Breath In, Breath Out

If you hang around BigFoot Investments long enough, one of the things you’ll hear is that markets have breathing patterns: in, out; up, down; over-bought, over-sold.

It’s tough to judge when markets are over-bought or over-sold. What does that even mean?

It’s less complicated than you think. Markets are an auction. With auctions, sometimes the excitement of the moment can lead prices to get out of whack. Investors (or more accurately, traders) will develop a short-term rationale for why the market should do one thing or another.

In a sense, the short-term rationales can become self-fulfilling prophesies. If enough buyers or sellers get on board, the markets can move. After all, underneath all the analysis and hoopla, the formula for the price of a stock is quite simple. It’s the intersection of supply and demand.

So when you think about the market’s breathing patterns, part of the thought process should include looking at supply and demand. Of course, there’s some circular logic at work here, because price affects supply and demand while supply and demand simultaneously affect price.

The analysis can get pretty deep, but ultimately, the price of the stock is determined by supply and demand. The rest of the analysis is trying to rationalize or predict the variables that will influence this equation in an attempt to divine future outcomes. (Even the subject of this blog, when distilled down, is often just a prediction based on data. And, as last week will show, those predictions are not always correct.)

So analysis, at least when it comes to price discovery, tends to be an educated guess. What will influence price to go higher or lower?

Since price itself is part of the influence of future pricing, one can expect that price to change if there is any liquidity demand in the future (because let’s face it, if no one wanted to buy or sell something, that’s not really a market anymore).

As prices move higher, demand should decline. At some point, prices get too high and supply exceeds demand at that price, so price declines. So price movement also influences demand. And viola, a trend is born.

But what does this have to do with a breathing pattern?

Quite simply, sometimes the news hasn’t changed much. So the rationale for why someone would or would not own an investment hasn’t really changed. But prices have changed because of the basic shuffle in the marketplace and the dynamic of trends. Prices go higher, so some buyers want to buy before the price goes even higher; others want to sell while the price is going up. It is the imbalance of buyers or sellers that moves the price.

At some point, absent significant changes in the news cycle, the balance of buyers versus sellers can shift. Really anything could cause this shift – but whatever it is, the balance shifts and the trend changes. Prices go from climbing to falling (or perhaps the other way around).

How high or low a market goes will vary. But often times a long-term trend is associated with short-term trends. The short-term trends are the ‘breathing patterns.’

Okay. We get it. Why all the long-winded explanation about trends and how prices go higher or lower??? Who cares.

Well, investors care, when they’re trying to predict the future. The larger point here is that analysis can come in all kinds of flavors, but it’s still just an educated guess as to what the markets are going to do in the future. The trick is, we believe it. And when enough people get on board with an idea, the behavior starts to manifest. (We can talk about all kinds of ways this is true, but that’s a subject for another time or another blog).

Today, looking at the trends and charts and all the stuff that rationalizes an opinion, the markets look over-bought. See exhibit A below:

Exhibit A: Note the S&P 500 appears above trend, indicated markets may be over-bought.

Notice in Exhibit A how last week’s price was above both the shaded area and the bold white line? This is an indication that there were more buyers than sellers last week, and that prices are above ‘average’ by a number of measurements.

When prices get above average, it’s common to see prices move lower in the short-term. We call it mean reversion. And, for most of you regular readers, you already know this term. But it’s worth repeating now and then.

The question to ask is ‘why are markets moving higher?’ Does this make sense given the data?

Arguably… yes.

As the economy re-opens and the government continues to conjure money to throw into the system, it explains the move higher.

This is not to suggest there can’t or won’t be a price correction. It is merely a reflection of the fact more money is in circulation, and those dollars buy stuff. If the stock market is the most attractive place for new dollars to go live, that’s where they go. And the increased demand can drive prices higher.

So three trends seem to be emerging:

Really short-term (as in,the next few days), the markets looks over-bought and due for a mild pull-back… maybe 1 or 2 percent.

Intermediate-term (as in, the next quarter or so), the markets seem to generally have the wind at their back as Covid appears to be subsiding and the economy re-opens.

Intermediate-to-longer term (as in the next 6-to-12 months), probably looks pretty good.

Longer-term (as in more than a year out)… punt. There are too many wild cards, most of which come with massive government bond buying and money printing (which eventually has a consequence even if it doesn’t seem to yet).

So where does that leave us? Well, see exhibit B below:

Exhibit B: Anticipated range for the S&P 500 for the week of April 12, 2021.

It appears the S&P 500 may be weak to start the week out, but has a limited downside with support near 4067. Assuming it finds its footing early, a sideways to positive trend is likely to emerge, with yet another all-time high likely to get pegged this week.

Until some kind of news changes sentiment it looks like the markets can move higher from here. But, as always, we reserve the right to be wrong.

Have a great week!

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BigFoot), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BigFoot. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BigFoot is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the BigFoot’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

It’s a Sign… Maybe

One of the challenges of technical analysis is confirming a change in trend. It’s easy to spot after it’s happened. But spotting a trend change while it’s happening is a calculated risk. The data may indicate something, but the future is not written. So essentially, it’s a fancy rationalization of the future, a.k.a. a guess.

Looking at the current technical indicators, the trend looks like it’s changing. So we have to consider a handful of possibilities.

If it really is changing, why? What might explain this? Or are we simple wrong?

As Q1-2021 gets logged in the books this week, the S&P 500 and DJIA will have posted all-time highs on March 17th and 18th respectively. The NASDAQ, on the other hand, posted its all-time high back on February 16th.

The 10-year treasury yield has been climbing. The FOMC suggests it is not going to raise interest rates for perhaps another 18-to-24 months (presumably because of the unemployment numbers resulting from Covid).

When looking at the underlying trends in the market, it seems like the market is ahead of the Fed. We hear inflation is negligible — or that deflation may be an issue — but the tone from Washington, DC no longer fits that narrative. And the budget reconciliation process has created a path for spending legislation to make it to Biden’s desk. So the money printing, as far as the markets are concerned, is very likely.

The major indexes are starting to show it. Tech has sold off and banks have climbed. Why?

The moves fit the storyline of increasing inflation. The higher cost of capital will make it more expensive for big tech to go higher, but it will improve margins for financial companies.

There are more layers to it than that. But on the surface, it’s a plausible explanation that appears to be thematically taking hold in the markets. The riskier equity segments are increasing in volatility.

Take a look at the chart below:

S&P 500 projections for the week of March 29, 2021

Notice the light-blue line rising up and to the right? Notice the dark-blue line that changes to light-blue below it? The upper line was a projection of peak-to-peak market highs for 2021 so far this year. It established a kind of upper limit to the market expansion. A price move above this line would indicate some kind of break-out. No such move has occurred in months.

That upper line projected the SPX rising toward the mid-5000’s by year’s end. It was an unrealistic expectation. But it roughly reflected the price multiple of a 31-to-33ish forward PE for the index.

The new lower line projects out toward the 4600-4700ish range for the SPX. That’s still about a 15-to-18% move higher from current levels. But the forward PE would have to fall.

A few weeks ago we discussed this concept – the idea that earnings growth may continue higher for corporate America, but the headwinds of inflation and higher taxes could lower price multiples.

So far this explanation fits the technical behavior we see in the markets. Corporate headwinds don’t stop profits, but the relative future profits are impacted. And with the 10-year treasury climbing higher, many of the risk-relative pricing models are going to shift. At some point the behavior will likely follow.

For a long time the theme has been TINA – there is no alternative. Investors have been forced into equities because fixed income and other asset classes have had such low yields it didn’t make sense.

Well, in a rising rate environment, TINA may no longer be the case.

The tone in Washington is clear – spend more, accountability can come later. Regardless of your political leanings, economic reality cares not about the rhetoric. You could no sooner convince gravity to cease to exist. And you can not print money and simply demand it reflect the same purchasing power.

If money supply is going to increase, there must either be an increase in supply to maintain price stability, or you can expect prices to increase if supply remains the same.

Throw a pandemic shut-down in the mix to reduce supply (and some demand), then throw a bunch of printed money in the system. Hit the re-boot button… get some popcorn. Because that’s where we’re at.

As people get back to work, with a lot more money floating around in the system, and talk of another $4 TRILLION in government infrastructure spending, and it’s hard not to see inflation on the horizon. The question is simply a matter of when.

And the reality is, folks do not have a grounding concept of a trillion dollars. The numbers are so big it just sort of pegs the meter and folks go numb. Imagine taking all the income produced in a year from 1 in every 5 adults in the US. The number is bigger than that. So the math can get out of control in a hurry.

Bottom line: inflation is likely, and the beginning signs of multiple expansion seem to make sense. We’ll keep an eye on things.

For the week, look for sideways. The BigFoot Database is relatively unchanged at 59% long; the DJIA is the only major index with a buy; and the macros are in the green. It’s the end of the first quarter. Earnings season is just around the corner. And who knows what comes next from Washington? But vaccinations are happening and the economy is reopening. That should be enough to keep the wind from completely coming out of the sails.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BigFoot), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BigFoot. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BigFoot is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the BigFoot’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

March 22, 2021

Keeping an eye on multiple compression at this point. Has it already started?

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BigFoot), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BigFoot. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BigFoot is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the BigFoot’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Stimulus is Here. Now What?

So the markets got what they thought they wanted: more stimulus. Now what?

From a technical perspective, it’s unclear. While the S&P 500 set an all-time intra-day high last Thursday, the pricing pattern does not yet appear to be a significant break-out. In fact, when the bill crossed Biden’s desk on Friday, markets barely managed a higher close from the prior day.

So what is going on?

For one, the near-universal conversation is about inflation. Not if – but when – does inflation take hold?

The Federal Reserve seems to think it’s a ways off. And while the 10-year treasury has moved considerably on a percentage basis, on an absolute basis it’s still near historic lows.

So what are we to believe? Is there inflation, or is it contained?

The strange answer is, both and neither.

Take a look around. There is inflation. Already, fuel, energy, food, and real estate have moved significantly higher. Most commodities (excluding precious metals) and crypto currencies have also moved higher.

The question is, is it contained? And, regardless of the real answer, policymakers believe it is. At least, until it isn’t…

Intuitively, it stands to reason that printing tons and tons of money in the form of a massive stimulus program would lead to massive inflation, a devaluing of the dollar, and a host of other economic dislocations.

That seems to make sense.

What’s lost in the equation is the massive demand destruction that has been caused by covid.

Large portions of the economy are still being significantly impacted by covid. This economic anchor has weighed down certain segments of the economy (literally killing some parts of it). This is the demand destruction that gets glossed over in the conversation. It’s as if folks have accepted things after a year. Those that didn’t make it are gone. The survivors move on.

Here’s the thing though, it has to get factored into the equation… demand destruction during the shut-down. But more importantly, demand creation after the re-open.

As long as parts of the economy are still encumbered, inflation will likely remain partially contained. It’s a mechanical result. The supply/demand curve is affected by the fact that either a) the widget can’t be made, or b) the unemployed have fewer resources.

Stimulus sort of plugs a gap for resources (although not without longer-term consequences). That, in effect, props things up. But what does it do to repair the supply side of the chart? Answer: little to nothing.

Now, as the economy re-opens, the supply side of the curve improves. And, in theory, folks go back to work. So the demand side of things should balance. Then all you have to do is… oh yeah… repay the debts… with more taxes… which reduces the money supply…

And that’s really the underlying issue: money supply. Who has access to the money to spend? For real estate, you can borrow. And for the stock market, in the form of margin, you can borrow. But for food, utilities, rent? Not so much.

So there’s some can kicking going on here. And the though, certainly, is that it’s easier to deal with repercussions during times of strength, so let’s worry about it later.

The problem is, later has never arrived. In periods of economic strength, there has been no savings. In periods of economic weakness, there’s been more borrowing. The equation never gets balanced.

Well, eventually, markets will balance the equation. You can’t manipulate and manage things forever… or at least it’s never been successfully applied in history to this point. But that doesn’t seem to stop some from believing it’s worth another shot. (But I digress.)

Where does that leave the markets today?

Short answer: the probably go higher from here.

What????

Yes, you read that correctly. The probably go higher from here.

Why???

Because there is nowhere else for money to go, and it’s still cheap to borrow. There is access to capital and leverage in the markets. There’s optimism the economy will reopen. And, perhaps most important of all, it fulfills the unwritten law of market irony. Things often behave different than expected for longer than folks think.

The larger technical picture at play suggests the SPX is still headed towards the 4200 level. Once that area is achieved, it’s probable there will be a bit of a trader’s pull-back as markets reset, rates move higher, and multiples begin to come in. Projections show this beginning to show up in late April.

If that holds true, there’s 2-to-6 more weeks of upward movement before this market gets so far over its skis it trips itself.

Here’s a look at the 2021 projection for reference:

S&P 500 Projection for 2021 (projected on Jan 7, 2021)

For this week, look for a positive bias. Technical trends suggest a virtually flat week ahead. However, if markets gain some traction, the SPX could test as high as 4021. Downside support is at 3858.

Part of why this week may be relatively sideways is because the FOMC is meeting. Any change in guidance on Wednesday (quite unlikely) could impact things. Look for some version of guidance suggesting further accommodation (code for cheap money). As long as the general trend of rates remains low, multiples can stay higher. If a move does occur, it’s likely to be on Tuesday (movers in advance of the meeting) and Thursday for those repositioning after the meeting (this, by the way, is just an educated guess – that’s often how it goes – but hey, no guarantees).

Assuming rates remain unchanged, the current trend higher should continue. Even a hint at a rate change will mean it’s time to talk about the next phase of this market (and multiple contraction).

Note, the projections above for the year suggest a decline in multiples in late April. This also happens to align with the next FOMC meeting on April 27-28. Stay tuned.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BigFoot), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BigFoot. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BigFoot is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the BigFoot’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

A Trend May Be in Danger

Don’t look now but the trend that was established back when the first vaccine was announced seems to be in jeopardy.

The S&P 500 has been marching its way toward 4000 for weeks now. Of course, this is nothing terribly remarkable in and of itself. Given enough time, the probability of the S&P 500 reaching (and surpassing) 4000 is extremely high. The question is less “if” than “when”.

The original trend was climbing on a pace of approximately a 31 PE for the index. This is a historically high multiple that has been rationalized primarily by historically low interest rates. (Because that risk-free rate of return is so low it throws off other math.)

Looking at last week, the SPX posted its all-time high on Monday then faded sideways over the rest of the week. (Not all the major indexes failed, which is part of why the trend is not ‘dead’ per se, just in danger.)

Looking at the futures for Monday, looks poised to open lower.

The question is, will there be traction? Do markets find buyers here and move higher, or will behavior change?

While the government tracking methods insist inflation is a ways off, more anecdotal measures (like the cost of gas at the pump or groceries in the store) tell a different story. Interrupted supply chains, political red tape, and yes – Covid restrictions – continue to play a significant role in this saga.

A look at the financial sector implies that rates may be rising soon.

If all of this is true, interest rates would risk, multiples would decline, and indexes would likely decline in response.

The wild card is stimulus. It’s really an inflationary tool. The issue is, in the short-term, it changes buying behavior by stimulating the demand side of the curve first. People can literally buy more stuff, so they can drive prices (and profits) higher in the short-term. But longer-term, it changes the supply of money in circulation, reducing its purchasing power. The creates all kinds of knock-on effects in valuation formulas (especially in lending).

The market seems to be digesting all of this now. It would not be surprising if the PE ratio of the S&P 500 began to decline toward more historic norms. Likely it will still remain higher than long-term averages, just not as high as it’s been.

Does this imply a major correction in the markets?

Not necessarily.

If corporate earnings continue to climb – which they very well may, given the probability of stimulus driving demand – earnings could climb while PE ratios decline. In affect, we could see a sort of sideways market where both variables more or less cancel each other out.

If this is the case, the 4000 level could become a bit of a plateau for a while as the index oscillates around it for an earnings season or two while markets figure out where things are going.

Think it sounds crazy? Go look at some of the major real estate markets around the country. Pricing in many areas is at a point where cap ratings are nearing parity with treasuries. It’s almost as if risk-free rate of return is no longer part of the equation.

History, of course, teaches us that markets can remain irrational for longer than expected (and certainly longer than you can remain solvent). So it’s not to suggest prices can’t go higher. It’s to suggest prices are very expensive in certain areas of the market if we see interest rates rise.

And that’s really the key: this market is now built on low interest rates. Any change to this would create systemic shockwaves.

The Fed has more or less opened its playbook up and is telling everyone the calls before they make them. “Rates will stay low” is basically the message. But if for any reason this story changes, things could get interesting quickly.

For this week, the question is whether or not the market resumes the 30-ish PE climb, or if there is more shake-down to come after last week’s sideway move.

The technical patterns have largely been organized and moving higher. However, the next big fat round number (4000) is about here, and that typically means there’s some oscillation as markets evaluate bigger picture metrics.

Also, we’re in the middle of earnings season right now. That will quickly taper off and we’ll begin to look toward Q2 for the next trend confirmation.

On the upside, resistance is likely at the 4000 level, with some intermediate resistance at 3975/3986.

On the downside, support is likely around 3872. If that fails, look for 3858, and an extreme downside of 3812.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BigFoot), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BigFoot. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BigFoot is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the BigFoot’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Party Like It’s 1999

There will be more… but at least there’s a picture for now:

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BigFoot), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BigFoot. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BigFoot is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the BigFoot’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Blip?

Markets have been on a wild ride for the past two weeks. The S&P 500 fell from its all-time highs down to its 50-day moving average, only to rally back to all-time highs again to close out last week.

At this point, the momentum is still intact. So the trend continues: higher.

As with all things in the market, every up-trend ends in a downturn (duh). The question is when?

The longer-term idea that price multiples are unsustainable at these levels still seems to make sense. Recall the 2021 projections called for markets to go higher – for the SPX to rally towards the 4000 level – then for a potentially more significant pull-back from these levels.

Judging from the way markets have been moving, this may be a less organized trend that would make the pull-back harder to spot. If stocks do not uniformly correct across the board, it may not even be recognizable.

Instead, what we could see is a type of sector rotation where money moves out of some stocks, prices correct, and then begin to recover – all on a stock-by-stock basis rather than happening across the entire market simultaneously.

Some are suggesting this may have already happened in the last two weeks, as many stocks have pulled back at least 10% from their all-time highs in the past few weeks.

Of course, it’s possible we could still see a more orchestrated correction. Stimulus out of DC is still largely assumed to be on the table. But the form of stimulus is still up for debate. Whatever the case, it seems the plan is to monetize debt. At some point, one would expect consequences to come with this plan (if Bitcoin is any indicator at all… which it may or may not be).

The larger challenge of this market is its ability to gaslight analysts. In many ways, this is reminiscent of 1999. For those without the gray hair earned riding through said era, this was the period of the ‘new economy,’ where dot-com’s no longer needed to make money; they just needed to attract customers.

During the dot-com era, traditional analysis sort of flew out the window. Stocks went up regardless of the financial health of companies. New investors were jumping in with etrade and other online brokerages. Everyone was going to become a stock millionaire.

Today, there are new app-based online brokerages, free trading, and everyone is going to become a stock millionaire. Companies may make money, but the multiples are so stratospheric it would take eons to get paid back.

What’s different? This time the government is printing money. Lot’s of it.

In fact, a quick google search revealed US GDP at $9.6 trillion in 1999 (2020 numbers aren’t official yet, but it’s over $21 trillion). If we look at the amount of stimulus being conjured up, we’re looking to print more than half of 1999’s total economy.

Let that sink in.

The kind of money being created is so mind-boggling it doesn’t compute for regular people. It may as well be a zillion-kerbillion. Because we don’t have any sense of how much money it is.

Therein lies the problem. When money can go to a zillion-kerbillion, you see assets like Bitcoin become actual conversation pieces. And you see assets become mega-inflated. The question is when?

Inflation is sneaking in. We see it in housing, where people can access the capital. If the next stimulus package includes a minimum wage increase, we will see it start to spread to more areas of the economy.

Stocks, historically, have been a leading indicator of economic health. However, in a world with near-zero savings rates, stocks become one of the only alternatives to store value. So demand is sort of conjured up by circumstances.

However, this market may be out pretty for over those skis. At some point, you tumble.

If we see inflation pick up, and rates start to rise, demand for stocks could fall. And those stratospheric multiples could start to look pretty unnatural.

Judging from the pace of movement in certain assets – the sort-of frenzied FOMO attitude of many new stock buyers – and the actions of both DC and the Fed, the idea that markets could pull-back later this year is still very much on the table.

But for now, looking week-to-week, the looks like the party is still raging.

The trend for the S&P 500 suggests the last two weeks were a mini-correction, and new highs are on the way. This week looks like a test of the 3950 levels. We’ll see…

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BigFoot), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BigFoot. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BigFoot is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the BigFoot’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

Still Going

Despite the give-back last Friday the S&P 500 managed to print another all-time high last week. So the trend toward 3900 continues. Now the only question is, will we actually see the stimulus?…

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