| Is Raising Capital Gains a Capital Idea?
This is Jim Lowell, Editor-in-Chief of the Fidelity Investor, with your regularly scheduled Hotline, Thursday, April 29, 2021. There are no new trades recommended in any of my model portfolios… But I am announcing a new portfolio and enhancements to an existing FI Strategy, which will be detailed in your forthcoming May Issue. The Markets For the year through April 28, the S&P 500 is up 11.9%; the Wilshire 5000—the broadest measure of our domestic market, is up 12.1%; the EAFE index—my preferred broad measure of international markets, is up 7.6%; and the Bloomberg Barclays U.S. Aggregate Bond Index—my go-to broad measure of U.S. investment-grade bonds, is down 2.4%. Our Portfolios Over the same time period, my rankings-based, quantitative Global Quant Growth portfolio is up 8.5%, and my Global Quant Income portfolio is down 0.7%. My Growth portfolio is up 8.0%, Factor+ is up 6.2%, my Growth & Income portfolio is up 6.2% and my Income portfolio is up 1.9%. Annuity Growth is up 5.9%, and Annuity Growth & Income is up 4.2%. Market Watch We are shifting from the previous form of pandemic stimulus (effectively, checks handed out to countermand the effect of the workforce being idled by lockdowns and shutdowns) to a potentially more promising mode: Infrastructure spending. This is, as you well know, not news to us. Nor is the approach to funding at least a portion of the new massive stimulus effort—planning to raise taxes. Headlines remain hot and bothered by the thought that this new Democratic administration is going to tax and spend—and the Biden administration is defending their approach with typical deflections to taxing the rich, not the middle or lower classes. But, we don’t know any real details let alone what may or may not come to pass, and we also don’t know if any tax hikes will be retroactive to include the totality of this year, hence any suggested investment moves based on what we don’t know doesn’t make any sense to me. Tax and Spend… Or Tax and Invest? What does make sense? You know my answer: Staying close and informed on such matters while continuing to advocate for what I think will benefit the economy and begin to refill government coffers—focusing on elementary school, preschool and daycare on one end as well as the trade jobs of today and tomorrow: Establishing “free” trade schools (everything from existing energy grid to alternative energy, road, sewer, bridge, construction, healthcare, as well as information technology and more) as opposed to free tuition at any school, could create a generation of more consumers and taxpayers. What I’m advocating would be a tax and investment as opposed to a mere tax and spend approach. Its investment goal would be a healthy, growing self-driven and self-sustaining economy whose skilled workforce can gain rather than cede manufacturing and service sector share to other economies… And we’re nowhere near that today, but why not at least think about how we can get there from here? Earnings Beat Earnings beats continue to charge ahead; piling positive surprises on top of already lofty earnings expectations, which are in line with my expectations that earnings beats would be a cakewalk… And will remain more icing than icy in the coming quarters so long as vaccination success continues to the point of inoculating our population against the potential for a resurgence of infection and mortality in the next flu season. Ice Cream and the Pit of Despair Two of my favorite off-the-beaten path, pandemic real world indicators are found in one place: Unilever (UL). Sales of its anti-angst Ben & Jerry’s ice cream continues to rise 3%, while sales of its Dove antiperspirants continued to fall: “Deodorants declined high-single digit as the deodorants market was also impacted by lower consumer usage.” As we climb out of the pandemic’s pit of despair, and more of us return to public spaces, offices and colleagues, I’d look to an inversion of the above as a tell of ongoing recovery. Meantime: You know my view: Guidance matters more than jumping over analysts’ and pandemic’s low bars: Across industries, optimism is on the rise even as complaints of the lack of skilled labor and even the lack of unskilled labor are also on the rise. Economic Checkup Q1 GDP came in at 6.4%—in line with my expectations. Inflation is, as expected, on the rise. How high inflation rises and how long it stays risen at any level are unknowns. I’ve made my case as to why I think inflation could rise a bit more and last longer than is priced in—but my expectations are still that it will be transitory. It’s a view Fed Chair Powell reiterated this week: No change to interest rates; no change to stimulus buyback; no change to view that inflation will rise but be transitory. Durable goods orders continue to rise, but COVID-19 constrictions and shortages of supply of key parts hobbles the ability to meet rising demand. Home prices continue to reflect a demand flood overflowing inventory banks. Consumer confidence hit a 14-month high—as vaccination success leads to reopening success, optimism about the economy also rises. Reports Coming Down the Pike Tomorrow: Personal income, spending, savings and sentiment as well as reads on regional manufacturing and core inflation. Next week: Manufacturing and service sector gauges, construction spending and car sales, factory orders and consumer credit, ADP private sector and nonfarm payrolls jobs reports. Your May Issue Also coming down the pike: Jam-packed with my review of all the above, as well as my Focus on all of the FI Trading Strategies—from Hot Hands to Genesis (where I am announcing enhancements to its investment universe with the inclusion of ETFs)… To the creation of a new portfolio for members who are interested in socially responsible investing: ESG Growth. Now known as ESG (Environmental, Social, Governance) investing, I know this approach is contentious (it has been so for decades and it’s not any less today, and in your May Issue, I’ll have more to say). But I see going green in a different way: It’s an approach to investing in not just quality companies but qualities of companies you invest in—those that provide sustainable opportunities for their own growth and for long-term growth investors like us. Upshot To answer the title question of this week’s Hotline: I’ll go out on a shaky limb and say that I think that so long as any taxes are raised for the purpose of funding greater healthcare and educational equality and has a clear focus on creating a generation of skilled workers, it can be a capital idea—the devil, of course, will be in any non-partisan, economic details. Until next Thursday, or if the Dow moves 10% in either direction, this is Jim Lowell thanking you for your membership and helping you secure your financial future. Sincerely, 
Jim Lowell  Like Jim on Facebook
| 
Comments
Post a Comment