I hope this finds you well, I think winter has finally lost its grip and spring is upon us. The broad Morningstar Index was up 6.01% for the quarter with Small Cap Value up a whopping 21.41%, in contrast to all three sections of the Growth side down. As I have mentioned in prior letters the growth side had been outperforming the value side for a while. This reversal is a classic example of reversion to the mean.
The quarter overall was quiet apart from a $1.9 trillion Covid Relief bill. This much-needed spending is good for all the recipients. I do have an issue with only $400 billion going to citizens and the remaining $1.5 trillion going to government programs, cities, and states. I am going to be optimistic that the money will go to good programs. I do object to my Colorado federal tax dollars bailing out fiscally bankrupt cities like Chicago and others.
In addition to the above, the administration has just announced a new $2.3 trillion-dollar infrastructure bill and it has a reasonable chance of passing (my writing that just doomed it to not passing). I need more time to completely digest the details, however, as I understand it, it would come with a corporate tax hike. It proposes a tax increase from 21% to 28% and a minimum tax on multinational corporations of 21%. The short-term effect of all this government spending is positive for the market, but the long-term effects on the economy are less clear. At some point, all this spending will need to be repaid.
The other concern not currently showing itself is inflation. However, it may come about much quicker than anticipated as an unwanted result of all the cash in the economy. We are printing money to pay for this and if you look at M-2 money supply you see the effect. M2 is closely watched as an indicator of money supply and future inflation, and as a target of central bank monetary policy. Time will tell whether it becomes an issue. The economy is in its 10th month of solid growth, with 17 of the 18 manufacturing industries reporting growth. All this is positive for the market.
In closing Keith and I, both have our vaccines and Nick has received his first shot with his second due shortly. For me, it was a freeing (maybe prematurely) experience knowing that my risk of death and hospitalization has decreased. All of us here send our sincere condolences to those of you who have lost spouses or other loved ones this last quarter and feel for your loss.
Yours Truly,
Willis Ashby, President
5105 DTC PKWY Ste 316
Greenwood Village, Colorado 80111 United States
5105 DTC PKWY Ste 316
Greenwood Village, Colorado 80111 United States