As expected, December has been a rather dull month. There wasn’t a Santa Claus rally this year, instead more shallow new highs although not much higher than the last set of highs, as shown on the chart below.
In all, it was a rather dull end to a year that was like none that we remember. In January, everyone thought 2020 was going to be a year just like every other; but in February, the worldwide pandemic changed all of that. By March, the markets were in full selloff mode, but then things shifted gears as the U.S. dollar started to tumble and the largest stimulus in history started. The combination of a massive government stimulus and a full on switch from analog to digital technology blasted stock markets off to a full recovery and then to new highs.
This chart of the $QQQ shows the Pandemic selloff (February-mid March) then the reversal and blast off as the world realized the potential growth of the digital economy.
As said before: The markets seem to be responding now only to government stimulus; they are also serving as a store of value, against further dollar depreciation. We will see if this rally holds in 2021, or if the gains were unsustainable.
Big Tech is under attack from a number of different directions. We watched them grow exponentially as the world went from analog to digital during the pandemic. Now they have received attention as governments look to regulate tech or break up big tech monopolies. $AAPL and $FB are battling with one another over the protection of clients’ data, and what data Apple allows to be shared on its platform. $FB is facing the Attorney General’s of 48 states, while $GOOG is facing two antitrust cases; $BABA is being reviewed by Chinese authorities as well. Section 230, which has given blanket freedom of liability to the tech giants is being questioned and might even be removed completely.
There has been an increase in Cyber attack’s, notably the SolarWinds breach, in which many Big Tech companies such as $FB, $MSFT, $CSCO and $GOOG have joined a legal battle against the Cybersecurity company, NSO.
Volatility is at all time lows, but expect it to spike as we are closing in on Jan 6th, which is the day Congress needs to certify electors. Also, the balance of the Senate is on the line in the Georgia runoff election.
This chart shows that $VXX is very near massive support, a spike in volatility (VOL) is possible at any time in the next month or so.
In 2020 the world changed, but the question that remains is how will the markets perceive that change in 2021? Will the long term damage to the economy start to outweigh the productivity increases from the world going digital? The damage to the analog world (restaurants, retails and real estate) from frequent shutdowns and interruptions in the supply chain was substantial. The real estate market is feeling the weight of lost tenants, lost rent and looming mass evictions
Dollar weariness and Digital Gold
The dollar divergence between $GLD and $BTC increase as $BTC surges to all time highs. This was largely due to widespread institutional adoption of $BTC specifically, but also due to digital assets in a more general sense. Our best trade idea from these newsletters has been our bullishness on $GLD, $ETH and on $BTC. Gold has certainly underperformed, but it may be due to catch up going into January and February. Digital assets like $BTC and $ETH might be overdue for a pause or a pullback.
$GBTC and $ETHE the $BTC and $ETH tracking ETFs are by far our best mentions of the year. The yellow line is approximately where we started to mention this in the monthly newsletter. $GBTC has increased by almost 300% since that first mention.
Opinion:
We are at the end of a 9 to 10 month mature UpTrend while ending the most bullish time of year. We would expect increased volatility going into January due to the Presidential transition, end of year corporate results, and the worst forecast for GDP and company growth in 2021. We have already seen Goldman Sachs and JP Morgan revising down froth expectations.
Coronavirus update
We will go into the good new first. We have a number of vaccines and they seem to be 94% effective with a fairly low reaction rate. Unfortunately, the virus rages on and all past records are being broken while we wait for the vaccinations to take. Also, there appears to be a new, more contagious strain of the virus out of the UK.
Looking to 2021
In looking for opportunities for 2021, we expect a slow but growing upswing in mobility. We are looking at $XOM, as dogs of the DOW return to value. As people see the threat to the virus subside, the likeliness of traveling and going out to eat will increase. Everything in the world needs oil to move, This is why we are making $XOM our “2021 watch of the year”. We see a strong recovery in $XOM in 2021, as it is a great value and it pays a great dividend as we wait for the world economy to return to more normalcy.
