Interesting TACs of the Week (December 24 – December 30, 2016)

Summary – A top-down review of interesting calls and comments made last week in Treasuries, monetary policy, economics, stocks, bonds & commodities. TAC is our acronym for Tweets, Articles, & Clips – our basic inputs for this article.

Editor’s Note: In this series of articles, we include important or interesting Tweets, Articles, Video Clips with our comments. This is an article that expresses our personal opinions about comments made on Television, Tweeter, and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Macro Viewpoints & its affiliates expressly disclaim all liability in respect to actions taken based on any or all of the information in this article. Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerance.

1.”Beacon of Confidence”!

Rick Santelli said on Thursday – “we have become a beacon of confidence“. That succinctly sums up the reason for the explosion in the markets since November 8. Equity strategists call it “momentum” and that tends to convert bears, even valuation bears, into bulls. One such is Doug Ramsey, CIO of Leuthold Weeden Capital Management:

He said on BTV on Tuesday that he changed “because evidence changed“. Now they are 60-65% equities out of a range of 30-70%, close to max. In his words,

  • “more of a speculative market not an investment market; for 5-10 years don’t think S&P returns are going to be all that attractive; that doesn’t mean we can’t squeeze an inning or two at the end of it; and that’s our outlook for 2017; broad new momentum high in the market just a couple of weeks ago; # of disparate groups & subgroups, indices, small caps, transports, financials; all of these groups making a high at the same time, it is very unlikely that you will see a major market top formed with that; … that sort of work has an intermediate term forecasting horizon of 4-6 months; that’s why we are in the camp of first half strength” 
  • “every time we make one of the broad new highs which is confirmed by leading groups in market breadth, you reset the clock on life expectancy of the bull market; right now my horizon is 4-6 months and it has more to do with market action argument than expected life of the economy & certainly not from valuation”

2. “All About the Fed”!

That was the concluding comment of David Rosenberg on CNBC on Thursday. His basic point – “Interest rates matter a lot more than Tax rates. He pointed out that stock market was up 8% after Reagan’s election in 1980. Then came a decline of 5% in January 1981 and a recession started in August 1981 with a down 25% bear market. Why? Because the Fed raised interest rates & rates jumped. Rosenberg also pointed out that the US economy is a lot less robust than people think and Q4 growth is already being marked down to 2%. Earnings growth is likely to be come in 15% higher assuming all good stuff but the market is pricing in earnings growth of 30%. And he reminded viewers “the stock market has not been this expensive in 15 years“. 

Rosenberg finds value opportunities in Europe and likes Japan with its “super-competitive exchange rate” & liquidity. 

3. Tale of the Tape – Last two weeks

We featured the two clips above because they represent the two themes that might govern the next few months. 

But what about the near term? Santa Claus disappeared and this week stunk at least for equity bulls. Perhaps it was the big pension allocation rebalancing of selling stocks & buying bonds. But why then did Gold & Gold miners rally so hard?

Remember what happened in December 2015 after that rate hike by the Fed? The last two weeks have been similar to the post rate hike action last year. Look at the score from Fed-day Wednesday, December 14 to Friday, December 30:

  • Dow down 16 bps; S&P down 67 bps Nasdaq & Nasdaq 100 down 1%; 
  • TLT up 1.8%; the entire curve from 30-year to 3-year down 11-12 bps in yield; German 30-year & 10-year yields down 12 & 10 bps.
  • Dollar flattish; Gold up 83 bps; GDX up 5%, ABX & NEM up 8%; USO & BNO up approx. 4%; FCX down 11%

So what will January 2017 bring? Will it mimic January 2016? Or will we bounce off the past two weeks? That’s for next week. In the meantime, enjoy football & be merry this weekend.

 

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