End of Year Thoughts on the Markets – 2021

Christmas is almost here and important investment decisions are looming. Let’s begin.

Omicron is spreading rapidly across the world. Emerging guidelines within Canada are that healthcare workers are now required to get a 3rd Pfizer shot (a booster). If the federal government is going to require a third shot against covid-19, I think it would undermine the authority of drug-approving agencies and pharmaceutical companies. It may prompt people to believe that a year from now, we could be getting a fourth or fifth dose. I believe that if immunity wears off overtime and folks must update their vaccine passports every 6 months, it would have a negative impact on markets. Developed countries would have to continue their vaccination efforts while poorer countries still haven’t received their first dose. Look at how long it took the United States to get where it is today. Beginning in January 2021, so far this year they have reached just over 60% of the population who are fully vaccinated (Canada is at 76%).

I think the impact of vaccine passports mandates across the world will be negative since a fifth of people have decided they will not get vaccinated. A fifth of your customer base not allowed to a venue or a restaurant isn’t good for economic expansion. Money for the vaccines isn’t a problem, $19.50 for a Pfizer dose with an extra $2 for the vaccine clinic (according the WHO) comes out at roughly $7 billion for the entire US population. Rather it’s the defiant mindset that people create in their heads. The whole point of the vaccines was to vaccinate ourselves twice then all the other countries twice. After nearly a year, it doesn’t look like the solutions to our problems are as effective as we thought they were. I also think people are fed up with lockdowns and are not going to let another one happen. In another two-three months, they’ll be another variant even more resistant to vaccines. Doesn’t look like a return to normal is gonna happen anytime soon. Airplanes and cinemas are still struggling. Maybe a play on Pfizer stock would work out.

The latest inflation data shows the Consumer Price Index at 6.8% annually, the highest rate in recent months. The Fed ditched the word transitory from its inflation reporting and acknowledged that inflation is proving more powerful and persistent than expected. Fed chairman Powell said the Fed will also discuss speeding up the tapering of its bond-buying program. A sign that he might be looking at raising interest rates sooner than expected. It might be interesting to look at countries vulnerable to US rate hikes, say Argentina with its debt, foreign-exchange reserves and consumer prices. Maybe find a short position in a company based or has good deal of business there (regional banks, telecom companies).

Joe Biden’s Build Back Better bill, estimated to cost $2 trillion over a decade, may add more pressure on prices as the true cost of his plan (if sunset clauses were extended) is estimated to be almost $5 trillion. The original bill was beefier at $3.5 trillion but not much as changed in it, just the timelines for specific measures. For example if child tax credits headline cost is $10 billion over a decade but is really $10 billion over one year and will need to be renewed after that year, the real cost (if popular and renewed annually) is going to be $100 billion over those 10 years. Very sneaky.

Investors may start putting their money into real estate or infrastructure related stocks. As these types of investments typically outperform the stockmarket when inflation is higher than 2.5%.

The Cyclically-adjusted price-earnings ratio for the S&P500 is at 39.35, up from 24.82 in March 2020. The highest number only being during the dot-com boom when it was 44.19. The S&P500 and Dow are at all-time highs.

Thanks for reading.

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