“On A Clear Day You Can See Forever” – Alan Lerner, 1965
Over the years, I have heard innumerable people say they did not want to make any investment decisions until the economic and financial outlook was clear and more certain. However, the reality is that the outlook is never clear or certain, and if it were, the markets would have long since incorporated it into prices. There is always uncertainty, there are always many unanswered questions. Today, there seem to be more than the usual number of conundrums and many of them are of truly major importance. What follows is a partial list of financial and economic issues we are evaluating, and they are provided not to suggest we have all if any of the answers, but to give you a healthy dose of intellectual stimulation. We will start with the really big questions and then follow with a number of others that are still important but of more relevance to us investment types.
• How long will the Federal Reserve keep interest rates at historically low levels? And, assuming they remain
low for an extended period, what will be the impact on pension funds, financial services companies, and so on?
• Will the FED ultimately unwind its balance sheet that resulted from Quantitative Easing (QE)? If so, how and when?
• What about other central banks around the world?
• Given that economic growth has been moderate since 2009 despite QE, what kind of growth can we expect if QE is ultimately ended?
• Will QE and huge budget deficits ultimately lead to inflation?
• What will the post Covid world look like in terms of cities, the nature of work, the outlook for travel, retail and
entertainment companies, etc?
• Will U.S. growth stocks in general, and tech stocks in particular, continue to dominate the world’s capital markets?
• Are U.S. stocks overpriced versus the rest of the world?
• Where do investors look for current income?
• Given low interest rates, are bonds still the preferred “safe haven” asset?
• Will volatility return to the low levels that prevailed pre-Covid?
• Given the influx of capital, can private markets continue to provide attractive returns?
• What will be the impact of new investment vehicles for small investors such as Robinhood and Schwab Slices?
• Stock buybacks have been a major contributor to strong stock returns, will they return to significant levels post Covid?
• Will the trend toward passive investing continue? A related question is whether consolidation in the asset management industry will continue?
Of course, there are other questions regarding politics, world affairs, and many other categories, but we will leave them to others since the above list is enough to keep anyone occupied. As Warren Buffett has said, “investing is simple, but it isn’t easy.”