Conventional wisdom tells us that healthy bull markets climb a wall of worry. Ascending to new heights by scaling an abundance of negative factors that are seen as temporary stumbling blocks rather than permanent impediments.

In the current environment, there are plenty of “temporary” stumbling blocks for the bull to scale; the taper timeline, direction of interest rates, elevated valuations, irrational exuberance in sectors (meme stocks), Covid trends, vaccine uptake, inflation, supply chain disruptions, labor shortages, government debt… and the list goes on.

Buy now… pay later! That is the message being telegraphed by most governments as they engage in an unhindered and unprecedented spending spree. Supported by central banks’ quantitative easing, ultra low interest rates and a sense of urgency to support individuals and small businesses during pandemic lockdowns, rising debt levels have become politically palatable.

U.S. equities continued to rally through the first quarter of 2021 supported by strong consumer demand, plus outsized monetary and fiscal stimulus combined with ultra-low interest rates. The S&P 500 Index has been up for five consecutive months and at the end of June had gained 15.2% YTD.

It seems the US Federal Reserve (FED) is flexible when it comes to defining “transitory” inflation. The FED’s base case for 2021 year-over-year inflation was 2.4%. That number was bumped to 3.4% when updated inflation data was released during the second week of June. So too has the timeline for scaling back the US $30 billion per month bond purchasing program, and the FED is now beginning to talk about talking about raising overnight interest rates. FED speak at its best!

It did not take long for newly installed Republican party Representative Elise Stefanik (she is Liz Cheney’s replacement) to go after Joe Biden. It was grandstanding at its best. Standing at the Congressional bully pulpit in front of a scrum of news reporters Stefanik said the latest US jobs report (released on Friday May 14th) was the worst in over 20 years. “Unemployment is up, small businesses are struggling to hire workers,” and it is all the result of the Democrats "far-left radical socialist policies."

Central banks have been aggressively raising rates to slow economic activity so that global economies do not get caught up in a 1970s style wage and price spiral. While their aim is admirable, central bankers may be using a playbook that is not appropriate for the current situation.

Covid-19 was center stage throughout 2020 and will continue to frame expectations in 2021. The rise of new variants, the rollout of vaccines and the sentiment driven upward trajectory of financial markets, are influencing investor psychology. The overriding question being whether financial markets have gotten ahead of themselves.

We think about money in terms of paper currency, coins, debit, and credit cards… anything that can act as a “medium of exchange” to purchase goods and services, settle debts, and meet financial obligations. Fiat money is government-issued currency that is not backed by a physical commodity but by the stability of the issuing government. With Fiat money, governments, through their central banks, have unhindered access to the printing press. Treasury can expand or contract money supply to stabilize employment, the economy’s growth trajectory and inflation.

For the record… I am an optimist! Although I prefer to think of myself as one who seeks out constructive elements in harsh realities.

But that said, consider our optimist psyche as a “caveat emptor” as we review some strategies for the road less travelled, and examine the vaccination roll out, the post-COVID economic recovery, and possible ways to close the chasm that is the great political divide. And along that road, we wanted to examine SPACs as an emerging investment vehicle, which some of our in-house pools now hold.

Last week’s assault in Washington illustrates the rage underpinning the chasm dividing the U.S. political landscape. Depending on where you get your information, the riots / protests were the work of anarchists, thugs, seditionists, or patriots and everyday Americans protesting a stolen election.