n <\/p>\n So yes, the economic stimulus and what the Federal Reserve is doing would be very inflationary during normal times, but these are not normal times.\u00a0 Let\u2019s talk about why.\u00a0 The obvious reason is the pandemic which has caused economic activity to slow greatly (hence the change shortage), but there are other longer-term factors at play here.<\/p>\n <\/p>\n The twenty-first century has brought with it many deflationary pressures.\u00a0\u00a0 Globalization has been a key one.\u00a0 While this may be starting to fade, it will take a long time before global trade completely unwinds, if ever.\u00a0 Another one is energy costs.\u00a0 A primary driver of inflation was the cost of oil, but with technological improvements oil has become easier to find than anytime in human history. \u00a0On top of that, alternative energy is steadily eating away at oil\u2019s preeminence as the fuel of choice for the global economy.\u00a0 Finally, and the biggest change, are computers and the internet.\u00a0 One could write a whole article on how they have made things cheaper and more efficient.\u00a0 Not to mention what\u2019s waiting in the wings with robotics, machine learning, and artificial intelligence.<\/p>\n <\/p>\n The result of all this is while we may experience short bumps in inflation, it does not look like the COVID-19 response will cause significant inflation in the near term.<\/p>\n <\/p>\n What\u2019s next<\/strong><\/p>\n It is our view that once we get thru the election that the economy will continue adjusting to the post-COVID world.\u00a0 There will be opportunities and threats for investors to deal with as there have always been.\u00a0 We continue to monitor markets and the economy closely to either avoid or take advantage of those.\u00a0 If you have questions or concerns about your portfolio or your financial plan please reach out to me and we will schedule a time to meet.<\/p>\n <\/p>\n As 2020 draws to a close, my team and I would like to wish you and your families a heathy, happy and prosperous holiday season.\u00a0 We deeply appreciate your confidence and trust in us and look forward to working with you in the new year. \u2022<\/p>\n <\/p>\n [1]<\/sup><\/a>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 For example, the Black Death plague in Europe effectively ended Feudalism.<\/p>\n <\/p>\n