Summer Quarterly Commentary

“I continue to believe that the American people have a love-hate relationship with inflation. They hate inflation but love everything that causes it.” William E. Simon (1927 – 2000) Secretary of the U.S. Treasury Businessman, Philanthropist

Last October, we wrote that virus-wise, we would be 90% back to normal by the third quarter of 2021. We are happy to report that seems to have been a decent prediction. Unfortunately, this only applies to the U.S. When it comes to the rest of the world, only 7% of the population has been vaccinated. This pandemic will linger for years, especially in developing countries1. Yet, we continue to believe that, for Americans, COVID will remain a public health issue, not a society-altering economic one.

From an investment standpoint, the global economy cannot thrive without a strong U.S. economy. Fortunately, the converse isn’t quite so true. Unlike in early 2020 when we took evasive action and subsequently repositioned the investment portfolio for an economic reopening, this year we are investing steadily through the virus news.

It’s a good thing we have been fully invested – asset prices are soaring and the stock market is no exception. This is due in large part to all the liquidity created by the Federal Reserve to buy assets. Meanwhile, a river of money is also flowing into the real economy as the government spends (or gives away) much more than it takes in.

This combination of monetary forces helped add $13.5 trillion to U.S. household wealth over the last year. This same period saw median home prices leap 17%. Today’s real estate prices are breathtaking. They serve as a prime example of the “illusion of prosperity” we referenced in our Winter commentary. You still live in the same home, just with a higher accounting value. Surging home values will eventually be resolved one way or another: a crash, reduced future appreciation or the price of everything else rising to catch up (inflation), though perhaps not for a long time.