Today’s letter encapsulates our overview of how markets may react to the all-important news flow, which is coming our way and what might happen in December. We’ve gone over this from all angles and my main conclusion is this: risk of a correction is high, but potential for a boom is high as well.
In other words, we don’t expect sideways action in December whatsoever; it will either be that December is a spectacular month or that a huge sell-off occurs. The best way to win in this type of set up, as we see it, is to take profits of value stocks in advance.
The thesis behind it is this: if markets crash, the large cash position will allow re-entering into growth and value at much lower prices. If the market explodes, having that allocation towards growth, going into it, will allow for big gains without risking too much cash.
These catalysts are going to drive markets in December:
- Black Friday / Cyber Monday sales: Remember, at the end of the day, America is a shopping machine. 70% of its GDP comes from getting its massive population base of 330M individuals to spend money and create velocity of currency. America thrives on consumer confidence, so these two holidays will tell us not only (1) who is shopping {the blue-collar worker or the white-collar worker or BOTH) but also (2) how strong they are or how badly they need a bailout.
Our data shows that people have been getting sick and tired of 2020 and will not deprive themselves of some holiday cheer. We expect online sales to be strong, but we don’t believe that it will originate from the lower-income brackets, which are in desperate shape right now! They’re looking to stay in their homes and not get evicted; they’re looking to put food on the table rather than wear the latest fashion. This data will be out by December 1st, which is the reason I outlined it first.
- Secondly, on December 8th and 9th, the FDA is set to approve both Pfizer and Moderna’s mRNA vaccines. If you’ve been watching the press conferences held by the White House Covid-19 taskforce, then you know that the administration is doing all it can to convince the general public to trust that the vaccines are safe and hold no adverse side effects.
This mass-marketing effort to prove that they weren’t rushed, at the expense of going through the proper procedure to eliminate any risks of taking them, comes because a majority of Americans – and for that matter, people around the globe – are not too excited about injecting themselves with yet another vaccine, when 99% of Covid-19 patients recover from the disease without any lasting harm. We know we are going to be researching this thoroughly as well.
Vaccines have become a polarizing topic, with Bill Gates portrayed as the antichrist leading the charge to inject/infect the population; many doctors, on the other hand, are deconstructing this theory by attempting to prove that there are no clear links between vaccines and autism in children, for example.
Our point is not to take sides, but to tell you that, according to the White House, there are 100M doses ready to be deployed within 24hrs of approval and that public acceptance or resentment will move markets.
- Another big catalyst comes on December 11th, when Congress must pass the budget for 2021 in order to avoid a shutdown.
A fiscal cliff adds to the ever-growing division in politics and we don’t believe we’ll get there, since Democrats and Republicans are working on what’s called the Omnibus Spending Bill, which is likely to bundle up a number of various spending programs into one.
With JPMorgan releasing data, which shows that they believe that Q1 2021 will see GDP contracting again, our thesis remains that the full recovery will happen in 2022.
NOTHING is over yet.
