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Scott Neal

Scott Neal, CPA, CFP, is the president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. Reach him at or by calling 1.800.344.9098.

At a Crossroads

While a few people have told me this month that they are afraid of a Biden administration, the overwhelming post-inauguration sentiment appears to be a feeling of relief. For some, it may stem more from an absence of Trump than a presence of Biden or simply that the election is behind us. Relief is usually a good feeling either way, but should not lead anyone to complacency.

Whatever you think of Joe Biden’s policies, I think you must admit that a) he is truly a nice guy with friends on both sides of the aisle and b) he is quite old. These can be the markings of a true elder statesman, a Gray Champion, if you will. Biden has a huge opportunity to be that. Nevertheless, we stand at a crossroads in America.

As many of you know, I am a fan of the 1997 book, The Fourth Turning: An American Prophecy by Neil Howe and William Strauss. In it, they posit that history turns in saecula (long-lived lives of 80–100 years) and that each saecula is broken down into four segments that they call turnings. The first line of the book is “America feels like it is unraveling” (their term for the 3rd Turning). They prophesied that America would experience a period of Crisis (what they call The Fourth Turning) beginning sometime in the ’00 decade and lasting about 18–25 years. They claimed that the Crisis could be ushered in with an economic collapse. Remember 2008? Here is an excerpt from their “Boomer Script” for resolving the Crisis.

“As the next Gray Champion, the Boom Generation will lead at a time of maximum danger—and opportunity. From here on, Boomers will face the unfamiliar challenge of self-restraint. … In the Fourth Turning, G.I.s will no longer be around as a backstop, and the young Millennials will follow the Gray Champion off a cliff. If Boomers make a wrong choice, history will be unforgiving.” They go on.

“Boomers will need to defuse the Culture Wars at once. Their pro-choice secularists and pro-life evangelicals will need to move beyond their Unraveling-era skirmishes and unite around an agenda of national survival, much as Missionary elders did during the depression and war.”

Can Joe Biden be precisely what Howe and Strauss suggested that we will need for an age when the very survival of our democracy seems to be threatened? Time will tell.

Economically speaking, 2021 likely presents the highest level of uncertainty that we have known in our lifetime. Since last March, I have maintained that the virus is in charge. What appeared to be a quick recovery from the COVID-induced recession came to a quick end in September as the very generous relief/stimulus package under the CARES Act ran out and the typical business cycle (if there is such a thing now) was being driven by the virus. In a brand-new culture war, many Americans quickly got rid of masks and started eating in restaurants again. These actions brought about a new surge in the virus. A new strain appeared in Great Britain that is now appearing on our shores. Since October we have seen steady declines of employment and perhaps more importantly, declines in retail sales. Despite this we still see a very strong stock market which seems to defy gravity.

April could be a key turning point in the economy if the vaccine is effective and consumer confidence is restored. In painting a case for optimism that this will be the case, economist Woody Brock, PhD, sets out conditions for a strong economic recovery:

The vaccine rollout goes smoothly.
There are no new strains of the virus that cannot be immunized against.
Significant new fiscal stimulus is provided soon.
At least 70% success in Congress raising Biden’s $1.9 trillion dollar request.
The public confidence in the future is restored.
Huge pent-up demand translates into catch-up spending.

With these factors in place, he believes that we could see significant growth from April into 2022.

Cautiously, he goes on to consider a case for pessimism:

If only half of the six preconditions for recovery do not materialize, Brock forecasts that growth is likely to stagnate at around 1.5%. (We need for it to be much higher.) If none are met, the U.S. could be in for a two-to-three-year recession. It stands to reason that much depends on the outlook for employment. In the absence of rising employment, government help will be required. Once again, we must keep our eye on these factors to catch a glimpse of where the economy is headed. This, rather than fear, should lead us to action.

“So, what about the stock market?” you ask. The recovery of the stock market is, in fact, a V-shape that nobody saw coming in March 2020. Whether this huge rally can continue seems to be the question of the day. Tesla, a company with a stratospheric PE ratio, is likely to become the first trillion-dollar car company despite that its earnings per share is about fifty cents. Zoom, the videoconferencing software company has a PE ratio of 276 at the time of this writing. (Remember that the average historical PE of the U.S. stock market is about 16.)

Nobody, including yours truly, knows where or when this rally will end. Perhaps it has ended between the writing of this piece and the publish date. Whether you are one who is concerned that the rally has made the market too expensive and that it is therefore poised for a correction/crash OR you believe that the rally can just keep going and you will miss out, I offer the following advice. Know the return that you need to achieve to reach your goals and objectives. Then ask yourself, “If I do not need to take risk, why do I want to?” Be sure you are comfortable with your answer to these questions.

If you haven’t already done so, now is the time to reassess your goals and objectives. Reassess your risk tolerance, as well as your risk capacity, and set out a plan for how you will handle the next 12 months amid tons of uncertainty.

Scott Neal is president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. Reach out to him with questions or comments or by calling 1-800-344-9098.