The man in the window. He stares back. Mostly in silence. Long-time readers well know that there is a man in my blackened office window who only appears when night falls. He disappears with the earliest signs of sunrise. It is his counsel I seek as the wee hours pass. He never speaks until I do, and only answers if I listen. When I am too busy, I barely notice this late stage middle aged man. When I have time to think, his quiet logic becomes inescapable. It has a knack for putting in place the blocks to be built upon, or steps to be taken. I have often thought of rearranging my office. What then would I do, were that man in the blackened with whom I have so much in common just stop waiting for my arrival every morning at zero dark-thirty?
I asked the man this (Monday) morning if he saw how markets went out on Thursday night, the last trading day of a spectacular year for stocks, and an awful year for everything else. I asked the man if he saw what Bitcoin did over the weekend? I asked the man if he saw the numbers that Tesla (TSLA) posted on Saturday. Indeed, he had taken notice. Of everything. He had even watched the Jets. "The Jets", I asked, rather shortly. "I like those green and white uniforms," he said. My friends can argue with that logic. It was then, as I thought we were about to share a late night/early morning chuckle that his face became serious. He spoke one word... "Beware"... and then he added... "For what the angel of mercy has already granted might just as quickly be destroyed." I understood. In the immortal words of Drill Instructor Staff Sergeant Anonymous, the man I feared more than the entire Soviet Army at the age of 17... "Adapt, Privates... adapt or die. It's up to you."
...no longer exist just for football and bad food. "They" do seem to be selling Bitcoin rather hard early on Monday morning. In dollar terms, the world's most closely watched cryptocurrency has now traded down into the mid $29K's. For those of you who really do take the weekends off, Bitcoin screamed all the way up to $34,300 (and change) very early on Sunday morning. Remember that guy who paid $19K for one Bitcoin and we all felt so sorry for him? Yeah, we all know him. Not feeling so bad for that fellow now, are we? Wanted to ask him if he was still long, he could not stop giggling.
Then there's what I guess is the greatest stock in the world...Tesla (TSLA) , another name along with Apple (AAPL) that I have been smart enough to trade only from the long side for a number of years now, but not smart enough to just own and not trade at all. My older son might be the smartest kid (he's in his late twenties) in the world. He watched his old man trade TSLA for small victories on a very regular basis, while he just adds on dips. I think that he thinks that when I say "I'd be careful here" that the phrase is code for a green light. The kid is long four stocks, but only cares about one... Tesla.
Well, Tesla announced that the firm had delivered 180,570 vehicles during Q4 2020, just edging consensus view. This put deliveries for the full year at 499,500 (and production at 509,737) vehicles. You'll recall the Musk driven corporate goal of 500K deliveries that was mostly sneered at by those who track such things. Yeah, well... Elon basically beat you again. Man, I would hate to play that dude in chess. I take that back, I would actually love to play that man in chess, even if he made a fool of me.
Out With The Old
Traders head into the new year/month/week with all of the most highly focused upon large cap indices trading at or near all-time highs. Are all-time records even worthy of mention at this point? As late December approached, I did go through trying to explain just what the "traditional" Santa Claus Rally really is. I explained at that time that the period runs over the last five sessions and two first sessions of the year. This means that tomorrow (Tuesday) would be the final day of this period. So far so good. I also wrote to you that trading volume might be light going into that period, but that it would likely build as the week in between Christmas Day and New Year's Day wore on.
Trading volume remained rather elevated throughout the week at the Nasdaq Market Site all week long, and did build on Friday at the New York Stock Exchange, but that NYSE volume, as well aggregate trading volume directly attributable to the S&P 500 was indeed even lighter than I had expected. This suggests to me that there was either a real dearth of tax losses available, or simply a lack of investors willing to take them. I suspect the former. There was however, some late profit taking, as the Energy sector Using the Select Sector SPDR ETF (XLE) as a proxy, closed lower for the day on Thursday, and lower for the week as well. Yes, I know that the Energy sector was indeed the worst performing sector for CY 2020 at -32%, but that sector had also been the top performing sector for Q4 2020 at +28%. Oh, how the worm turns.
The Technology sector SPDR (XLK) also finished rather poorly, essentially flat (+0.15%) on Thursday, finishing in ninth of the 11 sectors both for the day as well as the week. Technology finished in first place for the year (as usual) at +43.6%, but only in sixth for the quarter, which was still good enough for an 11.7% increase. There was some clear evidence of profit taking across the sector not only late in the year but late last week for sure. The quarterly performance had been supported by Renewable Energy Equipment, in particular after Democrat Joe Biden's victory in the Electoral College became apparent. High flying growth stocks including Shopify (SHOP) , Twilio (TWLO) , Palantir (PLTR) , Snowflake (SNOW) , and Peloton (PTON) all closed out the year on a weak note. So did traditional tech based powerhouses as Apple, Amazon (AMZN) , and Microsoft (MSFT) . Apple was easily the strongest 2020 name among the Dow 30, with Microsoft finishing in second, even though that name actually underperformed the Nasdaq Composite (by just a smidge). How interesting.
In with the new? Just what did the man in the window mean this morning? While Tuesday brings with it the end of the Santa Claus period, Tuesday is also election day in Georgia, and to be honest, strictly speaking from the perspective of greed, I am not sure what to root for. Staff Sergeant Anonymous was right. Adapt or die. I'll tell you what... years later on a bus ride between the Port Authority in New York City, and Camp Lejeune in North Carolina, I thought I saw his black pick-up truck out my window and my heart skipped a beat. Stories about that man better left untold. News stories circulating about the president this weekend might have better left untold (for the Republicans in Georgia) as well.
You see, from the position of personal finance, should Georgia leave the Republican party in control of the Senate, radical changes can not be made that would hurt individual taxpayers. On the other hand, should the Democratic party gain control of not only the Executive branch of government but also both houses of the legislative branch it becomes easier to see a much larger fiscal stimulus/support package passed sooner rather than later that probably would include much needed spending on national infrastructure. While this acceleration in deficit spending will obviously put an increased burden on future generations, this would be a short-term positive for markets, for growth, and yes... consumer level inflation. Oh, and that's not because of the simple expansion in money supply.
I think that we have learned through the failed experience of the Ben Bernanke led FOMC that one can not produce consumer level inflation just by expanding the monetary base. Janet Yellen, yes I know everyone loves her, but she did not understand this in depth either. Inflation is driven by velocity of money, and by velocity of money alone. This must be understood, but unfortunately many can not see it. If I had one word for public sector economists, it would be this... adapt.
If the central bank expands money supply by trillions of dollars and it all sits on balance sheets (within the banking system) that produces very little in the way of economic activity, or more specifically... the velocity of transaction. Suitable demand for credit that meets available supply at a worthy price (enough interest to make the extension of credit a worthy business venture) would cause at least some of that monetary base to leak out onto Main Street. This is how you produce increases in both growth and inflation. I welcome the former. I fear the latter. The FOMC "promises" to keep short-term rates close to zero. Baloney. They will react to a changed environment in something slower than real time as conditions change. Count on that.
That said remember, it's a new year. and with it a new FOMC. Out goes Philadelphia, and Dallas, both pragmatic in my opinion. Out goes Minneapolis, overtly dovish, and out goes Cleveland, overtly hawkish. In comes Chicago, Atlanta, and San Francisco... all dovish (yes, in my opinion), and in comes Richmond, who I must admit, I am less sure of. Overall, the FOMC takes on a slightly more dovish complexion.
Later This Week
After Georgia votes on Tuesday, the Electoral College votes will be counted (officially) on Wednesday. Fireworks are expected. More than just a few Republican representatives and senators are expected to challenge the results of the November 3rd presidential election. This all before we even approach a potentially very small or even negative number for December job creation on Friday.
Now, the problem is this. Almost half the nation currently sees the election in November as having been stolen. Should the results stand, which is expected, I think markets react with calm. Should these Republicans make substantial progress in their claims, even if they were not to succeed in changing the result (which would cause the other half of the nation to see the election as having been stolen), they could still cause ever increasing lack of confidence in the accuracy of the U.S. electoral system. I see both Tuesday and Wednesday on into the end of the week as potentially very volatile for financial markets. Watch the VIX, watch the CBOE Put/Call ratios. Oh, and buckle your chin-straps.
Economics (All Times Eastern)
09:45 - Markit Manufacturing PMI (Dec-F): Flashed 56.5.
10:00 - Construction Spending (February): Expecting 1.0% m/m, Last 1.3% m/m.
The Fed (All Times Eastern)
10:00 - Speaker: Chicago Fed Pres. Charles Evans.
10:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
12:15 - Speaker: Cleveland Fed Pres. Loretta Mester.
18:00 - Speaker: Cleveland Fed Pres. Loretta Mester.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly results scheduled for release.