Report Detail Summary

Around the World in 90 Days : Part III

December 17, 2020

The pandemic had significant distributional effects on the fortunes of different economic sectors. Technology and other growth sectors fared quite well and flourished during the pandemic. Other sectors such as restaurant , services and sectors that we could classify as value sectors, languished during the pandemic. Yet , the distributional effects are hard to discern by looking at the aggregate performance of the economy. The consensus among forecasters predicted a long and slow recovery period after the spring economic shutdown. In contrast ,the administration forecast called for a V shaped recovery. By now we have accumulated enough data to make a call as to which forecast was the most accurate one. Unequivocally that the recovery has been of the V shape variety with a much faster recovery than the critics anticipated. The economy has made back much of the loss associated with the shutdown . The real GDP is on pace to end the year at most 2% lower than at the beginning of the year and there is an outside chance a flat or unchanged real GDP. That is quite a feat. The economic recovery in such a short period of time is nothing short of remarkable. Add to this the development of the COVID vaccine in record time and the economic prospected are even brighter. The vaccine will accelerate the return to normalcy and improve the employment in the sectors that suffered the most during the pandemic. This outlook bodes well for a continued economic recovery/expansion of the economy and value sectors. The incoming Biden administration will have the wind at its back during the early going. It will just have to convince the people that the vaccine is safe. Longer term we are not as bullish. We still do not know the path the administration will take to implement its policies . but irrespective of the path , we should expect higher tax rates and or higher regulations. Which ultimately is a drag on economic growth . Our research shows that higher taxes and regulations create an environment favorable to small cap stocks, as the Biden-Harris program is implemented we look for the smaller cap stocks to outperform their larger cap counterparts. Regarding the economy , as the higher tax rates and regulations are implemented the incentives to work , save and invest will decline. We expect the pace of economic activity to slowdown as the Biden-Harris administration matures. As the regulations set in , we anticipate a new “new normal”.

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The ValueTiming™ strategy is based on the assumption that politicians and policymakers have particular views of the world, and that they will in general adopt policy measures that are consistent with these views.


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