The Market Monsters of January 2021

Mike Williams | 5th January 2021

People Make Markets®

Now, because Tech was a bit choppy for the last two weeks of the year, the world is still awash with the "see this really was a tech bubble" chatter.

So many people shift from one consensus to the next so quickly that it has become almost comical to reckon the herd’s opinion.

And the idea of "calling a top" for any number of reasons has become rampant.

Fear makes money for publishers.

However, at the same time we do see some slightly elevated sentiment in the AAII data, though still at exceptionally low levels historically speaking.

Bizarre as it was, 2020 proved again that trying to prognosticate the next 12 months is a vast waste of time. It sets up false expectations and puts you in a position of constantly fighting against your emotions and the opinions of others.

The energy you lose accommodating these concerns can lead you off your long-term, productive path.

To help restore your zen, here’s our view: The Barbell Economy® is not going anywhere for another 30 years or so…except forward.

Folks, there will be hiccups, short-term setbacks, bumps in the night, and even corrections, problems, and tragedies.

And there will be periods in 2021 - just as in all other years I can recall - where you will swear on your life that you will sell every stock you own and never, ever again invest in another one.

Count on it.

Equally, the gears of the markets as 2021 unfolds will see politics, politics, and more politics, alongside fears about tax hikes, and all sorts of suggestions about the impact of the new White House residents on every facet of the landscape ahead.

Since I started in this business back in 1982, I have seen six Presidents and their administrations come and go, at the point when the Dow Jones was at just 950 points. That’s right! 950 points.

And despite all the recessions, the geo-political savagery, the global face-offs, and rise and fall of business empires since then, the Dow Jones now stands at about 30,600.

Interesting Federal Reserve Stats

In the latest release of end of Q3 data, one particular set of overlooked facts emerged.

While we’re used to hearing about how the US consumer is drunk on debt bingeing, incapable of paying his/her bills, lives breathlessly from pay cheque to pay cheque and cannot fend for him/herself in any way, the data suggests something far different.

The Federal Reserve Bank of New York compiled the latest stats to show the consumer is acting intelligently, conservatively, and steadily, even in the face of unprecedented pressures brought on by the reactions and shutdowns related to the pandemic.

It found the first wave of stimulus funds were almost evenly split in their household use: 1/3 was spent, 1/3 was saved, and 1/3 was used to pay down debt.

The Fed then went a little further. A survey of households showed that the anticipated use of the next wave of stimulus will be used even more wisely - with 45% going to planned savings!

And the personal household savings rate overall has skyrocketed.

Now, prior to 2020, the American consumer was saving between 7% and 8% of their personal incomes. That rate spiked to over 33% in April as the waterfall panic of the shutdowns unfolded. And though it has trended down since, the October reading was still elevated at 13.6%.

This would help explain the massive "rainy decade fund" sitting inside banks, MMA's, CD’s, and savings today - swelling close to $19 Trillion.

Like we said before, a trillion here and a trillion there can add up.

This further helps to explain the household wealth records.

The Point?

This is not an event isolated to America.

But what I find most intriguing about the chart above is not the record net worth levels.

Those will continue to rise over time so long as investors remain patient.

It’s the small purple bars called "Debt."

As much as you hear the naysayers tell you about how much "debt" we are in - this is indeed NOT a debt-fuelled expansion.

In fact, it is almost the opposite.

For the most part, as a quick study of the data above will show, debt levels for US households have pretty much stayed at the same levels as seen all the way back in 2007.

Meanwhile, "cash in the bank" has gone from roughly $2.4 trillion in 2007 to over $18 Trillion now.

Folks, we are vastly stronger than one would assume if you bought into all the garbage in the mainstream media headlines, which is designed almost entirely to keep you afraid.

Do not let it side-line you again in 2021 - or any other year in the opportunistic future ahead for that matter.

Just tighten those seatbelts and hold on.