Interesting TACs of the Week (December 12 – December 18, 2020)

Tom DeMark expects the S&P to rally to 3907 by year-end. What about yet another postponement of the Godo-lus despite the promise from McConnell to get it done this week? Reportedly Mr. DeMark doesn’t pay attention to that kind of stuff. Mr. DeMark is not alone in shooting for a year-end moon shot. Tom Lee also added his several cents to call for a rally to 3800 into year-end. 

But neither thinks this will continue once the Year of the Vaccine rolls in (to use a Michael Hartnett term). Tom DeMark points out that “Markets top not because of smart sellers but it’s because the exhaustion of the last buyer.” Reportedly DeMark says, the year-end rally, 

• “is likely to represent a top for stocks and estimates that the S&P 500 in the first half of 2021 is likely to decline by 5% to 11%, based on his models and the natural tendencies of assets in a downtrend. …It’s down severely in the first half [of 2021],” 

Tom Lee is also calling for a 10% rally to 3500 early in 2021, probably in Feb-April period. Then he expects a 25% rally in the S&P in second-half of 2021 to close at 4300.  Lee says “VIX will drop below 15 in the next two years” and he expects “negative real rates next year, minus 6% real rates“. That should lead the S&P to “at least 4300” by end of 2021.

Guess who agrees with Tom DeMark and the first part of Tom Lee’s prediction? The ultimate Ice-Age proponent, Albert Edwards of SocGen. 

No wonder David Rosenberg says he is buying Treasury Bonds. This week saw the resurgence of Anti-Trump Republicans who jammed up the nearly agreed to stimulus by refusing to allow the Fed to use the same programs the Fed was allowed to use in May-June. Their argument is temporary programs should be kept temporary & not made permanent. Democrats want these programs in because that would enable them or their Fed to bypass a Republican Senate. And Republicans don’t want these programs to keep control of  what they think is a rapidly escalating debt situation. Doesn’t the term Godo-lus make some sense? 

What may be far worse in both short-term & long-term is the serious damage to employment & the economy with what state & local governments are doing to small businesses. Look at the states that contribute the most to US GDP – New York, California, Illinois … Shutting down entire mega-cities is madness in any non-China country. What do they want? New Han instead of New York and Los Wuhanese instead of Los Angeles. 

And what about tenant rents & landlord mortgage payments that have stopped thanks to the shutdowns & lack of stimulus? The morons on CNBC who scream about inflation that the Fed is not seeing don’t seem to know that 40% of Core CPI is rent inflation. Guess where that is going? 

Yet some fat & fatuously arrogant anchor on Bloomberg TV keeps talking about the laudable Biden nominations who are focused on “Climate Change”. 

But this doesn’t make Tom Lee wrong. If David Rosenberg & Albert Edwards are even remotely right, then the pressure on Biden, Congress & the Fed to act by Q2 will be almost impossible for them to bear. And then, we will see money poured into not merely the “system” but into the pockets of American people. We expect that to be another 10% of GDP sized stimulus. 

If you see that, then wouldn’t Tom Lee’s 25% rally in second half of 2021 come true? We think it would. Those who think we are nuts (& many think we already are) should force themselves to remember Biden’s nominee for Treasury Secretary – Janet Yellen. And when you get Yellen, we bet you also get Bernanke. And what has Yellen already said the Fed should be able to do at some point – Buy Stocks.

But what about the Fed buying at such valuations, you ask? Notice Chairman Powell has already justified today’s PEs by saying they are not high compared to low Treasury yields. But what about the massive amounts of Treasuries the Fed would already have to buy?

What massive amounts you ask? The same ones Janet Yellen will be issuing in 2021 at 5X-10X the Mnuchin issuance in 2020. No we are not saying something this crazy: 

But that won’t be a problem because, as the ever-beaming Sarah Bloom Raskin told CNBC viewers, Jay Powell is so happy to be able to again work hand-in-hand with Janet Yellen. 

But wait a minute. Wouldn’t the Fed need to get the big money center banks to co-operate in these Treasury purchases? What incentive could Chairman Powell offer the banks to do so? See that is they are the Fed & we are simple novices who can only marvel at how they play the game.  

2.  EM – win in 2021 but perhaps lose big later?

Who wins in 2021? Emerging Markets, said Marko Kolanovic of JP Morgan, along with EM-type sectors such as Energy, Materials, Industrials:  

Makes perfect sense, right? How could it not? The question is for how long. Why do we ask? Because we recall the phrase history rhymes. What history? Think back to just over 10 years ago. To be more precise to November 19, 2010. What clip did CNBC’s Steve Liesman put up that day? It was called A New Cold War. How did we describe it?

• CNBC November 19, 2020 – “This Friday, Dr. Bernanke went farther than any of his predecessors and essentially declared Financial War on China. This is not just our expression, but of Steve Liesman, that outspoken CNBC journalist who always speaks the Fed’s mind. It is “Bernanke vs, Beijing “, Steve Liesman said in his opening remarks in his conversation with CNBC’s Trish Regan on Friday morning. Liesman showed Dr. Bernanke’s comments in a clip appropriately titled A New Cold War :”

The same morning Jim Rickards made it clear that Bernanke’s QE was designed to export inflation to China to stop them from exporting deflation to America. In a clip titled Currency War Brews, Rickards said, as we quoted on November 20, 2010,:

• “It is a currency war. It is going to continue….What’s going on is very simple. Bernanke is haunted by Deflation. The possibility of deflation scares him to death, it is driving everything… If you are the United States, the problem is China is basically exporting deflation to us. The Chairman wants inflation, not too much. He wants a little bit. But China is exporting their deflation to us, importing our deflation to them. So as hard as Bernanke tries, he is not getting the inflation he wants.”

How did that work out? Fast forward to January 19, 2011. That morning Jim Rickards said on CNBC Squawk Box that “We just won round one in the currency wars“.  Now look what we wrote ten days later on January 29, 2011:

• “On Friday, we saw the first enormous and completely unintended consequence of Bernanke’s Financial War. When inflation ravaged the poor across the emerging world, Bernanke did not care about the “unintended consequences” of his QE2. He was too busy congratulating himself on the 20% S&P rally and the 30%+ Small Cap rally. When Tunisia blew up, Bernanke did not care.”
• “But when Egypt blew up on Friday morning and when it was clear that the Obama Administration was deeply worried about a complete breakdown of its Mid-East policy, did Bernanke begin caring?”
• “Perhaps, he found out yesterday that exporting inflation to China may create tension in China but it can also fan an explosion in poorer, middle eastern countries teeming with poor, educated young men who can’t find a job and can’t feed themselves.” 

Most do not remember. But Albert Edwards does and he tweeted this week: