Mark Twain once said, “History doesn’t repeat itself, but it does often rhyme.”

Investor speculation is once again running rampant. Trading activity and the number of new brokerage accounts has spiked in 2020. Options trading among individual investors has jumped and eye-popping IPOs have arrived. Tesla and Bitcoin are signs of something concerning, not to mention the surging market valuations of all things tech-related. This type of investor frenzy doesn’t usually end well.

Under most measures, both the stock and bond markets appear to be significantly overvalued. Fundamental metrics, such as sales, earnings and cash flow almost uniformly point to frothy financial markets. Coldly weighing fundamentals and finances, as opposed to simply chasing market momentum, is what separates investment from speculation. The line is blurry, for sure.

A common explanation of the market’s stunning rebound since March centers on the Federal Reserve and the US Treasury. Since the virus struck, the financial support by these two government bodies totals about $7 trillion and growing. The Fed is buying bonds at an annual pace of about $1.5 trillion and President-Elect Biden describes the latest $1 trillion aid package as just a “down payment.”

About half of the $7 trillion is meant to prop up consumer spending through direct payments to people and businesses. The goal is to fill the income holes left behind by Covid. The other half of that $7 trillion has been used to prop up stocks and bonds by mercilessly driving down interest rates and prodding investors to take on risk. Think of this part as filling asset holes created by Covid. Arguably, it’s not hard to view this part as market manipulation.

The documentary, The Flaw, convincingly argued the underlying cause of the financial and housing crisis of 2008 was a combination of anemic income growth and growing wealth inequality in America. Not surprisingly, the central villain in that story was the Federal Reserve.

As the story was told, for the poor and middle-class who don’t tend to own a lot of investments, the equity in their homes represented their primary path to wealth creation. For the rich who have lots of financial assets, the Fed’s super-low interest rate policy in response to the tech-stock bust drove them to provide toxic mortgages to everyone with a pulse.

The story described a symbiotic relationship where the rich chased after some yield and the poor gained easy access to rising home equity to keep spending beyond their income. It worked beautifully, until the merry-go-round stopped. As if trapped with no other way out, what came next was a doubling down on zero interest rates by the Fed along with deficit spending by Congress.

As I eagerly turn the page of my calendar to 2021, today’s pumping of trillions into the economy has me contemplating the impact on the tomorrows yet to come. I’m hearing history’s rhyme. I sincerely hope this time the Federal Reserve has finally devised a way out of the trap they’ve created for conservative, income-starved investors. In the meantime, I’d suggest you prudently rebalance.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Ah, to be Rip Van Winkle! Just imagine if we could have fallen asleep last New Year’s Eve and are only just now stirring awake wondering what we’ve missed. No doubt we’d be vigorously scratching our proverbial long and scraggly beards as we peruse this year’s dark headlines.

Unbeknownst to us as we blissfully snored away to start 2020, an insidious and novel virus had begun to spread inside and outside China. At first, it seemed like a far away risk. Images of hazmat-suited workers spraying disinfectant in the streets seemed benign and, yes, very foreign. A few weeks later, a storm hit our shores like none other.

Relying on all of our American exceptionalism and optimism, it took the stock market until late February to finally stop rising. In a blink of an eye – just one short month later – not only were the stock market’s big gains from 2019 gone, but essentially all of Trump’s sacred stock market boom since late 2016 had vanished.

Luckily for us, slumbering away like Rip Van Winkle, things were about to get very, very troubling.

Recognizing the speed of the financial meltdown in early March, the Federal Reserve took action only it could take. Within two weeks, the Fed cut interest rates back to zero and, for all intents and purposes, pledged to try to backstop financial markets. Putting this into perspective, it took the Fed six years to buy $4 trillion in financial assets after the Great Financial Crisis. In just eight weeks during this current crisis, the Fed added yet another $3 trillion to the mix. Perhaps more importantly, they promised investors unlimited support for as long as it would take.

Within days, Congress joined the fight and authorized its own $3 trillion of financial aid to both individuals and businesses. Unemployment benefits were boosted dramatically for the tens of millions of workers who were instantly out of work. Direct payments were also sent to nearly every household. About one in ten mortgages and nearly every student loan was given a repayment holiday. Last but not least, about six million businesses were given free government money to keep paying the workers they chose to keep around.

Despite the shutdown’s initial success in bending the curve, the virus once again spread over the summer months and experts were sounding the alarm about the colder seasons to come. In the face of these threats, Congress let its financial aid programs end in August. One logically could have assumed that this level of inaction – both in mitigating the virus and buffering the economy – would have stirred the financial markets awake to the ongoing risks that were apparent late in the summer.

Well, today, with our eyes now finally opening, we find ourselves in a truly peculiar world. It’s been quite a year to be wide awake the whole time. If only we had peacefully slept our way through it all. Ah, to be Rip Van Winkle!

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

The news over the last few weeks has been remarkable in its positivity. No, I’m not referring to the alarming surge in positivity rates in our nation, our state and our community. Nor am I referring to the need to positively stay home and stay safe when it’s at all possible. And, I’m certainly not talking about the positively dark period just ahead of us as this unrelenting virus spreads and we are stretched to new limits.

Instead, I’m talking about the positive vaccine developments.

The vaccine news from Pfizer and Moderna is a game changer. After giving their vaccine to tens of thousands of volunteers, about 95% of the first batch of positive COVID-19 infections happened in people who were only given the placebo. These two vaccines appear to provide protection far better than hoped. It’s important to remember this was never a slam dunk. It could have taken years.

I’m optimistic that we’re actually starting to turn the long, long corner of this crisis. What exactly does this mean for the economy and the financial markets? It all depends on the timing of the vaccine and the actions of our politicians in Washington and Lansing.

Until we achieve mass vaccination, parts of the economy will continue to be heavily weighed down. As we’re experiencing right now, public health restrictions will continue to affect the obvious set of businesses that rely on people gathering together.

Since mass vaccination likely won’t happen until well into 2021, more financial help is needed immediately, especially for these employees and these small business owners. Congress needs to deliver a financial bridge that should have been built many months ago. And, our politicians in Lansing need to start speaking with one voice to ensure public health compliance to get through this difficult period. I am hopeful that their childish, political squabbling will be silenced as we experience our biggest wave of infections, hospitalizations and death.

Naturally, what’s next for the direction of financial markets is far less clear. The main culprit for this lack of clarity is in how markets actually work.

Financial markets are real-time “anticipation machines.” In this sense, both good news and bad news is immediately pulled forward and instantly reflected in today’s prices. Since the crisis hit, the virus has produced violent waves of bad news and good news. Uncertainty and market volatility are identical twins.

Financial markets are also real-time “comparison machines.” The central question that’s answered on a daily basis is whether one investment is more attractive than another. On this front, the Federal Reserve has totally gummed up the machine. With yields on bonds and cash downright paltry, it makes many stocks look relatively attractive, even at today’s all-time highs.

This all presents a serious conundrum, both for investors and for our economy. A vaccine is coming and our hospitals are almost full. The political season is over and real leadership is now required. Congress and Lansing, are you listening? The message the virus is sending is loud and clear.

Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

As I write this, it’s early morning just before the polls open. The allure of prognostication is simply too enticing for me to pass up. With that, forgive me for stepping just one day into the future!

—–

[Post-Election Update: I was wrong, especially in the national tone of the election’s outcome. Florida went to Trump, not Biden, early in the night and the swing-state vote count dragged on for days. It was much closer than I expected. However, the electoral college result will likely turn out to be 306-232, not 335-203, as predicted below. Florida was the key difference and, instead of North Carolina for Biden, he won Georgia. And, of course, the Senate race is still to-be-determined after two January run-off races in Georgia. Republicans will likely end up still holding a slim majority in the Senate by losing either one or two seats; narrowing their current three seat majority.]

——

I’m sure losing so badly last night is tough for Trump to accept. It wasn’t a Reagan-Mondale or Nixon-McGovern type of landslide. In our modern era of deep division, that’s no longer possible. However, Biden’s 335-203 electoral victory along with Republicans narrowly losing control of the Senate leaves little room for doubt. It was a rough night for Trump and the Republicans, especially when it was so easily avoidable.

The night began with 20 states and their 125 electoral votes preordained to be in Trump’s column. In Biden’s bag of certain victories were 17 states and their 215 electoral votes. That left the minority of voters living in just 13 states to decide things.

Like 2020 itself, this election cycle felt like an eternity. Courtesy of Florida, however, the dense air of drama dissipated swiftly. For that, we are all thankful, I’m sure. Frankly, after the 2000 election and their hanging chads, they owed the nation some clarity!

As the evening unfolded, most of the remaining swing states followed Florida’s lead. Other than Trump’s narrow victories in Texas and Georgia in the South and his small margins in Ohio and Iowa in the Midwest, the remaining swing states lined up for Biden. Yes, some votes are still being counted. But, when all is said and done, North Carolina and Pennsylvania will also officially end up in Biden’s tally.

In the final analysis, this election was always a referendum on Trump’s leadership; both in its style and in its substance. Among too many dramas to overcome and overlook, his presidency was ultimately decided by his response to the pandemic. To avoid last night’s defeat, Trump needed some foresight. Instead, he’s left with 20/20 hindsight about what could have been. Alas, true do-overs in life are few and far between.

When the virus hit, we needed national leadership. Nobody expected perfect leadership. In fact, our political divisiveness and our economy’s underlying inequalities rendered a perfect response impossible to achieve. Instead, what was needed was a clear plan that never arrived. This plan includes access to free and rapid testing capabilities, the delivery of predictable financial support for as long as it takes and a consistent focus on the common good.

As I sign off this column and gently step back to the tension-filled morning of election day, let’s all hope for a much better 2021. We, along with the next President of the United States, certainly have a lot of work to do to get things back on track. As we enter the months ahead, let’s start by recommitting to wearing our masks, keeping our distance and staying as safe as possible. That’s a plan I know we can all follow!