FREE STUFF CONTINUES TO DRIVE MARKETS

My Dad had a traditional activity at family reunions he called a “scrambles.” He first gathered all the children in a semi-circle in front of him. In his arms was a huge box filled with candy which he would toss into the screaming crowd while yelling, “Scrambles.” This wild event was always very popular with the young kids in the family. As we grew up, we would introduce the grandkids to the tradition, who loved it as much as we did. After all, who doesn’t love free stuff? The downside was that by the end of the day, many felt the effects of overindulging on all that candy.
 
In his closing argument to the people of Georgia before the senate runoff elections, president-elect Biden said that if Georgia voted blue, $2000 stimulus checks would “go out the door immediately.” Apparently, the message was well-received. Even as adults, who doesn’t get excited about someone tossing out free stuff? As I have mentioned in past columns, the various rounds of “stimulus” packages have also been popular with Wall Street as they know who eventually winds up with much of that money. With the election officially behind us, and the promise of even larger stimulus packages on the horizon, I am beginning to feel like we have become like a bunch of excited children running about chasing the free candy. The government keeps yelling “Scrambles” and the people seem to be responding with glee.
 
We had a great time during those “Scrambles” at our reunions but eventually my dad would turn the box upside down and say, “All gone,” much to the sorrow of the kids. My dad was a generous guy, but his candy supply couldn’t last forever.
 
In 2021, Wall Street continues to hit new highs as trillions of dollars are tossed out with promises that the free stuff will continue. I suppose it can go on for a while, perhaps even much of the year, but eventually the government candy box will run dry. Math always wins and the math of printing excessive amounts of money eventually turns against you.
 
I have said publicly that I do not generally approve of the ongoing stimulus packages. There are better ways to get money flowing again, which largely involve getting people back to work. But so long as government is keen to continue tossing out free money, and devaluing existing money in the process, investors should be looking for investments that are most likely to benefit from that policy.
 
I expect stocks in general to continue rising for much of the year. Bonds will struggle with low interest rates, but those same low rates should help stocks as well as continue to bolster real estate markets. Investors might also find opportunities in green energy but be aware of a tendency for markets to often overvalue politically trendy companies. And most importantly, in a “Scrambles” year, be prepared to make quick changes when the candy box runs dry.