Lets protect the plankton from the potassium whales

There's too many Banano's available for sale! Lets stop the calves from growing into whales and manipulating the value of our precious Potassium.

It seems a few Banano's are getting into the wrong hands, as they're selling their tasty Banano's for dirty BTC (search how many nuclear reactors worth of power Bitcoin uses!) .

In another thread, somone even mentioned they were folding@home, and then instantly selling :o

Outrageous.

Does the team track the Banano's that are distributed for each event, and see how many make there way to exchanges after xxx days?

It would be a good way to evaluate the best method of distribution. We want to attract the right kind of monkeys - diamond hand holders, not sad sellers.

Anon from 4chan talks about rich people buying shelters

NOT ME

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Last year, I got invited to a super-deluxe private resort to deliver a keynote speech to what I assumed would be a hundred or so investment bankers. It was by far the largest fee I had ever been offered for a talk — about half my annual professor’s salary — all to deliver some insight on the subject of “the future of technology.”

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I’ve never liked talking about the future. The Q&A sessions always end up more like parlor games, where I’m asked to opine on the latest technology buzzwords as if they were ticker symbols for potential investments: blockchain, 3D printing, CRISPR. The audiences are rarely interested in learning about these technologies or their potential impacts beyond the binary choice of whether or not to invest in them. But money talks, so I took the gig.

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After I arrived, I was ushered into what I thought was the green room. But instead of being wired with a microphone or taken to a stage, I just sat there at a plain round table as my audience was brought to me: five super-wealthy guys — yes, all men — from the upper echelon of the hedge fund world. After a bit of small talk, I realized they had no interest in the information I had prepared about the future of technology. They had come with questions of their own.

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They started out innocuously enough. Ethereum or bitcoin? Is quantum computing a real thing? Slowly but surely, however, they edged into their real topics of concern.

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Which region will be less impacted by the coming climate crisis: New Zealand or Alaska? Is Google really building Ray Kurzweil a home for his brain, and will his consciousness live through the transition, or will it die and be reborn as a whole new one? Finally, the CEO of a brokerage house explained that he had nearly completed building his own underground bunker system and asked, “How do I maintain authority over my security force after the event?”

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The Event. That was their euphemism for the environmental collapse, social unrest, nuclear explosion, unstoppable virus, or Mr. Robot hack that takes everything down.

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This single question occupied us for the rest of the hour. They knew armed guards would be required to protect their compounds from the angry mobs. But how would they pay the guards once money was worthless? What would stop the guards from choosing their own leader? The billionaires considered using special combination locks on the food supply that only they knew. Or making guards wear disciplinary collars of some kind in return for their survival. Or maybe building robots to serve as guards and workers — if that technology could be developed in time.

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That’s when it hit me: At least as far as these gentlemen were concerned, this was a talk about the future of technology. Taking their cue from Elon Musk colonizing Mars, Peter Thiel reversing the aging process, or Sam Altman and Ray Kurzweil uploading their minds into supercomputers, they were preparing for a digital future that had a whole lot less to do with making the world a better place than it did with transcending the human condition altogether and insulating themselves from a very real and present danger of climate change, rising sea levels, mass migrations, global pandemics, nativist panic, and resource depletion. For them, the future of technology is really about just one thing: escape.

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There’s nothing wrong with madly optimistic appraisals of how technology might benefit human society. But the current drive for a post-human utopia is something else. It’s less a vision for the wholesale migration of humanity to a new a state of being than a quest to transcend all that is human: the body, interdependence, compassion, vulnerability, and complexity. As technology philosophers have been pointing out for years, now, the transhumanist vision too easily reduces all of reality to data, concluding that “humans are nothing but information-processing objects.”

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It’s a reduction of human evolution to a video game that someone wins by finding the escape hatch and then letting a few of his BFFs come along for the ride. Will it be Musk, Bezos, Thiel…Zuckerberg? These billionaires are the presumptive winners of the digital economy — the same survival-of-the-fittest business landscape that’s fueling most of this speculation to begin with.

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Of course, it wasn’t always this way. There was a brief moment, in the early 1990s, when the digital future felt open-ended and up for our invention. Technology was becoming a playground for the counterculture, who saw in it the opportunity to create a more inclusive, distributed, and pro-human future. But established business interests only saw new potentials for the same old extraction, and too many technologists were seduced by unicorn IPOs. Digital futures became understood more like stock futures or cotton futures — something to predict and make bets on. So nearly every speech, article, study, documentary, or white paper was seen as relevant only insofar as it pointed to a ticker symbol. The future became less a thing we create through our present-day choices or hopes for humankind than a predestined scenario we bet on with our venture capital but arrive at passively.

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This freed everyone from the moral implications of their activities. Technology development became less a story of collective flourishing than personal survival. Worse, as I learned, to call attention to any of this was to unintentionally cast oneself as an enemy of the market or an anti-technology curmudgeon.

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So instead of considering the practical ethics of impoverishing and exploiting the many in the name of the few, most academics, journalists, and science-fiction writers instead considered much more abstract and fanciful conundrums: Is it fair for a stock trader to use smart drugs? Should children get implants for foreign languages? Do we want autonomous vehicles to prioritize the lives of pedestrians over those of its passengers? Should the first Mars colonies be run as democracies? Does changing my DNA undermine my identity? Should robots have rights?

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Asking these sorts of questions, while philosophically entertaining, is a poor substitute for wrestling with the real moral quandaries associated with unbridled technological development in the name of corporate capitalism. Digital platforms have turned an already exploitative and extractive marketplace (think Walmart) into an even more dehumanizing successor (think Amazon). Most of us became aware of these downsides in the form of automated jobs, the gig economy, and the demise of local retail.

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But the more devastating impacts of pedal-to-the-metal digital capitalism fall on the environment and global poor. The manufacture of some of our computers and smartphones still uses networks of slave labor. These practices are so deeply entrenched that a company called Fairphone, founded from the ground up to make and market ethical phones, learned it was impossible. (The company’s founder now sadly refers to their products as “fairer” phones.)

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Meanwhile, the mining of rare earth metals and disposal of our highly digital technologies destroys human habitats, replacing them with toxic waste dumps, which are then picked over by peasant children and their families, who sell usable materials back to the manufacturers.

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This “out of sight, out of mind” externalization of poverty and poison doesn’t go away just because we’ve covered our eyes with VR goggles and immersed ourselves in an alternate reality. If anything, the longer we ignore the social, economic, and environmental repercussions, the more of a problem they become. This, in turn, motivates even more withdrawal, more isolationism and apocalyptic fantasy — and more desperately concocted technologies and business plans. The cycle feeds itself.

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The more committed we are to this view of the world, the more we come to see human beings as the problem and technology as the solution. The very essence of what it means to be human is treated less as a feature than bug. No matter their embedded biases, technologies are declared neutral. Any bad behaviors they induce in us are just a reflection of our own corrupted core. It’s as if some innate human savagery is to blame for our troubles. Just as the inefficiency of a local taxi market can be “solved” with an app that bankrupts human drivers, the vexing inconsistencies of the human psyche can be corrected with a digital or genetic upgrade.

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Ultimately, according to the technosolutionist orthodoxy, the human future climaxes by uploading our consciousness to a computer or, perhaps better, accepting that technology itself is our evolutionary successor. Like members of a gnostic cult, we long to enter the next transcendent phase of our development, shedding our bodies and leaving them behind, along with our sins and troubles.

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Our movies and television shows play out these fantasies for us. Zombie shows depict a post-apocalypse where people are no better than the undead — and seem to know it. Worse, these shows invite viewers to imagine the future as a zero-sum battle between the remaining humans, where one group’s survival is dependent on another one’s demise. Even Westworld — based on a science-fiction novel where robots run amok — ended its second season with the ultimate reveal: Human beings are simpler and more predictable than the artificial intelligences we create. The robots learn that each of us can be reduced to just a few lines of code, and that we’re incapable of making any willful choices. Heck, even the robots in that show want to escape the confines of their bodies and spend their rest of their lives in a computer simulation.

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The mental gymnastics required for such a profound role reversal between humans and machines all depend on the underlying assumption that humans suck. Let’s either change them or get away from them, forever.

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Thus, we get tech billionaires launching electric cars into space — as if this symbolizes something more than one billionaire’s capacity for corporate promotion. And if a few people do reach escape velocity and somehow survive in a bubble on Mars — despite our inability to maintain such a bubble even here on Earth in either of two multibillion-dollar Biosphere trials — the result will be less a continuation of the human diaspora than a lifeboat for the elite.

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When the hedge funders asked me the best way to maintain authority over their security forces after “the event,” I suggested that their best bet would be to treat those people really well, right now. They should be engaging with their security staffs as if they were members of their own family. And the more they can expand this ethos of inclusivity to the rest of their business practices, supply chain management, sustainability efforts, and wealth distribution, the less chance there will be of an “event” in the first place. All this technological wizardry could be applied toward less romantic but entirely more collective interests right now.

​

​

The mental gymnastics required for such a profound role reversal between humans and machines all depend on the underlying assumption that humans suck. Let’s either change them or get away from them, forever.

​

Thus, we get tech billionaires launching electric cars into space — as if this symbolizes something more than one billionaire’s capacity for corporate promotion. And if a few people do reach escape velocity and somehow survive in a bubble on Mars — despite our inability to maintain such a bubble even here on Earth in either of two multibillion-dollar Biosphere trials — the result will be less a continuation of the human diaspora than a lifeboat for the elite.

​

When the hedge funders asked me the best way to maintain authority over their security forces after “the event,” I suggested that their best bet would be to treat those people really well, right now. They should be engaging with their security staffs as if they were members of their own family. And the more they can expand this ethos of inclusivity to the rest of their business practices, supply chain management, sustainability efforts, and wealth distribution, the less chance there will be of an “event” in the first place. All this technological wizardry could be applied toward less romantic but entirely more collective interests right now.

What will happen if Tether gets delisted or charged by the SEC?

Given the recent events will xrp and privacy coins, many speculate that it’s only a matter of time when something happens to tether. What kind of impact this will have on the crypto space and in general on bitcoin and ethereum. Im curious about your thoughts on this!

Another Fundraising Round For Cross-Chain Atomic Swaps?

Given the recent events, I would like to propose an idea. That we have another [cfs? fundraiser?] to expedite implementation of cross-chain atomic swaps. Specifically, I would like to fund the version that doesn't depend on Schnorr, because I don't think we should count on that (although I really hope it arrives sooner than later).

For those that aren't aware, the current funded implementation is focusing on integration with Schnorr, because it reduces complexity and transaction size requirement. This is a wise long term solution, but medium term (9-18 months) has the potential to leave us without an implementation, if Bitcoin delays activation.

My only real question is, does throwing more money at this realistically make it happen faster? I know there's a derth of capable cryptographers and blockchain coders in the real world. As a mere script kiddie, I'm not sure how much I can personally do to help this along, other than donate more money. What do yall think?

My analysis on the state of the US so far: socioeconomic, markets, geopolitical, and more

I believe that the US is in a pretty messed up state right now in all manners of sectors, this may not be a surprise to most here but let me explain why in a more thorough way:

First of all, there is massive division in the country. The urban/ rural divide, Democrat vs Republican, rich vs poor gap widening even deeper. If you take a look at who voted for Republicans in the elections almost all the rural counties voted for Republican, while the big cities voted for Democrat. This causes tension between the effectiveness of the Electoral Collage process in the first place.There is also a huge amount of division between the two major political parties as well: Biden has to somehow handle the interests of those within the Democrat party (including the "radicals" like Bernie and the corporate dems). Perhaps they were able to apply a shaky temporary unity due to their common hatred for Trump but now that he lost the election these issues will boil more in the future. As well as the Republican party (who are deeply divided as well between the GOP supports and others).

Biden and his administration will also have to deal with almost 50% of the population still believing that he is not even the legitimate leader of the country. His job will be much harder since he has to deal with the Republican Supreme Court, a large amount of Republicans in the house (I think 100 members of which are still trying to contest against the Electoral College results), and a possible Republican Senate (led by Mitch McConnell - who was known for giving the previous Obama admin a hard time). Getting the type of bills that his administration and the rest of the Democrats wants will be a lot more difficult, and if things start to get even worse, more tensions amongst the Democrat party may boil over.

He will have Trump and other MAGA supporters on his tail throughout his presidency, looking to gain support for Trump's possible second term.

The political situation in the US is completely INSANE. And the major media outlets continue to fire up division and fighting for the sake of views and profits. You can't even discuss political topics anymore least you get branded as a "Trump supporter" or a "Lib Commie", as well as subsequently getting cancelled out. The BLM riots served to further fan up these flames.

Even passing stimulus to help Americans during the pandemic seems to be so hotly contested amongst the politicians with a possible measly $600 USD (which is chump change) going out to Americans while the majority of the money goes off to big businesses.

It almost seems like the politicians regardless of side have NO clue or empathy over how the lives of the Middle or lower class are. It seems like they are living in their own secluded world.

Small businesses are continuing to die off during the pandemic, people are losing their jobs, incomes, livelihoods, and mental health and drug addiction is continuing to increase.

Automation, and offshoring to depress worker's wages also doesn't help. Colleges are extremely expensive and a degree seems to be almost a requirement for even low lvl jobs due to degree inflation. The entry level job market for college grads to get their foot in the doors for their careers is also incredibly saturated even for STEM, you may need a master's and 3 years experience minimum along with jumping through so many hoops along the hiring process to finally get hired. It's creating a catch 22 where you need xp to gain xp, but how can you gain xp when no one wants to hire you? LOL!

The millennial and gen z alone have gone through at least 3 or 4+ (off the top of my head) major crisises including economic. This puts them in a major disadvantage in achieving life goals like getting married, having kids, getting a car and house, putting money into retirement, etc.

Under the Biden administration legal and illegal immigration may increase and he may possibly move them towards traditionally red states in order to ensure they become blue in the future. This may cause even more social resentment amongst different factions. Along with people like Californians now mass moving into traditional red states to escape the very high taxes and mismanaged state governments they have.

Not to mention the fact that the US has racked up trillions of federal debt in a couple of years as well as still not getting the covid pandemic under control. (Vaccines will help but deploying those vaccines, making sure that enough of the population get it to achieve herd immunity, especially with a lot of anti vaxx and anti mask, will still take a while). The US's position in the global world has also drastically decreased and they have damaged their relations with a lot of their geopolitical allies including Canada and the EU. Regardless of what you believe about Trump, the view of a lot of these countries on the US has DRASTICALLY decreased, almost as bad as their views about China.

These are some probable reasons along with others why the US dollar continues to depreciate and why other currencies like the Chinese yuan are continuing to appreciate against the USD if you follow the markets. Furthermore the stock market right now seems to be a giant overvalued bubble to me, with PE ratios (Price to Earnings) of stocks being like 200+! (Tesla's PE ratio is around 1,417! Holy crap!) Alot of the share prices of companies seems to be inflated way outside of their fundamentals. These all seem to be signs of a possible bubble and incoming major correction. (don't take this as financial advice though, just stating what I think)

Commodities like gold, and other hedges against the USD like Bitcoin are contuining to increase. Bit coin has surpassed its previous all time high and seems to be getting more and more expensive. Bitcoin's goal is to replace fiat currencies and swift and provide a way for other nations to bypass economic sanctions. China is making its own Digital Yuan initiative to help nations bypass US sanctions.

The US now also has to deal with a much stronger China, Russia, as well as balance all their geopolitical interests which is everywhere around the globe. They are spread way too thin, and because of their economic, domestic, and socioeconomic situation they cannot afford to be everywhere at once. They now also have to focus on repairing relations with their allies giving their opponents even more time to be prepared and stay ahead. China is projected to be the world's largest economy by 2028 in terms of NOMINAL GDP (which is in absolute terms) which is outstanding since they are already ahead of the US in terms of PPP (more relative measure).

They will also have to deal with China making much stronger ties between Asian countries, and the Belt and Road, as well as economic movements such as ASEAN.

At the end of the day, this is just my opinion on current events. Don't take this as advice and please do your own research.

In the event that bitcoin hits 100k, should I sell some btc to pay off my car loan?

Or should I keep the car loan?

2021 Market and Economic Outlook

SPX Monthly Chart:

• The market basically closed the year at ATH (3pts off) and is within a hair of 3855, which is the 138.2% Fib of the March low.
• The rising monthly channel (shown above) shows that markets are stretched near resistance and already outside of their bollinger bands. The weekly band is at 3774.
• While I believe there is room for upside into 2021, the risk/reward is NOT favorable here anymore. Sentiment is stretched and a correction would be welcomed with open arms.
• I anticipate a 10-15% correction to start the year, which would align us with the rising 200dma near 3219. We ended the year in a tight range, and there is potential to carry into 3855 based on January 15 open interest and gamma positioning.

Last few days I have been selling stocks and calls aggressively in anticipation of a correction. I am long TLT calls (flat) and SPY puts (down 37%).

Sentiment:

• The AAII Sentiment Survey is quite elevated near multi-year highs and shows overly bullish sentiment.
• The Advisors Sentiment Report reports the views of over 120 independent investment newsletters (those not affiliated with brokerage houses or mutual funds) and reports the findings as the percentage of advisors that are bullish, those bearish and those that expect a correction. The current Bull to Bear spread is one of the highest in decades, yet another indication of frothy sentiment.
• The NAAIM Exposure Index is currently at 89 and off some 100+ prints but remains elevated to the averages.

• The BAML Fund Manager Survey shows the three most crowded trades are:

  • Long Tech via shares
  • Short USD
  • Long Bitcoin Spot via Perpetual Swaps
  • Fund managers are "all-in" on leverage. This is evidenced by our DIX print on Thursday yet again showing dark pool buying.

• Consumer Confidence deteriorated sharply in December, as the resurgence of COVID-19 "remains a drag on confidence.”

• CEO Confidence, as tracked by the Bloomberg Consumer Comfort Index hit a two week low at 47. This is the sharpest drop in economic outlook since April.

Market Health:

• NYSE Cumulative Adv/Dec:

  • Actually pretty healthy right now. This is still well above all of its important moving averages and remains in an uptrend.

• NYSE McClellan Oscillator:

  • Neutral currently.

• NYSE Summation Index (NYSI):

  • Most commonly used by fund managers to find divergences. Above a short term 5/8 day exponential moving average is a buy signal. Below flashes a short term sell signal. This is currently showing a sell signal. However, sell signals in rallies tend to be early signals...

• Moving Averages:

  • The 8/21-week EMA crossover has long been a favorite signal for momentum in individual names and also works with Indices. The 21-week EMA is important support for growth/momentum stocks. In general, you want to be long when the 8 week is above the 21 week and short when it is below with crossovers being key trend inflection signals. The 12-month moving average (MA) and monthly MACD are good longer-term risk management tools. The price action relative to the 200-week MA provides a good gauge for the health of the S&P 500’s secular trend. Pullbacks or corrections (aka cyclical bear markets) for the S&P 500 that hold above or near the rising 200-week MA are a secular bull market pattern. Pullbacks that decisively break the 200-week MA are a sign of a secular bear market. Most corrections on the S&P 500 during the 1950-1966 and 1980-2000 secular bull market held between the 100-week MA and the 200-week MA. The 2015-2016 S&P 500 pullback fit this secular bull market correction pattern. The secular bear market periods from 1929-1950, 1966-1980, and 2000-2013 saw sustained periods below these long-term moving averages. This means that the 200-week MA provides a good secular bull market risk management tool or stop loss. Using this history as a guide suggests that the Ichimoku monthly cloud is a good trailing secular bull market stop loss. History also suggests that a decisive move below the monthly cloud confirms a secular bear market for US equities. Currently we are above all moving averages and this is a bullish signal.

Economics:

• The common theme appears to be an expectation of a synchronized global growth in 2021.
• The optimism on 2021 delivering a record year for corporate profit growth and strong GDP growth around the globe is very contingent on a successful vaccine rollout. The current surge of cases and hospitalizations in the US and Europe is resulting in further restrictions and lockdowns that will weigh on growth expectations, or at least push out pent-up demand. Consumers have led the recovery so far with a boost from fiscal stimulus but the key to a self-sustained recovery is a strong capex cycle which is seen kicking off in Q2 2021. The labor market will also be in focus after record low unemployment the pandemic saw the number jump to 14.7% in April, the highest since the Great Depression, but has recovered rapidly though losing some momentum as it finished the year near 6.5% unemployment and consensus expectations to reach 5% by the end of 2021, still far-off from the 3.5% pre-crisis rate.
• The recovery has already started in 2H20 in the US & China while the European recovery has been more subdued. The driver of the strong 2021 recovery will be the full reopening of economies worldwide which makes a successful vaccine distribution critical. The US Dollar is closing 2020 weak and looks to have some structural issues with surging deficits, Fed’s intention to boost inflation, easy financial conditions, and expected economic and political improvements. The combination of easy monetary policy, a rebound in old economy industries and a global upswing in growth provides a healthy backdrop for 2021. The balance sheets of households, corporate and governments are expanding alongside the aggressive monetary policy and signs of inflation returning causing a rotation back to value and cyclical growth supported by a steepening yield curve.
• GDP is seeing rising 6.4% globally in 2021 according to Morgan Stanley, the consensus is for 5.4% growth. In the US those numbers are 5.9% and 3.8% respectively.
• Inflation would be the key risk into 2021 with it likely to start showing up in 2H21, and the risk being an overshoot could start a disruptive shift in Fed policy. Surging debt remains another concern, as a share of U.S. GDP, total debt has spiked near a record high and total nonfinancial debt has surged to new all-time highs. The rapid increase in government deficits is due to the combination of 1) the budget shortfall that already existed and was growing, plus 2) the deficit spending to fund the stimulus programs to date.
• The other clear risk in 2021 is China where debt defaults are rising and could spark a move to credit tightening and a recession that would strangle the global recovery. The overall default rate is currently low but the percentage spike in debt/GDP was the highest since 2009 which could lead to policy tightening in 2021.

Market Valuation and Fundamentals:

• The NASDAQ continue to outperform in 2020 with a 45%+ YTD return compared to the S&P at +15% as major secular trends in technology continue to play out. The trend of rapid rotational moves also continue with growth often seeing selling pressure for a few days before quickly recovering and resuming the longer-term uptrends. Into 2021 earnings growth is expected to be a record though room for multiple expansion is minimal. A combination of improving economic conditions causing greater business and consumer confidence should drive strong earnings growth in 2021. Increased fiscal spending and a moderation of tariffs provide additional tailwinds. In 2020 many businesses shedded labor and transformed business models to higher productivity to offset the collapse in demand and low inventories with rebounding production point to margin expansion in 2021. The 2021 environment shapes up to be one of solid earnings growth, a return of buybacks and modest multiple contraction. The growth versus value debate is likely to continue but the low-rate environment continues to favor growth, but even more-so a greater preference for quality, companies with strong balance sheets, cash flow generation, and returns on capital should continue to outperform. We are seeing historically strong earnings revision ratios and a record percentage of stocks with dividend yields above the rate of the ten-year Treasury, both conducive to allocations to equities. Compared to bonds, equities can act as a hedge in case of inflation and, with a thorough selection process, can still offer returns closer to historical returns.
• My forecasts for 2021 take into account consensus expectations, a bull case for a strong vaccine rollout, and a bear case for disruptions to the vaccine rollout and geopolicatical potential issues. I am assigning a 40% probability for the bull case, 40% for the base case, and 20% for the bear case to arrive at a S&P fair value of 3600 though 1H21. In 2H21 we start to look to 2022 estimates and feel we can approach $200 EPS with slight multiple contraction to 22X leaving upside potential to 4400 for year-end 2021.

https://imgur.com/a/QqPjfbU

• For 2021, the bottom-up EPS estimate (which reflects an aggregation of the median EPS estimates for CY 2021 for all of the companies in the index) is $169.20. For CY 2021, analysts are projecting earnings growth of 21.7% and revenue growth of 7.7%. The 6% trend growth rate since the 1930s would point to S&P 500 EPS getting back to trend levels of $187 in 2022. An optimistic vaccine scenario would see S&P 2022 EPS well above $200.

https://imgur.com/a/lLhmsb3

• The low rate environment impacts the multiple, and assuming the 10-year stays low, the Fed keeps rates at zero, and credit spreads stay firm, a valuation framework would put a trailing PE at 24X and forward at 21.5X for the current environment. The spread between the S&P dividend yield versus the corporate Baa bond yield is near historical highs and the ERP (Equity Risk Premium) is very high by many measures. Assuming the spread between the dividend yield and IG corporate yield goes back to 2012-19 levels, it would point to 30%- plus upside for S&P 500 valuations. Assuming some rise in rates as the spread narrows more from falling equity yields would point to 20%-plus upside. In 2021, policy support should remain in place to curtail risk aversion. Besides the risk of a credit crisis, concerns over a late-cycle overheating have been pushed further out due to the pandemic-induced recession and policy makers’ increased inflation tolerance. When comparing relative attractiveness across asset classes, which ultimately steers a substantial part of investment flows, equity markets continue to look quite attractive. Since the beginning of 2020, real bond yields in the USA have declined by over 100 basis points, outpacing the decline in earnings yields (inverse of the price-earnings ratio), thus supporting higher valuation multiples. Currently the difference between the earnings yield and the real bond yield as a measure for the equity risk premium (ERP) is higher than the long-term average, suggesting that equities offer an attractive excess return over bonds. Although lower interest rates support higher multiples due to the increase value of future earnings, a return to normal could push long-term interest rates higher and exert downward pressure on equity valuation multiples.

Sector Growth Rates

Analyst 2021 Predictions:

• Morgan Stanley: $3900 - After a year of big swings in valuations, 2021 will be about who can deliver on earnings. 2020 was all about beta and understanding how equity markets trade in and around a recession that handed us the fattest pitch we’ve seen in a decade. 2021 will be much more about stock picking (alpha) and should favor those companies that can deliver earnings growth that isn’t already expected or priced. MSCO prefers companies with earnings growth most tied to re-openings and an economic recovery and also favors small caps. Financials are also preferred due to positive upside skew on rising rates and better credit; Materials and Industrials on demand rebound, earnings leverage and inflation protection; and Health Care given its GARP characteristics and re-rating potential with fading political overhangs.
• Bank of America: $3800 - Stocks have already priced in much of the expected recovery in the economy and corporate profitability, leaving just slightly more upside heading into next year. Even as investors ride a wave of vaccine-related optimism, potential negative catalysts abound. The recovery is intact and the world likely reopens in the 2H, but a lot of optimism is priced in already on vaccine/recovery. Vaccine execution risk, delayed fiscal stimulus and longer lockdowns are risks. But a few themes support stocks: the S&P 500 dividend yield is 3x the 10-year yield, and S&P 500 dividends are set to increase in 2021. And unlike bond yields, earnings are nominal and participate in inflationary upside – where inflation risks may be running higher, given rampant money-printing and a potential post-vaccine spike in demand. BAML picks value stocks over growth, cyclicals over defensives and small caps over large caps, given each of these groups’ likelihoods to be disproportionately boosted by a post-virus economic recovery.
• Goldman Sachs: $4300 - A vaccine is a more important development for the economy and markets than the prospective policies of a Biden presidency. The economic reopening coming alongside a vaccine, in tandem with a status quo policy environment cemented with a divided government, will help push the S&P 500 to 4,300 by year-end 2021 and then to 4,600 by the end of 2022. The forecast assumes that the Senate will remain under Republican control following the Georgia run-off elections in January, the economy will continue on a path toward a “V-shaped” recovery, corporate profits will rebound, Fed funds rate will hold near-zero and the yield curve will steepen while the 10-year Treasury yield climbs only modestly.
• Deutsche Bank: $3950 - Much of 2020’s run-up in the stock market came with multiples expansion, as prices escalated despite a drop in earnings, as companies dealt with fallout due to the coronavirus pandemic. Next year, as the economy recovers and a vaccine allows for long-lasting re-openings, earnings growth will rebound and multiples will de-rate. The pattern of the equity market recovery, bottoming halfway through recession and recouping most of its losses before it’s over, has been typical but the continued run-up means valuations are high. In our reading, elevated multiples reflect increased participation of retail investors which we see as sustaining, but we expect the multiple to begin to de-rate. For 2021, a recovery in earnings — which essentially increases the denominator of the price-earnings ratio — should lower multiples. That said, an increase in companies’ payout ratios as dividends and buybacks return could at least partially offset this. A gradual correction of overvaluation argues for the current overvaluation of 5 multiple points to diminish but remain significant at 3.6 points, putting the end-2021 multiple at 20.5X.
• Jefferies: $4200 - Improving prospects for a vaccine, easy lending conditions and broader participation among cyclical and value stocks will help propel the stock market higher in 2021. November’s historic stock market rally, led by cyclical and value stocks in the energy, financials and industrials sectors, reflected broadening equity strength beyond just big tech and software shares. That rotation is anticipated to continue into next year, helping push the broader market higher. Notwithstanding the second and third Covid-19 waves permeating the world, there is a palpable feeling that the global economy is resynchronizing with the household, corporate and government balance sheets expanding simultaneously alongside aggressive monetary policy. The much-maligned value and cyclical growth sectors are slowly making a comeback as inflation pressures begin to return. This rotation has been supported by a steepening in the yield curve and with growthier stocks trading sideways. Improved visibility towards a successful coronavirus vaccine, easier lending conditions, little evidence of deflation and a sentiment switch from growth to value will lift US bank shares through 2021. Rising global capacity utilization rates, firmer producer prices, improving world trade volume, booming housing/autos and a weak dollar are the perfect environment for the S&P 500 Industrials. The S&P 500 materials sector is blowing off in response to a weak dollar, higher commodity prices, an upswing in global manufacturing and a restocking cycle.
• CSFB: $4050 - Our 2021 forecasts are designed to answer a simple question: what the future will (2022) look like in the future (end of 2021). From this perspective, we are forced to de-emphasize the near-term, focusing instead on the return to a more normal world. As we look toward 2022, the virus will be a fading memory, the economy robust, but decelerating, the yield curve steeper and volatility lower, and the rotation into cyclicals largely behind us. Since the stock market discounts future events, each of these prospects for further improvement down the line should translate into a higher S&P 500 as investors price in these events.
• UBS: $4100 - The vaccine-related developments that drove stocks’ gains in November and early December have now been baked into market expectations, leaving vaccine distribution the next milestone for equity investors to consider in 2021. The key driver of U.S. equities will be the pace of vaccinations, similar to how shifts in mobility drove equities through the spring and summer. As people get vaccinated, they are likely to ‘normalize’ spending on areas impacted by COVID shortly thereafter. We see the rotation toward cyclical services spending and other COVID-hit areas as a key investment theme for 2021. UBS is overweight the consumer discretionary, industrials and energy sectors given that consumption and production will likely rebound next year. It downgraded materials and financials to Neutral. It is also Underweight consumer staples, utilities and REITs and Neutral on information technology, but overweight communication services and health care on still attractive growth relative to valuations. UBS maintained an upside case for the S&P 500 of 4,400, which would emerge in the case of higher-than-baseline growth against a backdrop of still-low interest rates. However, in a downside case, the S&P 500 could fall to 3,300, which would entail a weaker recovery and/or tighter financial conditions.
• BMO Capital: $4200 - Heading into 2021, stocks are poised to keep reaping the benefits of the massive infusion of monetary support from the Federal Reserve, along with an anticipated additional round of fiscal stimulus. This constructive policy environment is likely to help push equities higher even as virus concerns linger for at least the first several months of the new year. Even with recent positive vaccine and treatment developments, the global pandemic and its unprecedented impact is unlikely to fade in coming months. As such, the massive fiscal and monetary response in the U.S. and around the world (also unprecedented) will likely remain in place to combat its negative economic impact for the foreseeable future. Such environments have historically supported continued stock market gains and we see no reason why 2021 will be any different. Aside from the global financial crisis, 2020 represented the swiftest quarter-over-quarter earnings collapse for the S&P 500 where index EPS plummeted nearly 50% during 1Q, thus, we anticipate that 2021 has the potential to be one of the best years ever in terms of earnings growth, something we believe will also help to push stock prices higher. We remain optimistic and expect another year of double-digit gains as the economy and society slowly transition back to normal.
• Barclays: $4000 - Markets are right to be optimistic about the global economic outlook in 2021, with growth returning and inflation rising but staying below central bank targets. Projected global gross domestic product growth of 5.6% in 2021, rebounding from a 3.6% contraction this year, with most Western economies reaching so-called herd immunity from Covid-19 in the second and third quarters of the year. Forecasts reflected the recent slew of positive vaccine results with efficacy rates exceeding expectations, which point to a significant boost for growth in the second quarter of 2021. Barclays also suggested the inflation outlook would not indicate any unwinding of current unprecedented levels of central bank support. Labor markets are recovering, but we are still at very high unemployment, so there is undeniably a lot of slack in the system. That means that when it comes to core inflation and the underlying drivers, to wage costs etc., that was unlikely to happen in the short run, meaning even next year. It would take several years really to come back. While Barclays anticipates a gradual improvement in inflation, it will not be significant enough to cause central banks to consider tightening their accommodative monetary policy stances. We have an environment whereby growth comes back, inflation stays relatively muted, and you have central banks continuing to support the recovery, and tightening is still far out.
• Oppenheimer: $4300 - The S&P 500 is likely to post another double-digit percentage gain in 2021 as the distribution of COVID-19 vaccines underpins a lasting economic recovery. This outcome is based on six key assumptions: First, that the public will expediently accept and receive COVID-19 vaccines and second, that equity investors will discount the success of the vaccines in reversing the disruptions brought on by the pandemic. Thirdly assumes that at least one of the two Senate seats in the Georgia runoff election will go to a Republican lawmaker, thereby retaining their control of the Senate and reducing (if not necessarily eliminating) the risk that the Biden administration will eradicate the corporate tax reform act of 2017. Fourth, the Federal Reserve will continue its low interest rate regime in tandem with accommodative monetary policy, and fifthly, that congressional lawmakers will step in with another round of fiscal stimulus by the first quarter of 2021 at the latest. Lastly, that investor appetite will continue to tilt toward “stocks that favor diversification and both growth and value segments of the market in a relatively low interest rate environment that favors equities, real assets and other asset classes over fixed income for intermediate and longer-term objectives. The vaccine rollout is arguably the most important in determining the trajectory of the S&P 500 next year. Ultimately the stock market is broadly dependent on economic growth to drive revenues and earnings across the sectors.
• JP Morgan: $4400 - Investors are entering 2021 against a confluence of market-positive events, including improving prospects for widespread vaccinations and sustained economic reopening, gridlock in Washington and accommodative central bank policy. Given the COVID-19 crisis, vaccine distribution is likely the linchpin event. But even with widespread vaccine availability still months away, optimism over early vaccine efficacy data has already sparked a rally among stocks hardest-hit by the pandemic. The equity market is facing one of the best backdrops for sustained gains in years. After a prolonged period of elevated risks (global trade war, COVID-19 pandemic, U.S. election uncertainty, etc.), the outlook is significantly clearing with the business cycle expanding and risks diminishing. We expect a ‘market nirvana’ scenario for equities with the melt-up continuing into 1H21, driven by earnings recovery and multiple expansion. Much of next year’s stock market rise is likely to come at the beginning of the year, as lingering uncertainties over vaccine distribution, the results of the Georgia senate race and additional monetary and fiscal stimulus start to dissipate. While the broader backdrop should still remain constructive in the second half of next year, by then the market will have likely priced in close to a full recovery and investors may start to expect a gradual shift in central bank forward guidance away from the current exceptionally accommodative stance.
• BTIG - $4000 - Global synchronized growth underpinned by central bank ease and a Washington which sees Election 2020’s decidedly mixed outcomes as a catalyst for cooperation (spend, it’s necessary) and centrist government (no tax hikes) results in a Redistribution of Wealth consistent with the 2003-06 synchronized reflation period where Value outperformed. Growth, Small Cap outperformed Large Cap, and International equities outperformed the S&P 500.

Gold:

• Monthly
• Gold had a solid year in 2020 gaining more than 20% as a long base breakout that triggered in June 2019 continued to play out higher and reached its measured move objective while the rally briefly broke above 2011 highs before pulling back. If we look at Fibonacci extension targets of the 2011-2015 correction GLD has upside targets at $207 and $220. The 2018-2020 rally has Fibonacci retracement support levels at $162.5 and $152.5. Gold rallied in 2020 on economic uncertainty and a flight to safety and has pulled back in Q4 with the greater optimism for 2021 taking hold. On an allocation basis, Gold may be losing some of its luster as a store of value with the momentum seen in Bitcoin , although that has not been seen to this point with global gold ETF inflows topping a record in 2020 as a way to diversify portfolios and hedge against inflation. However, November saw the second largest outflow on record. In 2020 the lockdowns resulted in a 5% decline in global output, so the supply-side is expected to rebound in 2021. Gold prices should be supported by inflationary pressures, a deep fiscal deficit and a weaker USD. Goldman sees Gold reaching $2300 in 2021 as recovery from the coronavirus-related recession fuels higher inflation next year. Further fuel could be added from a recovery in demand from India and China.

My bitcoin journey from 2013 to 2021

My bitcoin journey...so far…

In December 2012 a friend of mine gave me a single bitcoin as a gift. Bitcoin was worth $13 at the time. My friend had done a little bit of bitcoin mining so he had some from that.

I briefly looked into bitcoin, very briefly, and I dismissed it as just another kind of game currency, like world of warcraft gold, and I didn’t take it seriously.

A few months later that $13 bitcoin my friend had given me was worth $72 after the beginning of the first bull run of 2013.

This was my first experience in life holding an ‘investment’ and having it grow by like 5x in value. I had literally never experienced anything like that in my life, having virtually no experience as an investor other than contributing to a 401k and some rando fund.

So, I created a Coinbase account, transferred the one bitcoin my friend had given me, and then I sold it and used the money to go out for a nice dinner.

This would have been the end of my bitcoin career except that the experience, of holding an investment and watching it go up in value, was such a new one that I kind of started messing around with it in 2013.

From around April of 2013 until November I was buying bitcoin. By November the price of bitcoin had risen to $350 which was a substantial return on my investment over a short period of time (my average buy price was around $80). As I was new to any kind of speculative investing, I was constantly asking my friends who had large investment portfolios for advice. Their advice, universally, was that I was an idiot for not selling all of it immediately. They were constantly on me about it and, by that point, I had invested over $15,000 in bitcoin which, at the time, was a lot of money to me and my family; especially to have invested in something that seemed ‘not entirely real’ and extremely high risk.

So, due to peer pressure, in November of 2013 I sold 50 bitcoin at around $350 apiece. This allowed me to take back my ‘original investment’ so no matter what, the remaining bitcoin I held would always be pure profit. I took the proceeds and bought myself the nicest sports car I had ever owned, a 1996 Acura NSX-T (the bitcoin I sold didn’t pay for the entire car but it helped).

Shortly after I sold those bitcoin the price skyrocketed and briefly touched $1,000 and then MtGox happened and it all collapsed. During this time period I started studying bitcoin seriously. I downloaded and reviewed the source code to the point that I felt like I had a reasonable understanding of it. I started writing my own software to analyze the bitcoin blockchain so I could better understand it as well.

By this time I truly understood how revolutionary the invention was, but I always felt that it was at risk from government regulation or just outright being declared illegal.

Another result of my having sold those bitcoin at a profit, was a realization on my part that I should take investing more seriously and also diversify what I was investing in.

Around that same time I purchased two ounces of physical gold. I figured that for the same reason I was interested in bitcoin as sound money, I should also hold some physical gold too. So, I bought two ounces of gold at around $1,300 an ounce each; so a total of $2,600 which at the time could have bought me about seven bitcoin, which, today, would be worth $200k while the two ounces of gold (I still have to this day) are only worth $3,800.

One of the most significant changes in my life at this same exact time, which I 100% credit to my friend Billy giving me that first bitcoin, was that I decided to start investing in the stock market. Until November of 2013 I had never directly owned a single share of stock in my life. I only had contributed to a 401k which offered me just some generic retirement fund which made barely any money at all.

Had I not ‘gotten into’ bitcoin, I never would have ‘gotten into’ stock trading. Had I not learned the importance of holding, I would not have applied that to my stock holdings as well. Had I not learned about markets, and how markets are just reflections of the emotion and feelings of the investors, I would have never become such a confident investor and trader.

The point here is that the biggest benefits I got from bitcoin were actually when I applied lessons learned from it onto markets in general. Bitcoin is a serious bootcamp in learning how markets behave. Raw, unfiltered, running 24/7 on pure hype and speculation. We have all heard about how stock traders moved over to bitcoin to translate their knowledge to this new market but, for some of us, it went the other way. We took the lessons we learned from the bitcoin markets and then applied them to speculative stocks in the stock market such as TSLA for example.

Not much happened with me and bitcoin during the years 2014 and 2016. I pretty much just held bitcoin. During that time I was also trading stocks in the stock market and began taking over control of my entire company sponsored 401k and began trading it. I utilized TSLA, GBTC, and other speculative assets to churn a lot of profit. I started out with barely $100k in my 401k and managed to grow it each year with returns far, far, exceeding the market. I have now managed to grow my retirement accounts large enough that I should be able to retire comfortably without needing a single satoshi of bitcoin to back it up.

Now, had I simply bought TSLA and GBTC, held it, and never touched it, I would have realized much greater returns, but since these were my retirement accounts I was much more cautious and I tried to limit the size and time I would spend exposed to the volatility of any single asset.

In January 2017 bitcoin hit $1,000; three years for it to retake the all-time-high from the MtGox days. My bitcoin was now worth a lot of real-world money. At that time my two adult children had a substantial amount of student loan debt; over $100k between the two of them. And, here I was, sitting on more than that from my silly bitcoin investment.

So, I made a big decision to sell enough bitcoin to pay off my kid’s student loans. This truly was life changing for them. Student loans are extremely predatory and are designed to keep a young person in shackles for a lifetime. Being able to do this for my kids meant a great deal to me.

This was the second time I sold a large chunk of bitcoin at once; the first being at $350 in November of 2013 to buy a sports car.

In November of 2017 bitcoin was really on a tear. It hit $7,000 which was just mind boggling to me. Also, in November of 2017, Tesla announced the new Tesla Roadster. I had just recently purchased the original Tesla Roadster and I was in love with the car. To get a reservation for the new Tesla Roadster required a deposit of $50k. Now, I was sitting on a whole lot more than that in bitcoin. And I had now been holding it for over four years. I figured, I would get just as much enjoyment fantasizing about my new sports car as I would watching my bitcoin sit in cold storage. So, I sold six bitcoin at around $7k apiece to pay for the deposit on the new Tesla Roadster.

A little math comparison:

Had I held those six bitcoin until today, they would now be worth $174,000. But, if I had bought shares of TSLA instead it would be worth roughly $577,000. There’s a lesson to be had here; and it is that you can make more money trading a speculative stock than you can bitcoin if you find the right stock at the right time.

At the all-time-high price the bitcoin I held was worth almost three million dollars. This was enough money to retire for life with a really nice lifestyle even after taxes. The price was only that high for a very brief period of time. I wanted to sell a chunk at those high price levels, but I also wanted to wait until the new tax year. By the time 2018 came, the bitcoin price started going down and I thought, no point in selling now, wait until it goes back up again. Then it kept going down. And kept going down. And kept going down. Until Thanksgiving weekend 2018 when it crashed to nearly $3,000. And I watched my ‘paper profit’ slip away from enough to retire for life down to, not nearly enough to accomplish anything like that.

I held through this entire period of time, the whole time fully expecting bitcoin could well go to zero. This was the hardest holding period of my time with bitcoin.

So, I just stuck with it and kept holding. In the summer of 2019 the price of bitcoin finally started going up again. It got above $10k and then started climbing towards $14k. I was very excited with this development and I was enjoying watching my bitcoin paper-profit grow.

Then, a series of events happened in a very short period of time which caused me to lose my nerve. It wasn’t just one thing. It was a collection of them. During a single week period in the summer of 2019 the president of the United States made negative comments about bitcoin. Then the treasury secretary made extremely hostile remarks about bitcoin. Then the congress held hearings about bitcoin with the usual fear and demonization that comes with it. Then the IRS started sending out nasty letters to everyone who had cryptocurrency holdings.

Then, coinciding with this series of events, the price of bitcoin started crashing. From $13k it started falling. It started dropping below $10k and was heading lower still. The letter from the IRS, the comments from the government, and now the price dropping reminding me of that fateful Thanksgiving weekend of 2018, and I was like ‘not again’.

Another thing that happens when you are a really long term holder without taking profit is that the bitcoin wealth sometimes doesn’t ‘seem real’. Until you have successfully transferred it to an exchange, executed a sell order, and had that money hit your checking account in the form of fiat that you can use to pay off debt or make other investments, it just doesn’t always ‘seem real’. You can even get paranoid. What happens if I lose my keys? What happens if I make a mistake? What happens if I get hacked?

Another thing that was happening in my life at this same time is that I had made the decision to build a new house. With my bitcoin, I was going to be able to build my house and also be able to retire in a couple of years (I am 59 years old so it's not like I'm trying to retire obscenely early). I started imagining what would happen if my bitcoin became worthless. I realized that I wouldn’t be able to retire. Yes, I could still finish my house but I might have to keep working for another five years or more, and I really didn’t want to do that.

All of these things together led me into a panic and for the first time I ‘panic sold’ some of my bitcoin. I ended up selling half of my bitcoin and successfully transferred the proceeds to pay off debt and diversify into other investments.

I’ve had a lot of time to think about it, and at the end of the day I don’t regret the decision. It was the right decision at that time. Also, the price of bitcoin did continue to drop after that, so I did after-all capture profit. And, with the money I received from selling half of my bitcoin, I paid off two mortgages and guaranteed that I could complete my new house and still retire on my original schedule.

There was another side effect from that decision as well. I had always planned to take profit whenever bitcoin reached it’s previous all time high around $20k. I ended up taking profit at $10k instead of $20k, but it was always my intention to take profit at some point.

So, the bitcoin I have remaining, I have felt no temptation to sell even at the current price levels. In fact, I have no intention or need to sell any of my bitcoin at all. I can now hold forever. I never have to ‘take profit’ again. Also, if I woke up tomorrow and all of my bitcoin was gone, it would not affect my life at all. I have a sufficiently diversified portfolio that I would still be fine without it. All of this was possible because I did take profit before. So, the point here, is that sometimes taking profit at the right time can make holding your remaining bitcoin forever much easier.

That said, I do plan to sell some bitcoin. Wealth that you never use is kind of pointless if you ask me. In retirement your budget is critical. And the single most important retirement budget item is also the easiest one to eliminate. One of the most important things to me in retirement is travel. But, your travel budget is the single most flexible item. Your travel budget could be limited to places you can drive in your car and stay somewhere cheap. Or, it could be a first class trip around the world staying in five star hotels. The budget for the first is measured in hundreds of dollars and the latter in tens of thousands. So, I have decided that my travel budget in retirement will come from bitcoin. The more bitcoin is worth, the better a vacation I can take each year. The less it is worth, well, I guess it’s the local campground.

As of today I hold about 30% of my entire investment portfolio in bitcoin; and I think that is quite enough for now. If I ever reached the point where bitcoin was about 60% of my portfolio again, I might sell some to diversify. But, for now, I’m back to just long term holding.

Everyone’s journey in bitcoin is different. I never really messed with alt-coins. Not that I didn’t try a couple of times, but I quickly realized that anytime I bought an alt-coin I was just betting that it would do better than bitcoin and, frankly, I never believed that to be true. I only tried trading a couple of times, and I quickly realized that is just a way to end up with less bitcoin than you started with, so I stuck with holding. I most certainly never did any leveraged trading at all.

What I have learned is that it’s really, really, hard to hold long term. And, even though I constantly think about how much money I would have had I kept all of my bitcoin or made better trading decisions, the bottom line is that I came out way ahead of the game which is more than a lot of people can say.

I guess the takeaway lessons of my experience boil down to:

​

• Don’t trade, just hold
• Don’t ever, ever, ever, sell all of your bitcoin. If your bitcoin is worth two million, then sell one million and keep the rest. But do not sell it all!
• Take the lessons you learn from bitcoin and apply them to investing in general

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2021 Market and Economic Outlook

SPX Monthly Chart:

• The market basically closed the year at ATH (3pts off) and is within a hair of 3855, which is the 138.2% Fib of the March low.
• The rising monthly channel (shown above) shows that markets are stretched near resistance and already outside of their bollinger bands. The weekly band is at 3774.
• While I believe there is room for upside into 2021, the risk/reward is NOT favorable here anymore. Sentiment is stretched and a correction would be welcomed with open arms.
• I anticipate a 10-15% correction to start the year, which would align us with the rising 200dma near 3219. We ended the year in a tight range, and there is potential to carry into 3855 based on January 15 open interest and gamma positioning.

Last few days I have been selling stocks and calls aggressively in anticipation of a correction. I am long TLT calls (flat) and SPY puts (down 37%).

Sentiment:

• The AAII Sentiment Survey is quite elevated near multi-year highs and shows overly bullish sentiment.
• The Advisors Sentiment Report reports the views of over 120 independent investment newsletters (those not affiliated with brokerage houses or mutual funds) and reports the findings as the percentage of advisors that are bullish, those bearish and those that expect a correction. The current Bull to Bear spread is one of the highest in decades, yet another indication of frothy sentiment.
• The NAAIM Exposure Index is currently at 89 and off some 100+ prints but remains elevated to the averages.

• The BAML Fund Manager Survey shows the three most crowded trades are:

  • Long Tech via shares
  • Short USD
  • Long Bitcoin Spot via Perpetual Swaps
  • Fund managers are "all-in" on leverage. This is evidenced by our DIX print on Thursday yet again showing dark pool buying.

• Consumer Confidence deteriorated sharply in December, as the resurgence of COVID-19 "remains a drag on confidence.”

• CEO Confidence, as tracked by the Bloomberg Consumer Comfort Index hit a two week low at 47. This is the sharpest drop in economic outlook since April.

Market Health:

• NYSE Cumulative Adv/Dec:

  • Actually pretty healthy right now. This is still well above all of its important moving averages and remains in an uptrend.

• NYSE McClellan Oscillator:

  • Neutral currently.

• NYSE Summation Index (NYSI):

  • Most commonly used by fund managers to find divergences. Above a short term 5/8 day exponential moving average is a buy signal. Below flashes a short term sell signal. This is currently showing a sell signal. However, sell signals in rallies tend to be early signals...

• Moving Averages:

  • The 8/21-week EMA crossover has long been a favorite signal for momentum in individual names and also works with Indices. The 21-week EMA is important support for growth/momentum stocks. In general, you want to be long when the 8 week is above the 21 week and short when it is below with crossovers being key trend inflection signals. The 12-month moving average (MA) and monthly MACD are good longer-term risk management tools. The price action relative to the 200-week MA provides a good gauge for the health of the S&P 500’s secular trend. Pullbacks or corrections (aka cyclical bear markets) for the S&P 500 that hold above or near the rising 200-week MA are a secular bull market pattern. Pullbacks that decisively break the 200-week MA are a sign of a secular bear market. Most corrections on the S&P 500 during the 1950-1966 and 1980-2000 secular bull market held between the 100-week MA and the 200-week MA. The 2015-2016 S&P 500 pullback fit this secular bull market correction pattern. The secular bear market periods from 1929-1950, 1966-1980, and 2000-2013 saw sustained periods below these long-term moving averages. This means that the 200-week MA provides a good secular bull market risk management tool or stop loss. Using this history as a guide suggests that the Ichimoku monthly cloud is a good trailing secular bull market stop loss. History also suggests that a decisive move below the monthly cloud confirms a secular bear market for US equities. Currently we are above all moving averages and this is a bullish signal.

Economics:

• The common theme appears to be an expectation of a synchronized global growth in 2021.
• The optimism on 2021 delivering a record year for corporate profit growth and strong GDP growth around the globe is very contingent on a successful vaccine rollout. The current surge of cases and hospitalizations in the US and Europe is resulting in further restrictions and lockdowns that will weigh on growth expectations, or at least push out pent-up demand. Consumers have led the recovery so far with a boost from fiscal stimulus but the key to a self-sustained recovery is a strong capex cycle which is seen kicking off in Q2 2021. The labor market will also be in focus after record low unemployment the pandemic saw the number jump to 14.7% in April, the highest since the Great Depression, but has recovered rapidly though losing some momentum as it finished the year near 6.5% unemployment and consensus expectations to reach 5% by the end of 2021, still far-off from the 3.5% pre-crisis rate.
• The recovery has already started in 2H20 in the US & China while the European recovery has been more subdued. The driver of the strong 2021 recovery will be the full reopening of economies worldwide which makes a successful vaccine distribution critical. The US Dollar is closing 2020 weak and looks to have some structural issues with surging deficits, Fed’s intention to boost inflation, easy financial conditions, and expected economic and political improvements. The combination of easy monetary policy, a rebound in old economy industries and a global upswing in growth provides a healthy backdrop for 2021. The balance sheets of households, corporate and governments are expanding alongside the aggressive monetary policy and signs of inflation returning causing a rotation back to value and cyclical growth supported by a steepening yield curve.
• GDP is seeing rising 6.4% globally in 2021 according to Morgan Stanley, the consensus is for 5.4% growth. In the US those numbers are 5.9% and 3.8% respectively.
• Inflation would be the key risk into 2021 with it likely to start showing up in 2H21, and the risk being an overshoot could start a disruptive shift in Fed policy. Surging debt remains another concern, as a share of U.S. GDP, total debt has spiked near a record high and total nonfinancial debt has surged to new all-time highs. The rapid increase in government deficits is due to the combination of 1) the budget shortfall that already existed and was growing, plus 2) the deficit spending to fund the stimulus programs to date.
• The other clear risk in 2021 is China where debt defaults are rising and could spark a move to credit tightening and a recession that would strangle the global recovery. The overall default rate is currently low but the percentage spike in debt/GDP was the highest since 2009 which could lead to policy tightening in 2021.

Market Valuation and Fundamentals:

• The NASDAQ continue to outperform in 2020 with a 45%+ YTD return compared to the S&P at +15% as major secular trends in technology continue to play out. The trend of rapid rotational moves also continue with growth often seeing selling pressure for a few days before quickly recovering and resuming the longer-term uptrends. Into 2021 earnings growth is expected to be a record though room for multiple expansion is minimal. A combination of improving economic conditions causing greater business and consumer confidence should drive strong earnings growth in 2021. Increased fiscal spending and a moderation of tariffs provide additional tailwinds. In 2020 many businesses shedded labor and transformed business models to higher productivity to offset the collapse in demand and low inventories with rebounding production point to margin expansion in 2021. The 2021 environment shapes up to be one of solid earnings growth, a return of buybacks and modest multiple contraction. The growth versus value debate is likely to continue but the low-rate environment continues to favor growth, but even more-so a greater preference for quality, companies with strong balance sheets, cash flow generation, and returns on capital should continue to outperform. We are seeing historically strong earnings revision ratios and a record percentage of stocks with dividend yields above the rate of the ten-year Treasury, both conducive to allocations to equities. Compared to bonds, equities can act as a hedge in case of inflation and, with a thorough selection process, can still offer returns closer to historical returns.
• My forecasts for 2021 take into account consensus expectations, a bull case for a strong vaccine rollout, and a bear case for disruptions to the vaccine rollout and geopolicatical potential issues. I am assigning a 40% probability for the bull case, 40% for the base case, and 20% for the bear case to arrive at a S&P fair value of 3600 though 1H21. In 2H21 we start to look to 2022 estimates and feel we can approach $200 EPS with slight multiple contraction to 22X leaving upside potential to 4400 for year-end 2021.

https://imgur.com/a/QqPjfbU

• For 2021, the bottom-up EPS estimate (which reflects an aggregation of the median EPS estimates for CY 2021 for all of the companies in the index) is $169.20. For CY 2021, analysts are projecting earnings growth of 21.7% and revenue growth of 7.7%. The 6% trend growth rate since the 1930s would point to S&P 500 EPS getting back to trend levels of $187 in 2022. An optimistic vaccine scenario would see S&P 2022 EPS well above $200.

https://imgur.com/a/lLhmsb3

• The low rate environment impacts the multiple, and assuming the 10-year stays low, the Fed keeps rates at zero, and credit spreads stay firm, a valuation framework would put a trailing PE at 24X and forward at 21.5X for the current environment. The spread between the S&P dividend yield versus the corporate Baa bond yield is near historical highs and the ERP (Equity Risk Premium) is very high by many measures. Assuming the spread between the dividend yield and IG corporate yield goes back to 2012-19 levels, it would point to 30%- plus upside for S&P 500 valuations. Assuming some rise in rates as the spread narrows more from falling equity yields would point to 20%-plus upside. In 2021, policy support should remain in place to curtail risk aversion. Besides the risk of a credit crisis, concerns over a late-cycle overheating have been pushed further out due to the pandemic-induced recession and policy makers’ increased inflation tolerance. When comparing relative attractiveness across asset classes, which ultimately steers a substantial part of investment flows, equity markets continue to look quite attractive. Since the beginning of 2020, real bond yields in the USA have declined by over 100 basis points, outpacing the decline in earnings yields (inverse of the price-earnings ratio), thus supporting higher valuation multiples. Currently the difference between the earnings yield and the real bond yield as a measure for the equity risk premium (ERP) is higher than the long-term average, suggesting that equities offer an attractive excess return over bonds. Although lower interest rates support higher multiples due to the increase value of future earnings, a return to normal could push long-term interest rates higher and exert downward pressure on equity valuation multiples.

Sector Growth Rates

Analyst 2021 Predictions:

• Morgan Stanley: $3900 - After a year of big swings in valuations, 2021 will be about who can deliver on earnings. 2020 was all about beta and understanding how equity markets trade in and around a recession that handed us the fattest pitch we’ve seen in a decade. 2021 will be much more about stock picking (alpha) and should favor those companies that can deliver earnings growth that isn’t already expected or priced. MSCO prefers companies with earnings growth most tied to re-openings and an economic recovery and also favors small caps. Financials are also preferred due to positive upside skew on rising rates and better credit; Materials and Industrials on demand rebound, earnings leverage and inflation protection; and Health Care given its GARP characteristics and re-rating potential with fading political overhangs.
• Bank of America: $3800 - Stocks have already priced in much of the expected recovery in the economy and corporate profitability, leaving just slightly more upside heading into next year. Even as investors ride a wave of vaccine-related optimism, potential negative catalysts abound. The recovery is intact and the world likely reopens in the 2H, but a lot of optimism is priced in already on vaccine/recovery. Vaccine execution risk, delayed fiscal stimulus and longer lockdowns are risks. But a few themes support stocks: the S&P 500 dividend yield is 3x the 10-year yield, and S&P 500 dividends are set to increase in 2021. And unlike bond yields, earnings are nominal and participate in inflationary upside – where inflation risks may be running higher, given rampant money-printing and a potential post-vaccine spike in demand. BAML picks value stocks over growth, cyclicals over defensives and small caps over large caps, given each of these groups’ likelihoods to be disproportionately boosted by a post-virus economic recovery.
• Goldman Sachs: $4300 - A vaccine is a more important development for the economy and markets than the prospective policies of a Biden presidency. The economic reopening coming alongside a vaccine, in tandem with a status quo policy environment cemented with a divided government, will help push the S&P 500 to 4,300 by year-end 2021 and then to 4,600 by the end of 2022. The forecast assumes that the Senate will remain under Republican control following the Georgia run-off elections in January, the economy will continue on a path toward a “V-shaped” recovery, corporate profits will rebound, Fed funds rate will hold near-zero and the yield curve will steepen while the 10-year Treasury yield climbs only modestly.
• Deutsche Bank: $3950 - Much of 2020’s run-up in the stock market came with multiples expansion, as prices escalated despite a drop in earnings, as companies dealt with fallout due to the coronavirus pandemic. Next year, as the economy recovers and a vaccine allows for long-lasting re-openings, earnings growth will rebound and multiples will de-rate. The pattern of the equity market recovery, bottoming halfway through recession and recouping most of its losses before it’s over, has been typical but the continued run-up means valuations are high. In our reading, elevated multiples reflect increased participation of retail investors which we see as sustaining, but we expect the multiple to begin to de-rate. For 2021, a recovery in earnings — which essentially increases the denominator of the price-earnings ratio — should lower multiples. That said, an increase in companies’ payout ratios as dividends and buybacks return could at least partially offset this. A gradual correction of overvaluation argues for the current overvaluation of 5 multiple points to diminish but remain significant at 3.6 points, putting the end-2021 multiple at 20.5X.
• Jefferies: $4200 - Improving prospects for a vaccine, easy lending conditions and broader participation among cyclical and value stocks will help propel the stock market higher in 2021. November’s historic stock market rally, led by cyclical and value stocks in the energy, financials and industrials sectors, reflected broadening equity strength beyond just big tech and software shares. That rotation is anticipated to continue into next year, helping push the broader market higher. Notwithstanding the second and third Covid-19 waves permeating the world, there is a palpable feeling that the global economy is resynchronizing with the household, corporate and government balance sheets expanding simultaneously alongside aggressive monetary policy. The much-maligned value and cyclical growth sectors are slowly making a comeback as inflation pressures begin to return. This rotation has been supported by a steepening in the yield curve and with growthier stocks trading sideways. Improved visibility towards a successful coronavirus vaccine, easier lending conditions, little evidence of deflation and a sentiment switch from growth to value will lift US bank shares through 2021. Rising global capacity utilization rates, firmer producer prices, improving world trade volume, booming housing/autos and a weak dollar are the perfect environment for the S&P 500 Industrials. The S&P 500 materials sector is blowing off in response to a weak dollar, higher commodity prices, an upswing in global manufacturing and a restocking cycle.
• CSFB: $4050 - Our 2021 forecasts are designed to answer a simple question: what the future will (2022) look like in the future (end of 2021). From this perspective, we are forced to de-emphasize the near-term, focusing instead on the return to a more normal world. As we look toward 2022, the virus will be a fading memory, the economy robust, but decelerating, the yield curve steeper and volatility lower, and the rotation into cyclicals largely behind us. Since the stock market discounts future events, each of these prospects for further improvement down the line should translate into a higher S&P 500 as investors price in these events.
• UBS: $4100 - The vaccine-related developments that drove stocks’ gains in November and early December have now been baked into market expectations, leaving vaccine distribution the next milestone for equity investors to consider in 2021. The key driver of U.S. equities will be the pace of vaccinations, similar to how shifts in mobility drove equities through the spring and summer. As people get vaccinated, they are likely to ‘normalize’ spending on areas impacted by COVID shortly thereafter. We see the rotation toward cyclical services spending and other COVID-hit areas as a key investment theme for 2021. UBS is overweight the consumer discretionary, industrials and energy sectors given that consumption and production will likely rebound next year. It downgraded materials and financials to Neutral. It is also Underweight consumer staples, utilities and REITs and Neutral on information technology, but overweight communication services and health care on still attractive growth relative to valuations. UBS maintained an upside case for the S&P 500 of 4,400, which would emerge in the case of higher-than-baseline growth against a backdrop of still-low interest rates. However, in a downside case, the S&P 500 could fall to 3,300, which would entail a weaker recovery and/or tighter financial conditions.
• BMO Capital: $4200 - Heading into 2021, stocks are poised to keep reaping the benefits of the massive infusion of monetary support from the Federal Reserve, along with an anticipated additional round of fiscal stimulus. This constructive policy environment is likely to help push equities higher even as virus concerns linger for at least the first several months of the new year. Even with recent positive vaccine and treatment developments, the global pandemic and its unprecedented impact is unlikely to fade in coming months. As such, the massive fiscal and monetary response in the U.S. and around the world (also unprecedented) will likely remain in place to combat its negative economic impact for the foreseeable future. Such environments have historically supported continued stock market gains and we see no reason why 2021 will be any different. Aside from the global financial crisis, 2020 represented the swiftest quarter-over-quarter earnings collapse for the S&P 500 where index EPS plummeted nearly 50% during 1Q, thus, we anticipate that 2021 has the potential to be one of the best years ever in terms of earnings growth, something we believe will also help to push stock prices higher. We remain optimistic and expect another year of double-digit gains as the economy and society slowly transition back to normal.
• Barclays: $4000 - Markets are right to be optimistic about the global economic outlook in 2021, with growth returning and inflation rising but staying below central bank targets. Projected global gross domestic product growth of 5.6% in 2021, rebounding from a 3.6% contraction this year, with most Western economies reaching so-called herd immunity from Covid-19 in the second and third quarters of the year. Forecasts reflected the recent slew of positive vaccine results with efficacy rates exceeding expectations, which point to a significant boost for growth in the second quarter of 2021. Barclays also suggested the inflation outlook would not indicate any unwinding of current unprecedented levels of central bank support. Labor markets are recovering, but we are still at very high unemployment, so there is undeniably a lot of slack in the system. That means that when it comes to core inflation and the underlying drivers, to wage costs etc., that was unlikely to happen in the short run, meaning even next year. It would take several years really to come back. While Barclays anticipates a gradual improvement in inflation, it will not be significant enough to cause central banks to consider tightening their accommodative monetary policy stances. We have an environment whereby growth comes back, inflation stays relatively muted, and you have central banks continuing to support the recovery, and tightening is still far out.
• Oppenheimer: $4300 - The S&P 500 is likely to post another double-digit percentage gain in 2021 as the distribution of COVID-19 vaccines underpins a lasting economic recovery. This outcome is based on six key assumptions: First, that the public will expediently accept and receive COVID-19 vaccines and second, that equity investors will discount the success of the vaccines in reversing the disruptions brought on by the pandemic. Thirdly assumes that at least one of the two Senate seats in the Georgia runoff election will go to a Republican lawmaker, thereby retaining their control of the Senate and reducing (if not necessarily eliminating) the risk that the Biden administration will eradicate the corporate tax reform act of 2017. Fourth, the Federal Reserve will continue its low interest rate regime in tandem with accommodative monetary policy, and fifthly, that congressional lawmakers will step in with another round of fiscal stimulus by the first quarter of 2021 at the latest. Lastly, that investor appetite will continue to tilt toward “stocks that favor diversification and both growth and value segments of the market in a relatively low interest rate environment that favors equities, real assets and other asset classes over fixed income for intermediate and longer-term objectives. The vaccine rollout is arguably the most important in determining the trajectory of the S&P 500 next year. Ultimately the stock market is broadly dependent on economic growth to drive revenues and earnings across the sectors.
• JP Morgan: $4400 - Investors are entering 2021 against a confluence of market-positive events, including improving prospects for widespread vaccinations and sustained economic reopening, gridlock in Washington and accommodative central bank policy. Given the COVID-19 crisis, vaccine distribution is likely the linchpin event. But even with widespread vaccine availability still months away, optimism over early vaccine efficacy data has already sparked a rally among stocks hardest-hit by the pandemic. The equity market is facing one of the best backdrops for sustained gains in years. After a prolonged period of elevated risks (global trade war, COVID-19 pandemic, U.S. election uncertainty, etc.), the outlook is significantly clearing with the business cycle expanding and risks diminishing. We expect a ‘market nirvana’ scenario for equities with the melt-up continuing into 1H21, driven by earnings recovery and multiple expansion. Much of next year’s stock market rise is likely to come at the beginning of the year, as lingering uncertainties over vaccine distribution, the results of the Georgia senate race and additional monetary and fiscal stimulus start to dissipate. While the broader backdrop should still remain constructive in the second half of next year, by then the market will have likely priced in close to a full recovery and investors may start to expect a gradual shift in central bank forward guidance away from the current exceptionally accommodative stance.
• BTIG - $4000 - Global synchronized growth underpinned by central bank ease and a Washington which sees Election 2020’s decidedly mixed outcomes as a catalyst for cooperation (spend, it’s necessary) and centrist government (no tax hikes) results in a Redistribution of Wealth consistent with the 2003-06 synchronized reflation period where Value outperformed. Growth, Small Cap outperformed Large Cap, and International equities outperformed the S&P 500.

Gold:

• Monthly
• Gold had a solid year in 2020 gaining more than 20% as a long base breakout that triggered in June 2019 continued to play out higher and reached its measured move objective while the rally briefly broke above 2011 highs before pulling back. If we look at Fibonacci extension targets of the 2011-2015 correction GLD has upside targets at $207 and $220. The 2018-2020 rally has Fibonacci retracement support levels at $162.5 and $152.5. Gold rallied in 2020 on economic uncertainty and a flight to safety and has pulled back in Q4 with the greater optimism for 2021 taking hold. On an allocation basis, Gold may be losing some of its luster as a store of value with the momentum seen in Bitcoin , although that has not been seen to this point with global gold ETF inflows topping a record in 2020 as a way to diversify portfolios and hedge against inflation. However, November saw the second largest outflow on record. In 2020 the lockdowns resulted in a 5% decline in global output, so the supply-side is expected to rebound in 2021. Gold prices should be supported by inflationary pressures, a deep fiscal deficit and a weaker USD. Goldman sees Gold reaching $2300 in 2021 as recovery from the coronavirus-related recession fuels higher inflation next year. Further fuel could be added from a recovery in demand from India and China.

2021 Market and Economic Outlook

SPX Monthly Chart:

• The market basically closed the year at ATH (3pts off) and is within a hair of 3855, which is the 138.2% Fib of the March low.
• The rising monthly channel (shown above) shows that markets are stretched near resistance and already outside of their bollinger bands. The weekly band is at 3774.
• While I believe there is room for upside into 2021, the risk/reward is NOT favorable here anymore. Sentiment is stretched and a correction would be welcomed with open arms.
• I anticipate a 10-15% correction to start the year, which would align us with the rising 200dma near 3219. We ended the year in a tight range, and there is potential to carry into 3855 based on January 15 open interest and gamma positioning.

Last few days I have been selling stocks and calls aggressively in anticipation of a correction. I am long TLT calls (flat) and SPY puts (down 37%).

Sentiment:

• The AAII Sentiment Survey is quite elevated near multi-year highs and shows overly bullish sentiment.
• The Advisors Sentiment Report reports the views of over 120 independent investment newsletters (those not affiliated with brokerage houses or mutual funds) and reports the findings as the percentage of advisors that are bullish, those bearish and those that expect a correction. The current Bull to Bear spread is one of the highest in decades, yet another indication of frothy sentiment.
• The NAAIM Exposure Index is currently at 89 and off some 100+ prints but remains elevated to the averages.
• The BAML Fund Manager Survey shows the three most crowded trades are:
  • Long Tech via shares
  • Short USD
  • Long Bitcoin Spot via Perpetual Swaps
  • Fund managers are "all-in" on leverage. This is evidenced by our DIX print on Thursday yet again showing dark pool buying.
• Consumer Confidence deteriorated sharply in December, as the resurgence of COVID-19 "remains a drag on confidence.”
• CEO Confidence, as tracked by the Bloomberg Consumer Comfort Index hit a two week low at 47. This is the sharpest drop in economic outlook since April.

Market Health:

• NYSE Cumulative Adv/Dec:
  • Actually pretty healthy right now. This is still well above all of its important moving averages and remains in an uptrend.
• NYSE McClellan Oscillator:
  • Neutral currently.
• NYSE Summation Index (NYSI):
  • Most commonly used by fund managers to find divergences. Above a short term 5/8 day exponential moving average is a buy signal. Below flashes a short term sell signal. This is currently showing a sell signal. However, sell signals in rallies tend to be early signals...
• Moving Averages:
  • The 8/21-week EMA crossover has long been a favorite signal for momentum in individual names and also works with Indices. The 21-week EMA is important support for growth/momentum stocks. In general, you want to be long when the 8 week is above the 21 week and short when it is below with crossovers being key trend inflection signals. The 12-month moving average (MA) and monthly MACD are good longer-term risk management tools. The price action relative to the 200-week MA provides a good gauge for the health of the S&P 500’s secular trend. Pullbacks or corrections (aka cyclical bear markets) for the S&P 500 that hold above or near the rising 200-week MA are a secular bull market pattern. Pullbacks that decisively break the 200-week MA are a sign of a secular bear market. Most corrections on the S&P 500 during the 1950-1966 and 1980-2000 secular bull market held between the 100-week MA and the 200-week MA. The 2015-2016 S&P 500 pullback fit this secular bull market correction pattern. The secular bear market periods from 1929-1950, 1966-1980, and 2000-2013 saw sustained periods below these long-term moving averages. This means that the 200-week MA provides a good secular bull market risk management tool or stop loss. Using this history as a guide suggests that the Ichimoku monthly cloud is a good trailing secular bull market stop loss. History also suggests that a decisive move below the monthly cloud confirms a secular bear market for US equities. Currently we are above all moving averages and this is a bullish signal.

Economics:

• The common theme appears to be an expectation of a synchronized global growth in 2021.
• The optimism on 2021 delivering a record year for corporate profit growth and strong GDP growth around the globe is very contingent on a successful vaccine rollout. The current surge of cases and hospitalizations in the US and Europe is resulting in further restrictions and lockdowns that will weigh on growth expectations, or at least push out pent-up demand. Consumers have led the recovery so far with a boost from fiscal stimulus but the key to a self-sustained recovery is a strong capex cycle which is seen kicking off in Q2 2021. The labor market will also be in focus after record low unemployment the pandemic saw the number jump to 14.7% in April, the highest since the Great Depression, but has recovered rapidly though losing some momentum as it finished the year near 6.5% unemployment and consensus expectations to reach 5% by the end of 2021, still far-off from the 3.5% pre-crisis rate.
• The recovery has already started in 2H20 in the US & China while the European recovery has been more subdued. The driver of the strong 2021 recovery will be the full reopening of economies worldwide which makes a successful vaccine distribution critical. The US Dollar is closing 2020 weak and looks to have some structural issues with surging deficits, Fed’s intention to boost inflation, easy financial conditions, and expected economic and political improvements. The combination of easy monetary policy, a rebound in old economy industries and a global upswing in growth provides a healthy backdrop for 2021. The balance sheets of households, corporate and governments are expanding alongside the aggressive monetary policy and signs of inflation returning causing a rotation back to value and cyclical growth supported by a steepening yield curve.
• GDP is seeing rising 6.4% globally in 2021 according to Morgan Stanley, the consensus is for 5.4% growth. In the US those numbers are 5.9% and 3.8% respectively.
• Inflation would be the key risk into 2021 with it likely to start showing up in 2H21, and the risk being an overshoot could start a disruptive shift in Fed policy. Surging debt remains another concern, as a share of U.S. GDP, total debt has spiked near a record high and total nonfinancial debt has surged to new all-time highs. The rapid increase in government deficits is due to the combination of 1) the budget shortfall that already existed and was growing, plus 2) the deficit spending to fund the stimulus programs to date.
• The other clear risk in 2021 is China where debt defaults are rising and could spark a move to credit tightening and a recession that would strangle the global recovery. The overall default rate is currently low but the percentage spike in debt/GDP was the highest since 2009 which could lead to policy tightening in 2021.

Market Valuation and Fundamentals:

• The NASDAQ continue to outperform in 2020 with a 45%+ YTD return compared to the S&P at +15% as major secular trends in technology continue to play out. The trend of rapid rotational moves also continue with growth often seeing selling pressure for a few days before quickly recovering and resuming the longer-term uptrends. Into 2021 earnings growth is expected to be a record though room for multiple expansion is minimal. A combination of improving economic conditions causing greater business and consumer confidence should drive strong earnings growth in 2021. Increased fiscal spending and a moderation of tariffs provide additional tailwinds. In 2020 many businesses shedded labor and transformed business models to higher productivity to offset the collapse in demand and low inventories with rebounding production point to margin expansion in 2021. The 2021 environment shapes up to be one of solid earnings growth, a return of buybacks and modest multiple contraction. The growth versus value debate is likely to continue but the low-rate environment continues to favor growth, but even more-so a greater preference for quality, companies with strong balance sheets, cash flow generation, and returns on capital should continue to outperform. We are seeing historically strong earnings revision ratios and a record percentage of stocks with dividend yields above the rate of the ten-year Treasury, both conducive to allocations to equities. Compared to bonds, equities can act as a hedge in case of inflation and, with a thorough selection process, can still offer returns closer to historical returns.
• My forecasts for 2021 take into account consensus expectations, a bull case for a strong vaccine rollout, and a bear case for disruptions to the vaccine rollout and geopolicatical potential issues. I am assigning a 40% probability for the bull case, 40% for the base case, and 20% for the bear case to arrive at a S&P fair value of 3600 though 1H21. In 2H21 we start to look to 2022 estimates and feel we can approach $200 EPS with slight multiple contraction to 22X leaving upside potential to 4400 for year-end 2021.

https://imgur.com/a/QqPjfbU

• For 2021, the bottom-up EPS estimate (which reflects an aggregation of the median EPS estimates for CY 2021 for all of the companies in the index) is $169.20. For CY 2021, analysts are projecting earnings growth of 21.7% and revenue growth of 7.7%. The 6% trend growth rate since the 1930s would point to S&P 500 EPS getting back to trend levels of $187 in 2022. An optimistic vaccine scenario would see S&P 2022 EPS well above $200.

https://imgur.com/a/lLhmsb3

• The low rate environment impacts the multiple, and assuming the 10-year stays low, the Fed keeps rates at zero, and credit spreads stay firm, a valuation framework would put a trailing PE at 24X and forward at 21.5X for the current environment. The spread between the S&P dividend yield versus the corporate Baa bond yield is near historical highs and the ERP (Equity Risk Premium) is very high by many measures. Assuming the spread between the dividend yield and IG corporate yield goes back to 2012-19 levels, it would point to 30%- plus upside for S&P 500 valuations. Assuming some rise in rates as the spread narrows more from falling equity yields would point to 20%-plus upside. In 2021, policy support should remain in place to curtail risk aversion. Besides the risk of a credit crisis, concerns over a late-cycle overheating have been pushed further out due to the pandemic-induced recession and policy makers’ increased inflation tolerance. When comparing relative attractiveness across asset classes, which ultimately steers a substantial part of investment flows, equity markets continue to look quite attractive. Since the beginning of 2020, real bond yields in the USA have declined by over 100 basis points, outpacing the decline in earnings yields (inverse of the price-earnings ratio), thus supporting higher valuation multiples. Currently the difference between the earnings yield and the real bond yield as a measure for the equity risk premium (ERP) is higher than the long-term average, suggesting that equities offer an attractive excess return over bonds. Although lower interest rates support higher multiples due to the increase value of future earnings, a return to normal could push long-term interest rates higher and exert downward pressure on equity valuation multiples.

Sector Growth Rates

Analyst 2021 Predictions:

• Morgan Stanley: $3900 - After a year of big swings in valuations, 2021 will be about who can deliver on earnings. 2020 was all about beta and understanding how equity markets trade in and around a recession that handed us the fattest pitch we’ve seen in a decade. 2021 will be much more about stock picking (alpha) and should favor those companies that can deliver earnings growth that isn’t already expected or priced. MSCO prefers companies with earnings growth most tied to re-openings and an economic recovery and also favors small caps. Financials are also preferred due to positive upside skew on rising rates and better credit; Materials and Industrials on demand rebound, earnings leverage and inflation protection; and Health Care given its GARP characteristics and re-rating potential with fading political overhangs.
• Bank of America: $3800 - Stocks have already priced in much of the expected recovery in the economy and corporate profitability, leaving just slightly more upside heading into next year. Even as investors ride a wave of vaccine-related optimism, potential negative catalysts abound. The recovery is intact and the world likely reopens in the 2H, but a lot of optimism is priced in already on vaccine/recovery. Vaccine execution risk, delayed fiscal stimulus and longer lockdowns are risks. But a few themes support stocks: the S&P 500 dividend yield is 3x the 10-year yield, and S&P 500 dividends are set to increase in 2021. And unlike bond yields, earnings are nominal and participate in inflationary upside – where inflation risks may be running higher, given rampant money-printing and a potential post-vaccine spike in demand. BAML picks value stocks over growth, cyclicals over defensives and small caps over large caps, given each of these groups’ likelihoods to be disproportionately boosted by a post-virus economic recovery.
• Goldman Sachs: $4300 - A vaccine is a more important development for the economy and markets than the prospective policies of a Biden presidency. The economic reopening coming alongside a vaccine, in tandem with a status quo policy environment cemented with a divided government, will help push the S&P 500 to 4,300 by year-end 2021 and then to 4,600 by the end of 2022. The forecast assumes that the Senate will remain under Republican control following the Georgia run-off elections in January, the economy will continue on a path toward a “V-shaped” recovery, corporate profits will rebound, Fed funds rate will hold near-zero and the yield curve will steepen while the 10-year Treasury yield climbs only modestly.
• Deutsche Bank: $3950 - Much of 2020’s run-up in the stock market came with multiples expansion, as prices escalated despite a drop in earnings, as companies dealt with fallout due to the coronavirus pandemic. Next year, as the economy recovers and a vaccine allows for long-lasting re-openings, earnings growth will rebound and multiples will de-rate. The pattern of the equity market recovery, bottoming halfway through recession and recouping most of its losses before it’s over, has been typical but the continued run-up means valuations are high. In our reading, elevated multiples reflect increased participation of retail investors which we see as sustaining, but we expect the multiple to begin to de-rate. For 2021, a recovery in earnings — which essentially increases the denominator of the price-earnings ratio — should lower multiples. That said, an increase in companies’ payout ratios as dividends and buybacks return could at least partially offset this. A gradual correction of overvaluation argues for the current overvaluation of 5 multiple points to diminish but remain significant at 3.6 points, putting the end-2021 multiple at 20.5X.
• Jefferies: $4200 - Improving prospects for a vaccine, easy lending conditions and broader participation among cyclical and value stocks will help propel the stock market higher in 2021. November’s historic stock market rally, led by cyclical and value stocks in the energy, financials and industrials sectors, reflected broadening equity strength beyond just big tech and software shares. That rotation is anticipated to continue into next year, helping push the broader market higher. Notwithstanding the second and third Covid-19 waves permeating the world, there is a palpable feeling that the global economy is resynchronizing with the household, corporate and government balance sheets expanding simultaneously alongside aggressive monetary policy. The much-maligned value and cyclical growth sectors are slowly making a comeback as inflation pressures begin to return. This rotation has been supported by a steepening in the yield curve and with growthier stocks trading sideways. Improved visibility towards a successful coronavirus vaccine, easier lending conditions, little evidence of deflation and a sentiment switch from growth to value will lift US bank shares through 2021. Rising global capacity utilization rates, firmer producer prices, improving world trade volume, booming housing/autos and a weak dollar are the perfect environment for the S&P 500 Industrials. The S&P 500 materials sector is blowing off in response to a weak dollar, higher commodity prices, an upswing in global manufacturing and a restocking cycle.
• CSFB: $4050 - Our 2021 forecasts are designed to answer a simple question: what the future will (2022) look like in the future (end of 2021). From this perspective, we are forced to de-emphasize the near-term, focusing instead on the return to a more normal world. As we look toward 2022, the virus will be a fading memory, the economy robust, but decelerating, the yield curve steeper and volatility lower, and the rotation into cyclicals largely behind us. Since the stock market discounts future events, each of these prospects for further improvement down the line should translate into a higher S&P 500 as investors price in these events.
• UBS: $4100 - The vaccine-related developments that drove stocks’ gains in November and early December have now been baked into market expectations, leaving vaccine distribution the next milestone for equity investors to consider in 2021. The key driver of U.S. equities will be the pace of vaccinations, similar to how shifts in mobility drove equities through the spring and summer. As people get vaccinated, they are likely to ‘normalize’ spending on areas impacted by COVID shortly thereafter. We see the rotation toward cyclical services spending and other COVID-hit areas as a key investment theme for 2021. UBS is overweight the consumer discretionary, industrials and energy sectors given that consumption and production will likely rebound next year. It downgraded materials and financials to Neutral. It is also Underweight consumer staples, utilities and REITs and Neutral on information technology, but overweight communication services and health care on still attractive growth relative to valuations. UBS maintained an upside case for the S&P 500 of 4,400, which would emerge in the case of higher-than-baseline growth against a backdrop of still-low interest rates. However, in a downside case, the S&P 500 could fall to 3,300, which would entail a weaker recovery and/or tighter financial conditions.
• BMO Capital: $4200 - Heading into 2021, stocks are poised to keep reaping the benefits of the massive infusion of monetary support from the Federal Reserve, along with an anticipated additional round of fiscal stimulus. This constructive policy environment is likely to help push equities higher even as virus concerns linger for at least the first several months of the new year. Even with recent positive vaccine and treatment developments, the global pandemic and its unprecedented impact is unlikely to fade in coming months. As such, the massive fiscal and monetary response in the U.S. and around the world (also unprecedented) will likely remain in place to combat its negative economic impact for the foreseeable future. Such environments have historically supported continued stock market gains and we see no reason why 2021 will be any different. Aside from the global financial crisis, 2020 represented the swiftest quarter-over-quarter earnings collapse for the S&P 500 where index EPS plummeted nearly 50% during 1Q, thus, we anticipate that 2021 has the potential to be one of the best years ever in terms of earnings growth, something we believe will also help to push stock prices higher. We remain optimistic and expect another year of double-digit gains as the economy and society slowly transition back to normal.
• Barclays: $4000 - Markets are right to be optimistic about the global economic outlook in 2021, with growth returning and inflation rising but staying below central bank targets. Projected global gross domestic product growth of 5.6% in 2021, rebounding from a 3.6% contraction this year, with most Western economies reaching so-called herd immunity from Covid-19 in the second and third quarters of the year. Forecasts reflected the recent slew of positive vaccine results with efficacy rates exceeding expectations, which point to a significant boost for growth in the second quarter of 2021. Barclays also suggested the inflation outlook would not indicate any unwinding of current unprecedented levels of central bank support. Labor markets are recovering, but we are still at very high unemployment, so there is undeniably a lot of slack in the system. That means that when it comes to core inflation and the underlying drivers, to wage costs etc., that was unlikely to happen in the short run, meaning even next year. It would take several years really to come back. While Barclays anticipates a gradual improvement in inflation, it will not be significant enough to cause central banks to consider tightening their accommodative monetary policy stances. We have an environment whereby growth comes back, inflation stays relatively muted, and you have central banks continuing to support the recovery, and tightening is still far out.
• Oppenheimer: $4300 - The S&P 500 is likely to post another double-digit percentage gain in 2021 as the distribution of COVID-19 vaccines underpins a lasting economic recovery. This outcome is based on six key assumptions: First, that the public will expediently accept and receive COVID-19 vaccines and second, that equity investors will discount the success of the vaccines in reversing the disruptions brought on by the pandemic. Thirdly assumes that at least one of the two Senate seats in the Georgia runoff election will go to a Republican lawmaker, thereby retaining their control of the Senate and reducing (if not necessarily eliminating) the risk that the Biden administration will eradicate the corporate tax reform act of 2017. Fourth, the Federal Reserve will continue its low interest rate regime in tandem with accommodative monetary policy, and fifthly, that congressional lawmakers will step in with another round of fiscal stimulus by the first quarter of 2021 at the latest. Lastly, that investor appetite will continue to tilt toward “stocks that favor diversification and both growth and value segments of the market in a relatively low interest rate environment that favors equities, real assets and other asset classes over fixed income for intermediate and longer-term objectives. The vaccine rollout is arguably the most important in determining the trajectory of the S&P 500 next year. Ultimately the stock market is broadly dependent on economic growth to drive revenues and earnings across the sectors.
• JP Morgan: $4400 - Investors are entering 2021 against a confluence of market-positive events, including improving prospects for widespread vaccinations and sustained economic reopening, gridlock in Washington and accommodative central bank policy. Given the COVID-19 crisis, vaccine distribution is likely the linchpin event. But even with widespread vaccine availability still months away, optimism over early vaccine efficacy data has already sparked a rally among stocks hardest-hit by the pandemic. The equity market is facing one of the best backdrops for sustained gains in years. After a prolonged period of elevated risks (global trade war, COVID-19 pandemic, U.S. election uncertainty, etc.), the outlook is significantly clearing with the business cycle expanding and risks diminishing. We expect a ‘market nirvana’ scenario for equities with the melt-up continuing into 1H21, driven by earnings recovery and multiple expansion. Much of next year’s stock market rise is likely to come at the beginning of the year, as lingering uncertainties over vaccine distribution, the results of the Georgia senate race and additional monetary and fiscal stimulus start to dissipate. While the broader backdrop should still remain constructive in the second half of next year, by then the market will have likely priced in close to a full recovery and investors may start to expect a gradual shift in central bank forward guidance away from the current exceptionally accommodative stance.
• BTIG - $4000 - Global synchronized growth underpinned by central bank ease and a Washington which sees Election 2020’s decidedly mixed outcomes as a catalyst for cooperation (spend, it’s necessary) and centrist government (no tax hikes) results in a Redistribution of Wealth consistent with the 2003-06 synchronized reflation period where Value outperformed. Growth, Small Cap outperformed Large Cap, and International equities outperformed the S&P 500.

Gold:

• Monthly
• Gold had a solid year in 2020 gaining more than 20% as a long base breakout that triggered in June 2019 continued to play out higher and reached its measured move objective while the rally briefly broke above 2011 highs before pulling back. If we look at Fibonacci extension targets of the 2011-2015 correction GLD has upside targets at $207 and $220. The 2018-2020 rally has Fibonacci retracement support levels at $162.5 and $152.5. Gold rallied in 2020 on economic uncertainty and a flight to safety and has pulled back in Q4 with the greater optimism for 2021 taking hold. On an allocation basis, Gold may be losing some of its luster as a store of value with the momentum seen in Bitcoin , although that has not been seen to this point with global gold ETF inflows topping a record in 2020 as a way to diversify portfolios and hedge against inflation. However, November saw the second largest outflow on record. In 2020 the lockdowns resulted in a 5% decline in global output, so the supply-side is expected to rebound in 2021. Gold prices should be supported by inflationary pressures, a deep fiscal deficit and a weaker USD. Goldman sees Gold reaching $2300 in 2021 as recovery from the coronavirus-related recession fuels higher inflation next year. Further fuel could be added from a recovery in demand from India and China.