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Stepping into 2021 like...
What you need to know in 5 minutes - Jan 04, 2021
Mr. Market, along with pretty much all of us, is ready to say good riddance to 2020. As major pieces fall into place in the political sphere, Mr. Market (and the writers of What the Market), are looking forward to getting back to good ole fundamental economic coverage.
While you were out: Stimulus, Brexit, AfCFTA (African Continental Free Trade Area), and antitrust lawsuits
Senate and Congressional runoff races
What's going on?
Goodbye 2020, tidying up with Marie Kondo!
The Stimulus bill: Congress & President Trump finally approved the stimulus package. Stimulus programs began relief distributions on December 30th, including $600 stimulus checks.
A Brexit Christmas Miracle? The UK and the EU reached an agreement in overtime.
Africa bets on trade: The African Continental Free Trade Area (AfCFTA) started on Jan 1, 2021, hoping to boost intra-African trade among member states.
Big Tech antitrust is the new black: Global antitrust movements are gaining momentum. China, the EU, the US, India, and Korea are cracking down on the industry.
But what does it mean?
Stimulus: America will finally receive much needed economic relief. While some analysts worry that it is too little too late, the bill should strengthen consumer confidence and help fortify economic data moving forward as we reach a tipping point in the fight against COVID .
The stimulus includes support for small businesses, schools, childcare programs, vaccine distribution, along with unemployment and housing benefits among additional essential programs. For full details of the plan click here.
As we say goodbye to 2020, let’s congratulate Congress on penning their long overdue 5,593 page aid package. We were glad to see that Congress was focused on the struggles of the People while they were exchanging favors while fighting their proxy war, leaving the American people as the casualty. While we waited for aid, our representatives fussed over crucial aid bills in the stimulus package accounting for:
The succession or reincarnation of the Dalai Lama
Increased tax write-offs for business meals
Funding for two new museums, the Space Force, and a U.S consulate in Tibet
The prohibition of e-cigarette shipments by USPS
The repeal of criminal laws for transporting water hyacinths, alligator grass or water chestnut plants across state lines
Provisions on the release of all UFO files from the DoD and spy agencies
Brexit: The EU and UK finally concluded the four-year (only 1,200 pages btw…) Brexit ordeal which will define the nature of future relations between the two trading parties. The deal still lacks clarity on multiple fronts and introduces numerous operating complexities across industries (e.g., financial services, manufacturing, logistics). It is too early to tell who the winners and losers are, but at least we are finally moving on.
Big Tech Antitrust: After years of disparate actions against the consolidating technology industry, various nations have strung together comprehensive legal actions to regulate and heighten competition in the industry. The incoming Biden Administration is expected to pursue further legal action to control US tech giants like Facebook, Amazon, and Google. Expect volatility in the sector moving forward as simultaneous and consolidated legal proceedings occur. The EU and China have spearheaded the charge with the EU adding regulatory measures and fines and Chinese regulators launching probes into the internet platform economy.
Okay, Marie, we’re done here. Let’s see if 2021 sparks joy!
It’s a walk-off! Senate Race 2021
On Tuesday, Georgia will decide the fate of the Senate with two runoff elections. Should the Republican Party retain at least one of the seats, they will remain in the majority.
Strong Turnout: A record 3 million people voted early in the race reinforcing the significance of the election and how politicized the electorate has become.
But what does it mean?
Georgia is set to decide on the remaining two Senate seats which will determine which party controls the majority of the Senate. The election may generate some volatility into the early days of 2021 as control of Congress may allow the Biden Administration to revert corporate tax cuts which may affect company earnings and ultimately stock prices. However, it could also mean that more aggressive fiscal stimulus measures are passed to support a struggling economy. Generally, too much power on one side is not always great for the market as policies can go unchecked by the opposition.
Up next on…
Tuesday: US ISM Manufacturing PMI
Wednesday: US December employment report, FOMC Minutes
Thursday: US jobless claims and trade balance, Eurozone economic bulletin, retail sales, consumer confidence, business climate and CPI
Friday: Japanese leading economic index, Eurozone and US unemployment rate
TLDR, look at these:
All eyes on the labor market! The FOMC minutes, US jobless claims, and the December employment report will all be crucial in understanding if the worst is behind us with a fresh new stimulus package and continued vaccine deployment.
What’s an investor to do?
How's Mr. Market feeling? 2020 just turned 21, and Mr. Market is popping all the bottles he can to keep the party going.
How come? Continued deployment of COVID vaccines, an accommodative Federal Reserve, a dovish incoming administration, and a new stimulus package.
What to do? The NASDAQ had its best year since 2009 despite a lagging economic environment, and there is a concern that 2021 may bring the opposite, a stronger economy with timid returns. Public companies are trading on high earnings multiples signaling optimistic and future-focused valuations. We echo our warning about opening new positions in hopes of latching onto the FOMO train. Consider taking some profits or building positions a few shares at a time so as to not overexpose. Q1 earnings reports will help confirm whether current prices have already factored into the company’s and economy’s recovery.
For the curious investor:
Given the relevance of pharmaceuticals today, investors looking to capitalize may be wary of this hard-to-understand and speculative sector. Consider an investment in adjacent businesses that support the industry.
Thermo Fisher Scientific (TMO), produces analytical instruments (including ultra-cold freezers) for pharma, biotech, diagnostics, and applied research clients. Their freezers are actively in demand for handling the Pfizer vaccine. (Disclosure: WTM is long TMO).
Other strong adjacent alternatives include: United Parcel Service (UPS) and Federal Express (FDX), which have seen a significant uptick in business due to the pandemic e-commerce surge, and are expecting a secondary push from COVID vaccines delivery.
Across Asia, there has been a significant uptick in domestic tourism. If Asia is any blueprint for recovering economies, the same is expected for regional economies worldwide, including the US before international travel resumes.
If you’re unsure who the winners will be, consider a broad approach through ETF: JETS.
For those with a lower risk appetite, consider a value play with HEICO (HEI), which provides aircraft replacement parts. HEI has recovered most of their early pandemic losses; however, there is room for further growth as the industry recovers.
On Dec. 22 the Securities and Exchange Commission (SEC) approved the New York Stock Exchange’s (NYSE) primary Direct Listing plan, allowing prospective companies to raise money by selling their shares directly to investors without a middleman, aka investment banks. The new regulation may introduce changes to lock-up periods and the typical volume movements in secondary market trading following an IPO. Pay close attention to upcoming companies that are looking to go public, such as:
If you didn’t know, now you know
Argentina rang in the New Year with a major policy reform by passing a bill allowing women to terminate a pregnancy at up to 14 weeks. Argentina has long been recognized as a progressive beacon for Latin America and may spur other nations in the region to adopt a similar policy. Previously in Latin America, abortions were only available in Cuba, Uruguay, Guyana, and specific provinces in Mexico. Follow the campaign at #AbortoLegal2020
This summary only covers the surface of the legislation. To read more, click here.
What we’re vibing:
How to ask questions better by Tim Ferriss. Tim is a master interviewer evoking deep and rich conversations with world-class performers. His tips on asking the right questions show you how to get more out of your conversations, interviews, and business meetings.
The Hard Thing about Hard Things by Ben Horowitz, one of the most successful venture capitalists in history. It’s a must-read for anyone looking to start a company providing an inside look at decision-making and what it takes to run a company.
What’s grinding our gears:
The explosion of nonsense reaction and narration videos spreading across YouTube like this pandemic. No one is typing “video of a random person giving me their opinion while watching the scene/trailer/show” into the search bar. Yet try watching your favorite movie clips without Watchmojo or some internet cheeto narrating the Shark Tank pitch you wanted to watch. What’s grinding your gears? Let us know by using the hashtag #WTMgrindsmygears
Good News Everyone!
Don’t keep all this goodness to yourself. Share WTM with one friend who needs to read this today! 😁
- Max & Thomas
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This writing is for informational purposes only and the author/s undertake/s no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author/s expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.