My post for today was supposed to be a personal reflection, but in lieu of that, I’m going to lay out my thoughts on the market and the economy. Which includes the FED, the dollar, and inflation. In addition to that, I want to explain where I see risks and opportunities right now.
The dollar
We can expect the Federal Reserve to continue an accommodative monetary policy. They will invest in the fixed income market and they’ll resume the low-interest-rate stance.
If they continue this response to the Covid crisis, the dollar should go down in value. There are some risks and opportunities that arise if that happens.
Gold and cryptocurrencies should increase in value. A devaluing in the dollar is, normally, the right landscape for “alternative currencies” to do well.
International securities, especially emerging markets, do well when the value is priced lower. A large majority of international transactions take place using the USD. The value of their home currency goes up in relation to the USD.
The technology sector also has a negative correlation to a falling dollar. When the dollar goes down, that sector tends to outperform.
If the dollar, indeed, goes down look at these areas for possible investment opportunities.
The FED
As I mentioned earlier, the FED will continue to create an accommodative environment for the economy…until they don’t.
At some point, the recovery will gain momentum. GDP will go up and the population will gain confidence in that recovery. At this juncture, inflation will pop onto people’s radars.
If inflation runs too hot, the FED could possibly stop, or reduce, QE. They could halt the bond-buying program and they could raise rates. If that happens, keep your eyes out for a pullback.
We saw this happen at the end of 2018. The FED started raising rates until they went too far, and we had a 20%-25% decline in Q4. Then they reversed course and began easing again. We had a run-up in the market until March of 2020 when Covid hit.
Long term
I believe tech and healthcare will be the two sectors to watch over the next decade or more. With technology getting more advanced every day, investment opportunities will present themselves in these two areas.
Green energy, especially with the incoming administration, is also an industry with big potential. Technology will play a large role in the advancement of renewable energy.
My biggest concern
And I’ll preface this by saying I’m concerned because I truly don’t know the implications of it. MMT looks as likely as ever at this point.
The favorable stance by the FED plus the democratic party holding the House, the Senate, and the Presidency leads me to believe printing money is going to pop off.
An aggressive agenda to provide relief for Americans struggling because of Covid, a push for expanded Medicare/Medicaid benefits, possible student debt relief, as well as other initiatives.
It appears that reducing the national debt is not a concern. To be fair, it wasn’t a concern for the Trump administration either.
The bill comes due for everyone, and if other countries (namely China) are no longer buying US Treasuries like they were, I do not know how we can fund policies, branches, or even service the existing debt. Only time will tell.
Conclusion
I will close by saying that these are my opinions. Granted, I do a lot of research to come to these conclusions, but what I said above are still my thoughts and not foregone conclusions. Do your own research.
Related reading:
How to Beat Inflation with Investment
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