THE “NOT QE” MELT

—–Those that know us and those who read our missives know we are very careful with our words. We are not into “the Dow will be at 35,000 at the end of 2020” or the “world is going to end in 2020!” Please listen to none of that as no one knows where things will be in a year from now as there are just too many variables, too many tweets, an election, another disappointing year for our Knicks and Giants while our Mets will tease us for a bit but ultimately finish back in the pack. So when we get a little outside the box, it is probably smart to listen up.—–

—–Outside our box was telling you there was serious potential for some sort of “melt up” into the end of the year. Yes…we used the term “melt up!” These are words that are typically not in our vocabulary. BUT THEN CAME POWELL! We have taken pains to repeatedly tell you that every time Powell changed his stance to easier policy, the market bottomed to the day. There was no one more bearish than us heading into Christmas 2018. Markets were topping before the 4th quarter even started, leading us to be bearish the whole 4th quarter until we did a complete 180 on Christmas day not by what we usually interpret but by Powell’s change of stance. Subsequently, market bottoms occurred on the next change of stance and then the 3 rate cuts. But nothing prepared us for what came out of his easy money mouth around October 3rd.—–

—–Keep in mind, there had already been a massive amount of rate cuts around the globe. Keep in mind, there was already a ton of negative rates and the printing of money around the globe. There was already an EU changing their stance from no more printing and no more lower rates to more printing and more lowering of rates even though rates were already negative. Just in the past 6 months, there have been over 50 rate cuts worldwide.—–

—–BUT THEN CAME POWELL! Amazingly, this man who claimed to be a moderate…this man who said he would not be political…this man who was supposedly straight up…lied to the American public. We caught it quickly and reacted to it quickly. After his 3 rate cuts, something was amiss. Markets were starting to break down in early October. The Dow and S&P dropped down to their respective longer term, 200 day moving averages. And then on October 3, quietly, it was leaked that the fed was considering some sort of bond buying. “Bond buying?” That’s no biggie…right ? Not to us. It was the biggie of all biggies. Powell, the man who once said investors knew we will have their back, had once again leaked a change of stance but not just any change of stance…a massive change of stance. It was another round of QE. It was another round of money printing. It was another round of adding massive liquidity to the system. It was another round of “Bernanke-land” but this time was being done with a 3.5% unemployment rate and markets just off their highs. Remember, Bernanke did his maniacal money printing when the world was still in the depths of hell. What was Powell’s excuse? By the way, the market bottomed that day. By the way, Powell’s modus operandi was to confirm the leak a few days later and a few days later he did. That was the day he was at some sort of question and answer session. He was asked about this proposed round of QE…and then came the infamous lie…”BUT DON’T CALL IT QE!”—–

—–The amazing part of all this (and quite under-reported) is the man is printing money at a scale beyond all belief. As we have reported, his run rate is over $1.5 trillion/year. Bernanke never got over $1 trillion. This had us telling you and positioning for what we thought was the potential for…some sort of “melt-up” into at least the end of the year. We simply thought all the conditions were there. There was the massive and we mean massive global central bank liquidity being provided to the market. There was a ton of cash on the sideline. And lastly, seasonality as the final couple of months of the year usually have a good bias to them. That trifecta stood out for us. Thus…our thought process. Notice you have not heard a peep out of the Fed (except for his bs press conference) after the last meeting. Notice they are quite quiet. Soaring markets have them feeling like heroes so no need to take victory laps. Let the markets do their talking.—–

—–Do you really think Tesla’s 36% drop in earnings and 8% drop in sales is worth this latest gap and move? Do you think they should have a $77 billion market cap while GM has $52 billion market cap even though GM has 6x their sales? 30 million shares of a short position will tend to do the trick. Do you think Apple should be up over 100% since January on guiding lower while sales and earnings have dropped? Oh…we forgot…5G is on the way. Just remember, earnings are flat to down this year while the market has returned 3+ years of gains. We do believe we will get some re-acceleration this year though. Our point is since 09, all this liquidity has been beloved by markets and until the reaction changes, you just have to go with it as we did. The default setting of the market is to just buy and buy higher and we will never argue with what our eyes see.—–

—–So you ask…now what? Well, Powell looks to be printing all the way into April. But unlike Bernanke, he has not given a drop dead date for when he stops so that is all fluid. We do promise there will be down days. We do promise we will get pullbacks. (getting closer) We do promise there will be scare days. We do promise there will be some poor reactions to earnings. We do have to tell you that bullishness remains off the charts here. We do have to tell you that many players have just now turned to that bullish side. We would not be surprised that sooner rather than later that we get some very much needed slowdown/pullback or whatever. But at this juncture, the only thing negative we could say is things are ridiculously extended on a near term basis but suggest this second that any pullbacks will be controlled and rotational…nothing more.—–

—–Looking forward…the worry. The simple worry is what we have told you a couple of times recently, that being some kind of climactic move. A climactic move can be plotted on a chart. Go look to the bitcoin into the end of 2017. Go look at one of the nonsensical moves in a marijuana stock like Tilray (TLRY) back in September 2018. That’s what we mean. It is the final climactic move (looks like the Eiffel Tower) of a move sucking all the unwary in at the most inopportune time. This only occurs over time as the noise gets louder and attracts the masses AFTER a good move up. Keep in mind, the indices will never be as strong as moves in individual names but already seeing some characteristics.—–

—–The good news is just like we have studied the moves and movement off the fed, we have studied all types of markets including climactic moves. WE ARE IN HOPES WE DO NOT GET ONE! Pullbacks and stair steps are preferable  but are afraid Powell has now rolled the dice, caring only about markets as he knows little rate cuts move the dial but large rounds of “DON’T CALL IT QE!” really can change the playing field. You are seeing that playing field up close in real time as this QE is like 10+ rate cuts at one time. We will be ready for anything. And for you Trumpsters out there. Sorry! This latest move is not on him but on the man who the president should give a lifetime membership to Mar A Lago for what he just did with the markets. The head of the fed remains the most powerful person on this planet if he or she wants to be.—–

—–And finally, hope you are having a safe and happiest of holiday seasons. Remember to do something for someone you need absolutely nothing from.—–