2021
Are the Markets Ready to “Break on Through to the Other Side?”
The year 2020 was a turbulent and surprisingly successful year in the markets.
So, what does 2021 have in store? And what’s the outlook for the rest of the decade?
To help answer this question, I was joined by the first returning guest on the Wealth Wisdom Podcast. Signature Global Asset Management’s Senior Vice President and Global Strategist Drummond Brodeur joined us recently to give us an outlook on the markets based on his recent article titled "Break on through to the other side."
You can listen to the podcast through these popular avenues.
There’s also the video podcast version for those of you who prefer to look at our smiling faces.
Here are some of the key points that Drummond and I touched on in the episode.
How the US will Help Drive Global Economic Growth in 2021
At the time of recording, the US Democrats $1.9 trillion stimulus bill was waiting for approval in the Senate. That’s now been approved, but there’s still another major stimulus package that’s likely to be approved later this year.
The first stimulus bill was about supporting Americans through the virus, but the second is going to be a long-term, infrastructure spending bill.
“The numbers [for this bill] are going to try and push somewhere between a $2 and $4 trillion package," Drummond said on the podcast.
"However you look at it, these are big numbers. If you add that to the $1.9 trillion, that’s a total of $5 trillion in the U.S. economy. That’s 25% of the U.S. GDP in fiscal support and spending. That’s going to drive a tremendous amount of growth through the economy in 2021.”
The Imaginary Fight Against Inflation
The fight against inflation is over. In fact, according to Drummond (and other policy experts), it’s been over for a long, long time.
“The reality is that inflation was defeated in the 1980,” Drummond said. “It’s sort of like fighting dragons. We’re out there fighting dragons but you know what? No one has seen a dragon in over 30 years.”
One of the key drivers behind this fundamental change is the current state of interest rates. During past recessions, banks would raise interest rates to conquer inflation.
See the problem?
You can’t cut interest rates when rates are already at zero. This has ushered in a new way of thinking about monetary policy and (spoiler alert), it also changes the way we look at constructing modern portfolios.
Why the Modern Portfolio Theory Needs to Change
How many of you out there like the idea of those “safe” Government bonds and GIC’s? Unfortunately, investing in these is no longer a viable option for the modern portfolio.
As Drummond mentions in this clip, the real rate of return (your return after adjusting for inflation) on U.S. Government Bonds is -0.8%.
“That so-called safe asset of Government bonds, of GICs, of sitting in a bank account, anything earning less than 2% means your purchasing power is shrinking over time.”
What's the Purpose of Your Investments?
Constantly adjusting portfolios to keep up with the present is just a part of what we do.
What’s just as important is working with you to make sure we find the purpose of your investments.
Are your dollars meant for long-term growth, or do you need to preserve your income in order to buy a home in a year? These are critical questions that we need to know so that we can allocate your portfolio properly.
Investing without knowing the purpose for your dollars is just gambling. That’s why it’s so imperative that we work with you to create a comprehensive financial plan, and that we revisit that plan on a regular basis.
If you think you need to update your financial plan, don’t hesitate to reach out to us.
What's Next?
The above clips are just little snack-sized bites from this conversation with Drummond. If you’re interested in learning more about what we discussed, I strongly encourage you to listen to the entire episode. Drummond’s insights on the markets are truly among the best in the country.
On our next episode, we welcome on Vancouver real estate agent Steve Saretsky to talk about the red-hot real estate market in the Lower Mainland. Steve runs his own real estate blog, and he’s previously contributed commentary to BNN Bloomberg, CBC News, Global News and Yahoo Finance.
Until next time,
Assante Sana
