Dear Reader, Many of you have been asking about our investment approach with respect to the change of administration. We thought we would respond with this note. To summarize, we see a continued economic expansion in the new administration as explained in the following paragraphs. First: Although we recognize that we are in a pandemic, and that much of the world is partially shut down with travel, domestic and international at historically low levels; and that rents are not being paid, mortgages are going into default, food banks are running out of food, we are still positive. Thankfully, toilet paper is back on the shelves. Seriously, though, business in certain sectors is booming. How is this possible? Second: Our federal government is providing relief in many forms. That relief allows individuals to spend the money they receive one way or another. That money in circulation and the free time people have available has led to retail spending in areas close to home—home repairs and improvements, swimming pools, hot tubs, campers, kayaks take-out foods- we can all add to this list. This is repeated in countries all over the world. Third: The Federal Reserve has been buying the Treasury bonds that are being issued to pay for all the stimulus as well as mortgages to keep interest rates low. On January 14, 2021, the Fed had $7.34 Trillion of Treasury debt, Mortgage-Backed Securities, and bank loans as assets on its balance sheets. Central banks around the world have also expanded their balance sheets. This fiscal and monetary policy that would normally be leading to expansion is making up for those parts of the economy that are moribund. Summarizing: Recognizing those fiscal and monetary policy influences has led our investment policy: to be fully invested but emphasizing the companies that are benefitting from those policies. We do not believe those policies will change with the new administration. Political rhetoric is not equal to policy action. Additionally: We are also looking beyond the end of the pandemic. The new administration is looking to generate massive spending on infrastructure. That will probably be bipartisan with token grumbling about the national debt; but neither party has given more than lip-service to deficit spending concerns. Ultimately: We know that the world will have to find a solution to massive government debt, but that is a subject for a later paper. In conclusion: We see many opportunities to own companies which will profit in the new administration and we will stay fully invested in the near future. Regards, Colleen Farley Managing Principal, Certified Portfolio Manager®
