Interesting TACs of the Week (November 14 – November 20, 2020)

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.”direct injection of enterprise value“?

This week, Fin TV anchors began alluding to the reality beneath the exterior of the US economy. 

• David Rosenberg@EconguyRosie – Nov 18 – Count up all the Americans on emergency jobless benefits, on mortgage forbearance and on the CDC no-eviction list, and it’s nearly 30 million hanging on by a thread after Jan 1st. And we have strategists cheering over fiscal gridlock. Go figure.

As we wrote last week, David Rosenberg & his now fellow-traveler Jeffrey Gundlach both believe that stimulus now is the most pressing need for America. Rosenberg even thinks there is a 20% decline in the S&P ahead if we let the economy slide into a recession or something closer. 

But the S&P is mostly made up of large investment grade companies & they are flush with cash, said Rick Rieder of BlackRock. He reiterated his view that we will get a 5% nominal GDP in 2021. 

By his simple math, these large companies will see a 4% free cash flow yield next year while the 10-year is mired in a perennial sub-1% yield. That he calls a “direct injection of enterprise value into companies” for a couple of years. 

Rieder readily admits that employment will not come back as quickly as the economy does. Jim Bianco pointed out the impact on 70% of the jobs due to Corona Virus. 

• “Roughly around 30% of the jobs in the American workforce can be effectively done at home. Seventy percent of them can’t, …. Think surgeon to waitress. They can’t do that at home.”

He added, 

• “The people who can effectively work at home are at the higher end of the [earnings] spectrum,” he said. “They won’t be hurt as much by another work-from-home wave coming.”

Add to that the steadily increasing number of layoffs & job losses that companies are murmuring about and the picture for employment does look bleak. But money managers need not worry too much. China or at least buying from China will soon come into vogue &, as Ashley Tellis of Carnegie said on Indian CNN, Biden will add another 100,000 visas for Indian talent next year. 

And the Fed will be aggressive in building up its BS via QE, perhaps to send a loud message to Secretary Mnuchin that they don’t need his lousy $450 billion. In fact, we might hear that in the December 16 meeting. Just in time for a Santa rally into year-end?  

• Lisa Abramowicz@lisaabramowicz1 – Another record for the Fed’s balance sheet, which has now reached $7.24 trillion. The Fed may boost Treasury purchases and/or extend maturities of the securities it buys through its main QE program because of the dispute with Steven Mnuchin: Medley’s Ben Emons via @theterminal

 

How good will all this be for large companies? First Trump gave them a huge tax-cut. Now Biden, if & when confirmed, will give them the green light to cut jobs in America & ship them to Asia. And oh yes, a mandatory $15 wage will force large employers to replace workers with robots in both out-of-sight warehousing jobs & front office server jobs. Double And, the Fed will take the balance sheet higher & higher. Meaning a triple dose of the direct injection of enterprise value, right?

This stuff cannot but force Treasury yields further down. So good times again for the Risk Parity crowd? And in case you didn’t notice, RPAR, the Risk Parity ETF, rose 1.6% this past week handily beating Dow (down 74 bps), S&P (down 75 bps) & NDX (down 27 bps).  In contrast, TLT rose 2.2% and EDV, the Zero-coupon ETF, rose 2.8% with 30-year Treasury yield closing down 13 bps, the 20-year down 10 bps (despite a D-grade auction), the 10-year down 7 bps and the 5-year down 3.5 bps.

So are bonds going to have more fun? 

Aren’t falling Treasury yields great for NDX growth hot shots? Did you notice which stocks were up during Friday’s & Thursday’s declines? An example below:

 

2. S&P

 Per Lawrence McMillan of Option Strategist,

• “Breadth has been strong again, and it remains one of the more bullish factors in the current market. Both breadth oscillators are on buy signals and in modestly overbought territory.”
• “Volatility has been fairly bullish as well. The $VIX “spike peak” buy signal of October 29th remains in place. It will “expire” in late November, unless it is stopped out first (by $VIX returning to “spiking” mode). Moreover, both $VIX and its 20-day Moving Average remain well below the still-rising 200-day MA. That is bullish for stocks, too.”
• “There may be signals on both sides of the market. However, the “big” picture is fairly simple right now: maintain a bullish stance unless $SPX closes below 3500.”

And,