Market Update: From Two Weeks to Forever

Remember the government mantra from February 2020, “Two weeks to flatten the curve”? Well, here we are, a year and half later and 8.69 trillion dollars of federal spending, tax cuts, loans, grants, and subsidies committed or disbursed. (1.)

As government spending continues to spiral out of control and inflation soars, many Americans are concerned about their future and wondering where to put their money. Wondering what the future holds for them, their children, and grandchildren. Rightfully so.

As investment portfolio managers, we follow the markets, the economy and government policy very closely. In fact, it is a never ending and ever-changing job. The latest Fed speak continues to suggest that the inflation we are experiencing is transitory. We disagree with this assertion. We are seeing signs that higher levels of inflation will be with us for quite some time. Massive supply chain disruptions caused by misguided lockdown policies have caused shortages in many different sectors of the market from home appliances to computer chips. In some cases, such as building materials, the cost rose two hundred percent or more.

Further exacerbating the problem is trillions of print-and-spend dollars that have been sent out to Americans in the form of extended and “enhanced” unemployment benefits and so called “stimulus” payments. Consumer spending increases as a result of the re-opening of the economy have created a situation where demand has outpaced supply. This has caused prices to rise and is the very definition of inflation. Too many dollars chasing too few goods.

With many Americans being awash with excess funds that they would not normally have had, the incentive to return to work is diminished. This creates yet another problem. A labor shortage. Businesses must compete for workers, so they raise wages. They are paying more for supplies and paying more for labor, so they raise their prices to remain profitable. Again, higher prices, the definition of inflation.

At some point in the not-too-distant future, the federal reserve will need to raise interest rates. With interest rates being so low for so long, this will have a tremendous impact on assets prices, particularly fixed income (bonds) and real estate. This is nothing new. The economy goes through cycles of boom and bust. What is different this time is the astronomical level of debt we have piled up as a nation. All else being equal, the larger a government’s debt, the greater the risk of a fiscal crisis.

It is our contention, at O’Donnell Wealth Management, that the single best way for us, as a nation, to avert a fiscal crisis disaster is to immediately re-open the entire U.S. economy to include each and every business and to remove all Covid related restrictions. It has become blatantly obvious over the past 18 months that lockdowns do not work, masks do not work, and so-called social distancing does not work.

Stop the ludicrous government spending. Enough is enough. Americans need to return to their jobs, their passions, and their lives. Enough borrowing and wasting money. Enough spreading fear. Enough flip-flopping narratives from governments. Enough destroying lives and businesses. Enough of the politicization of health and safety. Enough Tyranny and control.

U.S. Equity markets have proved incredibly resilient in the face of lockdown policies and supply disruptions. They have, however, been artificially supported and fueled by unprecedented government spending and the lowest interest rates in history. We believe these “easy money” policies will continue in the near term. As a result of these continued policies and the “re-opening” of the U.S. economy, we believe it is not inconceivable to see the S&P 500 reach or even surpasses the 5,000 level within the next 6 months.

We do see considerable risks in the intermediate term, however. Among those risks are the following: 1) The Fed raising interest rates sooner and or higher than anticipated. 2) The implementation of more “lockdowns” as a policy response to the inevitable never-ending series of “variants” of the Covid 19 virus that will arise. 3) Tax hikes from the Biden administration and Democrat politicians. 4) A potential real estate market downturn similar to 2008-2009. 5) Geo-political and terrorism risks, as a result of deteriorating conditions in Afghanistan and the strengthening of terror organizations and their supporters.

In our estimation, the equity markets are overdue for a significant price correction, to the tune of perhaps 10%, or more. Any one or combination of the aforementioned risk-factors could precipitate such a sell off. We have been working, during the past several months, to de-risk and re-position our client’s portfolios as these intermediate term risks appear on the horizon.

Some longer-term risks that we see include: 1) A potential devaluation of the U.S. Dollar and a threat to the Dollar as the world’s go-to reserve currency. 2) Hyperinflation. 3) A continued attack on capitalism. 4) An increase in tyrannical style policies 5) A continued erosion of civil liberties. 6) A continued increase in two-party system political divisiveness and division. 7) Continued censorship by major corporations controlling media and information.

It’s time for us all, as Americans, to get serious about the future of our Republic. There is a maxim often used by my ancestors, Ní neart go cur le chéile. Translated from Gaelic to English, it means; There’s no strength without unity.

American founding father, Patrick Henry warned us over two centuries ago about the evils of a two-party system. “United we stand, divided we fall. Let us not split into factions which must destroy that union upon which our existence hangs.”

Patrick Henry was just one of many throughout history who have warned us against the perils of infighting. John Adams for example, in his letter to Jonathan Jackson dated October 2nd, 1780, said; “There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution.”

George Washington, in his farewell address, warned against the political infighting and spoke about three main principles: 1) The Importance of Unity., 2) The ‘Worst Enemy’ of Government: Loyalty to Party Over Nation, and 3) The danger of foreign entanglements. On Unity he said, “Your Union ought to be considered as a main prop of your liberty and the love of the one ought to endear you to the preservation of the other.” On loyalty to party over nation, Washington believed it would foster a “spirit of revenge,” and enable the rise of “cunning, ambitious, and unprincipled men” who would “usurp for themselves the reins of government; destroying afterwards the very engines, which have lifted them to unjust dominion.” On the dangers of foreign entanglements, Washington believed partisanship would open the door to “foreign influence and corruption.” (2)

Christian scriptures even make numerous references to the subject such as: Mark 3:25 “And if a house be divided against itself, that house cannot stand”. Matthew 12:25 “And Jesus knew their thoughts, and said unto them, every kingdom divided against itself is brought to desolation; and every city or house divided against itself shall not stand”

I will leave you with this final thought from Patrick Henry: “Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!”

Stephen P. O’Donnell Sr.
President & CEO
Director, Portfolio Management
O’Donnell Wealth Management

Stephen P. O’Donnell Sr. is President & CEO of O’Donnell Wealth Management, an asset management and financial planning firm located at 1306 Sheridan Avenue in beautiful Cody, Wyoming. Steve has two decades of experience, having worked as a portfolio manager for some of the largest firms on Wall Street. Steve Sr. can be reached at 307-586- 4279, email: steve@odonnellwm.com.

This report was prepared by O’Donnell Wealth Management and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

Sources:
1. https://www.covidmoneytracker.org/ Committee for a Responsible Federal Budget
2. https://www.history.com/news/george-washington-farewell-address-warnings

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