Wavelength Twenty Predictions for 2021

In 2020, many forecasts flew out the window amidst a global health crisis, economic shutdown, and one of the fastest market cycles on record. Our predictions for last year did not touch on the virus, but we weren’t far off on our financial outlook as markets ultimately pushed upwards with higher levels of volatility. We also identified several trends that the pandemic has since accelerated, and after years of trying, we finally nailed our selection for Best Picture at the Academy Awards.

We know we cannot predict everything – acknowledging this serves us well – and we recommend that investors hedge when they have less than a 50% chance of being correct and invest where they have a clear, repeatable edge. For considerations outside of the investment process, our predictions for 2021 are listed below. We wish you great health, happiness, and luck in the year ahead

  1. An uneven economic recovery will continue, punctuated by a boom in spending.
    After a year of upheaval that changed the shape of our economy, a recovery is on track for 2021. Not all businesses will bounce back equally, but vaccine distribution will provide conditions for liftoff and a significant uptick in growth. A shift in spending from goods to services will support this dynamic, as the $1.3 trillion in savings accumulated by Americans since the start of the pandemic is spent in the areas we have missed the most.
  2. Investors will rotate portfolios out of cash into strategies that seek positive real returns.
    Uncertainty led to extensive selling pressure in 2020, driving money market assets to record levels. These instruments now generate negative real (inflation-adjusted) returns in portfolios, and investors will adapt by redeploying cash into strategies built for a new economic reality.
  3. Inflation will meaningfully impact portfolios, but it will not fully run away.
    Coming out of the 2008 financial crisis, many economists called for levels of inflation that never materialized amidst the disinflationary forces of globalization and technology. While these conditions remain relevant, an oncoming spending boom will combine with the Fed’s shift to average inflation targeting to create upward pressure on prices and the flexibility to accept this that we have not seen in the past. Wavelength Insights December 31, 2020
  4. The Biden administration will begin governing with a deluge of executive orders.
    Something the incoming administration will have learned from the outgoing one is that when you flood the system, it is hard to catch any single issue in the filter of partisan politics. While Biden’s goals will be markedly different from Trump’s, he will similarly start by issuing a series of executive orders that aim to get as much done as quickly as possible.
  5. China’s trajectory for economic growth will be fortified by dual circulation.
    The effectiveness of dual circulation, where China operates an external trade-based economy alongside an inward-facing domestic one, will have major geopolitical impacts coming out of the recession. The transition to a self-sustaining model as the rest of the world recovers could mark a key turning point for China and determine its place in the global economy.
  6. Companies will proactively spin-off key business units.
    We have made this prediction in the past, but the FTC’s antitrust case against Facebook adds further justification to make spin-offs even more likely. Large tech firms will seek to get ahead of regulators and determine their own destiny, unlocking value for shareholders in the process.
  7. Cities won’t die, they will be reconfigured for the future.
    On the idea that New York, Rome, London, and Tokyo are just going away, Jerry Seinfeld plainly put it: They're not. They change. They mutate. They re-form. To this end, the pandemic has provided a welcome reset for cities to become younger, more affordable, and ultimately reenergized on a path toward a more livable and sustainable future.
  8. mRNA technology will spark a wave of innovation in medicine.
    Among the pandemic’s silver linings, mRNA stands out in its potential to have an extraordinary impact on our future. In the coming year, studies will be conducted on new applications of this technology that could extend well beyond its most pressing use case.
  9. Alternative investments will mount a comeback.
    In a world where both stocks and bonds offered reasonable value, there was less need for alternatives in traditional investment portfolios. With equity valuations stretched and yields near record lows, however, the need for alternative sources of return is far greater now than in the past. Investors will revisit a space where underperforming funds have largely been carried out to find true alternatives that can add value in portfolios.
  10. The SEC will approve the first Bitcoin ETF.
    A lot has changed since the Winklevoss twins first filed to form a Bitcoin ETF in 2013. Cashsettled futures contracts have been trading for three years now, and the success of products like the Grayscale Bitcoin Trust are paving the way for more widespread adoption. With these developments and the SEC’s upcoming leadership reshuffle, the case for a Bitcoin ETF will be made in 2021.
  11. Monetary and fiscal policy will become increasingly coordinated.
    With Janet Yellen waiting in the wings as Biden’s pick for Treasury Secretary, the former Fed chair is set to align these two institutions more than ever. This comes at a critical juncture for the economy, with rates near zero and unemployment still elevated from pandemic-driven shutdowns. The fiscal support often cited by Yellen in her previous role as Fed Chair will be critical for a sustained recovery and future economic growth.
  12. The Tampa Bay Buccaneers will win their first Super Bowl since the Gruden era.
    After an inconsistent start to the season, the Bucs adjusted to their new quarterback and have Wavelength Insights December 31, 2020 an offense that is firing on all cylinders. With plenty of young talent, the x-factor is experience, and nobody brings more of this than Tom Brady in pursuit of his seventh Super Bowl title.
  13. There will be even more special purpose acquisition companies (SPACs).
    While many believe the proliferation of blank-check companies is indicative of a bubble, they are likely here to stay due to the underlying incentives. Companies gain a fast-track to public markets while sponsors are offered economics that can be more lucrative than traditional private equity structures. These dynamics, combined with the access they can provide investors, will lead the number of SPACs to rise even if returns become less attractive.
  14. Emerging market assets will outperform those in the developed world.
    Looking across developed economies, measures of value for both bonds and stocks leave much to be desired. Emerging markets, on the other hand, offer significantly more on a relative basis. While they are not without meaningful risks, emerging markets will adapt to a new economic landscape in 2021, outperforming their developed market peers in the process.
  15. Design backgrounds will be increasingly important in the next wave of startups.
    Brian Chesky is unique among tech CEOs, having founded Airbnb after graduating from the Rhode Island School of Design, not Stanford or MIT. A key driver of growth for his firm, which saw its value surpass $100 billion following its recent IPO, has been the clean interface of its app leading to a superior user experience. As coding and back-end engineering are commoditized, design will become increasingly important in the next generation of startup companies.
  16. Reaching for yield will come back to bite fixed income investors.
    The fall of interest rates over the past year has created challenges for traditional fixed income strategies. While some may look to move down the credit curve, this approach will introduce new risks to portfolios, as companies have taken on record amounts of debt to get them through the downturn and not all will survive in an uneven economic recovery.
  17. Data literacy developed during the pandemic will lead to better decisions.
    Over the past year, statistical information on the spread of COVID-19 has been everywhere and understanding it has been critical to public health outcomes. The pandemic drove an increase in people’s interest and ability to interpret data, and this will help us all make more rational, informed decisions in the future.
  18. New evidence of biofluorescence will be discovered in animals across the globe.
    Amidst the many scientific breakthroughs of 2020, it was easy to overlook the glowing fur of a platypus. This discovery, however, will lead zoologists to examine additional species for previously unseen biofluorescence and uncover more secrets hidden within our natural world.
  19. Nomadland will win Best Picture at the Academy Awards.
    As theaters were forced to close their doors and release dates became a moving target, Hollywood still managed to deliver welcome distractions from the pandemic in the form of entertainment. In this year of transition, a post-recession story of survival set in campgrounds across the American West gives voice to rarely heard members of society and is poised to win over many, including the Academy’s voting members.
  20. Coming off a low base in everything, 2021 will be a much better year.
    Everything is relative, so after a year like 2020, we have plenty to look forward to. While the vaccine is sure to face distribution bottlenecks and cannot provide a complete solution, we are nonetheless due for a welcome rebound across many parts of life in 2021.