REVERSING OUR LAST DEFENSIVE MOVE
by Eric Nager on Nov 13, 2020
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The events of the last week have caused us to reverse our recent defensive move. First, the election took place with virtually no civil unrest and second, Pfizer announced that the testing of their Covid-19 vaccine showed amazing 90% successful results. These two events should clear the way for the economy and the markets to benefit from the strong growth path that they are on presently.
Congress will almost certainly pass a stimulus package sometime in the next few months. This along with the Fed's commitment to continue adding $120 billion per month in what is effectively QE (quantitative easing) and keeping interest rates near zero should provide all the liquidity that investors would want .
As we indicated in our last e-mail blast, we would not hesitate to reverse course if we were wrong (and we hoped and prayed that we were wrong). Peace in the streets and a seeming answer to Covid-19 enabled us to reduce our defensive position to 25% and once there is some more clarity on the legal challenges to the election then we will go back to fully invested, which should be soon.
If we have divided government (meaning that the Presidency and at least one of the Houses of Congress are of different parties) then the widely discussed tax increases will not happen and that will be good news for investors . Also, if the economy is permitted to fully re-open due to the vaccines then 2021 should be strong and hopefully resemble the powerful progress made in 2019 and early 2020 prior to the virus.
For our clients with taxable accounts, we are not reinvesting the proceeds from the investment sales back into mutual funds at this time because we do not want to incur the year-end tax distributions. Instead we invested in ETF's (Exchange Traded Funds) which have similarities to mutual funds but normally do not have the large capital gain distributions at year end . After the beginning of the year we will transition back to mutual funds for the management expertise they offer .
We sincerely hope that all of you (our clients) are happy and healthy and that your Thanksgiving holiday will be joyous . We all need to remember how much each of us has to be thankful for.
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