For over a year we have followed the evolution of COVID-19. Our view remains that this is a shock of historic magnitude. Our metaphor is the 100-year flood. In the very beginning there were many skeptics. One by one they have been discredited. We’ve witnessed the “hoax” claim. And the “Swedish approach.” Social media offered remedies while healthcare professionals desperately tried therapies in the attempt to preserve people’s lives. Words like hydroxychloroquine and ivermectin surfaced and became headlines for a time. Zinc was added to the supplement list. Masks and vaxes are politicized to this day. I will stop here, as most readers could compile this list.
COVID isn’t over; long-haul issues are raising growing concerns; and the learning curve about variants is underway. In the race against variants, we see the marvelous technology that delivered vaccines rapidly and that is now focused on developing boosters to offer humanity greater immunity against variants of concern. We expect oral treatments and oral vaccinations to be the next breakthrough. See https://medicalxpress.com/news/2021-03-oral-covid-treatment-yields-trial.html and https://www.precisionvaccinations.com/vaccines/vaxart-covid-19-oral-vaccine. We will cite the remarkable history of Jonas Salk and the first polio vaccine. There, too, we saw false narratives and media trolling. The next breakthrough was Sabin and the oral polio vaccine. Many of us remember the “sugar cube.” Talk about a marvelous evolution. The way science beat back polio is a lesson that history offers to the skeptics. See “Jonas Salk and Albert Bruce Sabin,” https://www.sciencehistory.org/historical-profile/jonas-salk-and-albert-bruce-sabin.
For the financial markets this quarter has also been remarkable. Stock markets set new all-time highs in the first quarter of 2021. And they did it while a great “rotation” occurred. The FANG stocks and their cousins gave way to a broadening of investor sentiment reflected in many sectors. In some sectors, trends reflect policy changes. Banks are a good example, although the latest ruling from the Fed on SLR (supplemental liquidity ratio) rules is a setback. Other sectors have seen a huge rebound, but long-term sustainability is questionable. Energy is an example: The durability of a higher oil price is in question. Rotations are just that: Sectors may lose their leadership position to others. Investors then have to determine if the shift is just a correction in an ongoing upward trend or if the rotation is, in fact, serious and strategic.
Meanwhile, the quarter also witnessed the Federal Reserve’s continuing commitment to a policy that is history making. We’ve written about it often, and our colleagues Bob Eisenbeis and John Mousseau have discussed implications. We note that the Fed is not acting alone among the world’s central banks and that the monetary policy stimulus is extraordinary and prevalent nearly worldwide.
Added to this monetary surge is a fiscal initiative among the largest in history. The United States has borrowed and spent money as it did during the World War 2 years. This policy response, too, is a subject of intense debate. “Too much!” “Not enough!” and various gradations between are the complaints we hear. And is inflation coming as a result of this fiscal and monetary combination? There, too, expectations have heightened. It is an open question as to whether actual inflation will arrive. Line up five pundits and you will get six opinions. Europe and Japan have spent time, measured in decades, trying to get inflation through debt issuance and quantitative easing combined. They have failed. We’ll will see if the US can do something different.
We end the quarter fully invested in our US ETF accounts. Our quantitative strategies have been fully invested. We are overweight the healthcare sector for reasons we have written about many times. This is the position as of March 24. Of course, it could change at any time.
David R. Kotok
Chairman of the Board & Chief Investment Officer
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