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The Year That Was

2020 arrived with strength and a market that topped Dow 29,000. The magical 30,000 number looked within reach in days, however, the coronavirus had other ideas as it began marching through our population, leaving a path of death and fear. The market’s response was a picture of that fear as the Dow Jones Average dropped 11,000 points with barely a pause.

An ensuing government “lock‐down” all but guaranteed an instant recession. In further response, a massive government bailout program combined with a Federal Reserve injection of trillions of dollars began lifting a beleaguered market back to its old high. The economy gradually responded to the double‐barreled money infusion and the market marched to a new high as the year came to an end. All in all, we had traveled over 23,000 Dow points during the year. Our portfolios were down approximately ‐7% at the absolute worst when the Dow was coincidentally down over ‐35%. At year end, our core balanced composite posted a +12.2% for the year. True to achieving our objective of minimizing the downside capture while maximizing our upside capture—we would call the year a success. Our 41‐year macro‐economic top‐down process was truly tested this year, and we proudly add another acceptable year to our record.

The Year Ahead: A Tale of Two Scenarios

Looking forward, the market seems fully priced as we embark on the new year. The economy and corporate earnings, on the other hand, seem poised for a run to new heights. Our current assumptions call for GDP growth of 4% and corporate earnings growth of better than 10%.

The COVID‐19 Vaccination Program should move the needle back toward normalcy bringing back those battered industries and companies. The country’s mood will improve dramatically with the abatement of the pandemic.

Government spending is likely to remain high, as Democrat‐led initiatives will likely be aimed at infrastructure and other labor‐intensive programs. With Janet Yellen at the helm, we can expect more borrowing to fund these initiatives.

Inflation promises to remain low, meaning interest rates will remain relatively low, which in turn means that price/earnings ratios will remain elevated.

All in all, a very bullish background for a while until the much‐expected increase in regulations and taxes begins to hamper growth in select industries. Until then, we should see a broadening of the market as the Dow possibly marches up to 35,000‐40,000.

You can expect us to expand the list of companies in your portfolio to take advantage of such a broadening effect.

With the Democrat’s win of both senate seats in Georgia, a second alternative scenario has been put in place.

Because of census‐driven redistribution, the Democrats stand to lose 10 House seats by the next election. Accordingly, we expect them to aggressively pursue the “whole enchilada” of tax hikes, Supreme Court expansion, and an expanded Senate while they have the votes.

Corporate earnings will eventually turn down, rather than up, and the economic growth we expect will likely reverse, as higher taxes go into effect. We expect markets to quickly begin to discount this alternative scenario once these changes become imminent. We hope to be one step ahead of the markets when the realization hits.

Dollar weakness will likely accelerate, so our gold, silver, and copper investments should continue to do well.

Hopefully, this missive explains our conservative posturing as well as the cash in your account at year end.

We look forward to working with you in what promises to be an exciting year. Best wishes for a happy, healthy and prosperous New Year.

About the Author


Harlan J. Cadinha
Founder, Chairman and Chief Strategist
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