BentinPartner Weekly
Dear Reader,
U.S. stocks climbed to all-time highs on Friday following a week of strong gains and Treasury yields rose after the US job report slowed in November posting a miss, boosting expectations for more federal stimulus. The report showed the creation of 245,000 jobs vs. expectations of about twice as much.
All major US indices, the S&P 500, the Dow, the small cap Russell 2000 and the Nasdaq, reached fresh records with the most shorted stocks doing best, suggesting the market remained in beta chasing mode. At the same time, the dollar posted its biggest weekly decline in five weeks, while the yield on the 10-year Treasury note reached the highest in nine months, adding 13bps.
ZH provided a non-complacent status report of Wall Street thinking that is….short bonds…long stocks…short the USD…long commodities…long gold …and long bitcoin (as a dollar hedge!?). These recommendations reflect the positioning of our simple trend following model (see below), which also suggests that everybody thinks the same (including those warning about this particular risk) and does the same thing…i.e. following the trends…
We continue to consider bitcoins as a non-investable asset but with JPM on board to push it (until it breaks), it could take something like a US/EU regulatory backlash if bitcoin is seen as interfering with policies (bitcoin is outlawed in China already) and certainly more than N. Roubini calling bitcoins names, to stop it. Personally, I do not mind calling bitcoin a safe haven because that is how it is viewed by a growing cohort of millenniums (joined now by some serious banks), if anything to give themselves a good conscience as they chase (and encourage chasing) a pure object of speculation in a world that does not prize value anymore but regularly assigns (huge) value to things that cannot be valued because they are intrinsically worthless. For as bearish as we are on the USD, we could never consider selling it or hedging it with bitcoins.
Two other things also caught our attention last week:
First, the best way to greenify one’s portfolio was to buy energy shares which gained about 10% (along with banks) while the clean energy theme dropped 3.6%. This was more than a mark-up in low volumes as the energy sector witnessed big inflows over the past week and rolling 12 months as well, equating 10% of the NAV of the most popular ETF’s in that space.
Without necessarily endorsing all of its meaning, the conclusion of the ZH report referenced above provided some food for thought.
“... JPMorgan is probably right that any dips from this point on have to bought ahead of the coming hyperinflation at least until such time as fiat currencies and conventional economics finally lose all credibility, which will mark the merciful end of this Sovietization of what was once called the "market."
The second observation, beyond the accompanying bond yield rise, was a steady rise in inflation expectations suggesting that central banks could be on their way to win their long fight against deflation. This could also bring us to the core of the matter of how to deal with excessive debt which are growth, inflation and debt restructuring/default. Most likely, it will not be “either or” but a combination of these three remedies that will be used.
Growth will be supported by additional fiscal spending (President elect J. Biden spoke about a forthcoming USD 900bn imminent support program as merely a “downpayment”; China and Europe will follow). Janet Yellen warned last week of ‘more devastation’ if the US failed to address the economic fallout from the coronavirus pandemic and its disproportionate toll on low-income families as she was introduced by Joe Biden as the next Treasury secretary.
Inflation will come (and is already there to a point) with asset inflation, the premise of currency devaluation, rising commodity prices and hopefully wage inflation). Restructuring/default will affect the covid debt or about 30% of debt/gdp so far which some economic think tanks already consider will/should be written off (the part held by central banks only).
Over The Past Week…
Over the past week, the S&P500 gained 1,7% (14,9% YTD) while the Nasdaq100 rallied 2,2% (43,7% YTD). The US small cap index rallied 2,1% (13,6% YTD).
Cboe Volatility Index dropped -0,2% (50,9% YTD) to 20,79.
The Eurostoxx50 rose 0,3% (-3,1%), underperforming the S&P500 by-1,4% as the dollar dropped.
Diversified EM equities (VWO) gained 1,2% (11,0%), outperforming the S&P500 by -0,5%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -1,2% (-5,8%, Z-score -2,0) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 1,1% (2,9%), suggesting the broad nature of dollar weakness.
10Y US Treasuries underperformed with yields rising 13bps (-95bps) to 0,97%. 10Y Bunds climbed 4bps (-36bps) to -0,55%. 10Y Italian BTPs climbed 3bps (-79bps) to 0,63%, underperforming Bunds by 1bps.
US High Yield (HY) Average Spread over Treasuries dropped -33bps (41bps, Z-score -2,2) to 3,77%. US Investment Grade Average OAS dropped -7bps (4bps) to 1,05%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -5bps (3bps, Z-score -2,2) to 0,55%.
Gold rallied 2,9% (21,2%) while Silver rallied 7,1% (35,5%). Major Gold Mines (GDX) recouped 3,2% (20,6%).
Goldman Sachs Commodity Index gained 0,1% (-22,7%). WTI Crude gained 1,6% (-24,2%).
Have a nice week ahead and stay safe.
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Marc Bentin, BentinPartner GmbH
Founder, Chief Investment Officer
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