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Toroso Market Commentary for 4th Quarter, 2020

Posted by David Dziekanski on Feb 10, 2021 8:30:00 AM
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Stock Market is a Barometer of Uncertainty, not Economic Prosperity

In the tech rally of the late 90’s and early 2000’s, we looked to our companies and institutions to provide us with guidance and protection. The government supported its constituents, the Federal Reserve protected the economy for the average American, and the news was a trusted source. We believed the government had our best interest in mind. Fast forward 20 years, and the freedom of information brought by the age of social media has ruined most trust in the establishment. We won’t go into great detail of how we got here, we’ll just comment that political contributions and the Federal Reserve’s actions have equal influence.

Every time there is volatility, there is inevitably some portion of the Fortune 500’s and the 1%’s that get even better access to credit than they did before, through lower interest rates. Banks are eager to lend at unheard of rates, giving these entities and individuals ample cash to deploy right when fear and volatility peaks. It’s ironic that when we spent so much time restricting which individuals and entities have access to credit in an effort to protect the “little guy,” we unintentionally put that same group at a significant disadvantage when credit is most useful: in times of market volatility, not at market highs. When volatility spikes, the only loans that appear safe are to the 1% and Fortune 500’s. There goes another layer of the middle class.

None of this was done intentionally. In theory, Quantitative Easing (QE) does help the entire pie grow, but on a micro level, it can have significant unintended consequences. What do we mean by that? QE was supposed to keep the economic system humming. Instead, it causes asset prices to shave off a layer of the middle class with each round of volatility. The practice of economic theory often results in unintended consequences that directly conflict its intended purpose.

In truth, neither democrats nor republicans have proven to really support the average American. As we’ve said in past commentaries, there’s no bigger oligopoly in the world than the democrats and republicans in the United States.

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