As the world went into lockdown and the global economy into a spiral last spring, one company struck gold. A phone-based trading app called Robinhood began wiping the floor with more celebrated online brokerage rivals like Charles Schwab, TD Ameritrade, and E-Trade. The moment the pandemic began, it seemed, the world started trading stocks on Robinhood.
The numbers were staggering. Robinhood’s average daily trading volume tripled in the first quarter of this year, compared with the last quarter of 2019, and saw a tenfold increase in net deposits as millions were losing their jobs. The New York Times reported that the firm in the first quarter traded nine times as many shares as E-Trade, and an incredible 40 times as many as Schwab. It added 3 million new customer accounts, and by June was doing 4.3 million daily average revenue trades, or DARTS, more than any other online firm and more than Schwab and E-Trade combined.
Backed by a string of venture capital firms, including Kleiner Perkins, NEA, Sequoia, Thrive Capital, Ribbit Capital, and Google’s VC arm, GV, the firm received four major cash injections. Investors poured $200 million into the firm in April, $320 million more in July, another $200 million in August, and finally in November, another $460 million. Through this brief time, the company’s valuation jumped from $8.2 billion to $11.7 billion, by which time word leaked out that the firm had “asked banks to pitch for roles” for a possible IPO next year.
Analysts saw nothing but conquest ahead. “Competing versus Robinhood will be difficult,” said Larry Tabb, head of market structure research for Bloomberg Intelligence.
Robinhood seemed a new prodigal son of 21st-century capitalism, an awesome hybrid of Wall Street and Silicon Valley. The firm combined the pure greed of a Goldman, Sachs or JP Morgan Chase with the cheery, youth-friendly user-engagement strategies of Instagram or TikTok. The firm was founded in 2013 by two perma-smiling Stanford grads named Baiju Bhatt and Vlad Tenev, who wore khakis and Monkees haircuts and never seemed more than a moment away from bro-hugging one another.
These harmless-looking eggheads sounded genuinely excited to bring their product to the world, explaining they had a mission to “democratize finance for all.”
The app is perfectly designed for such “democratization.” It’s free, charging no commissions for trades. It also has an alluring, Joe Camel-like marketing campaign, featuring a host of bells and whistles in the form of free sample share giveaways, “scratch-off” rewards, and video confetti to celebrate transactions. “Even the most skeptical investor can be drawn in,” is how Jason Sweig of the Wall Street Journal justput it, describing how an assignment to learn more about the Robinhood experience led to something like addiction in less than a week.
Portland Police Attacked In Broad Daylight After Antifa Erects New ‘Autonomous Zone’ Tyler Durden
Wed, 12/09/2020 – 13:25
Though already long tolerating such brazenly threatening actions and city section ‘takeovers’ by Antifa, Portland Mayor Ted Wheeler announced Tuesday: “There will be no autonomous zone in Portland.”
But it yet again appears too late as according to the Associated Press:
A group of activists for months have camped at the home dubbed “Red House on Mississippi” because it is on North Mississippi Avenue — to express their outrage against gentrification and the eviction of the Black and Indigenous family in September.
Footage from inside Portland’s antifa Red House Autonomous Zone. They’ve reinforced their hard border and have set up a larger buffer zone around the occupation. pic.twitter.com/FAZEMnTrR6
This is the area now being dubbed by the far Left activists as the newest ‘autonomous zone’ after prior short-lived similar attempts. It also comes after last summer’s headline-grabbing chaos centered on Seattle’s so-called Capitol Hill Organized Protest, or CHOP, which police didn’t take back till weeks later.
On Tuesday evening Mayor Wheeler vowed to remove both protesters and squatters on North Mississippi Avenue Tuesday by “all legal means” possible.
But judging by the videos coming out, it appears the police are being beaten back.
Full clip from outside the Red House as activists aggressively push police out of the area, halting the eviction of the Kinney family for now. pic.twitter.com/DgOKrEp8ZX
Here’s more dramatic footage of the police in retreat from in front of the home:
More video of how antifa in Portland attacked police at the autonomous zone and made them retreat. They sprayed a chemical all over one police cruiser’s front window to completely block the view while others threw projectiles. pic.twitter.com/La91Tn2F5r
Reports the AP: “Protesters outraged with the arrests of seven people at a home where a family was removed in September hurled rocks at officers, sprayed a fire extinguisher at them and damaged police vehicles on Tuesday.”
Antifa and left-wing extremists in Portland have built a new autonomous zone in the middle of north Portland on a busy street. They are protecting the illegal squatters at a house. pic.twitter.com/qF8yOsJfKU
And further police were seen being struck by fists, fists, and even bricks hurled through the air “in broad daylight,” as the AP described further that “The violence happened in broad daylight.”
Portland protesters have put up barricades on Mississippi Ave in an attempt to block an eviction of “The Red House” residence. Portland police have attempted to evict on multiple occasions during the over the past year. #Portland#protest#Portlandprotests#BLM#Antifapic.twitter.com/0yYKH8r3ln
Further social media videos show that Antifa is now attempting to reinforce and build-up its barricades which stand in the middle of a busy public street in front of the housing units that police are trying to evict squatters from.
Wheeler had said further in his Tuesday comments demanding the closure of the occupied area: “There are many ways to protest and work toward needed reform. Illegally occupying private property, openly carrying weapons, threatening and intimidating people are not among them,” he said.
Via OPB.org: Protesters build barricades out of fence and debris after driving police away from a house in North Portland where police attempted to evict people living there, Dec. 8, 2020.
Fueling the controversy is that a pandemic-inspired moratorium on evictions is set to expire on December 31.
However, many are demanding a significant extension, with the far Left saying it should be extended indefinitely, or what amounts to a “free housing for all” policy.
via ZeroHedge News https://ift.tt/3oCHvBA Tyler Durden
Solid Foreign Demand Is Only Redeeming Feature Of Tailing 10Y Auction Tyler Durden
Wed, 12/09/2020 – 13:15
After yesterday’s subpar 3Y auction, moments ago the Treasury sold $38 billion in 10Y notes, which was a modest decline from the record $42 billion offered last month.
Yet despite today’s broad risk off move, the 10Y auction was also disappointing, with the high yield printing at 0.951%, down from November’s 0.96% but 0.4bps higher than the 0.9417% When Issued.
The Bid to Cover was virtually unchanged from last month, at 2.33 vs 2.32, but below the 2.40 six auction average.
The internals were better, with Indirects taking down 62.3%, up from 54.8% last month, and modestly above the 60.3% recent average. And with Directs taking down 14.7%, or in line with recent auction, Dealers were left holding just 23.0% of the auction below last month’s 32.0%, and modestly below the 25.5% recent average.
Overall, another mediocre auction, and what is more concerning is that despite the selloff in stocks, demand was at best lukewarm which one can perhaps attributed to the growing conviction that rates are only going to go up in the coming years.
via ZeroHedge News https://ift.tt/3n2ZsZA Tyler Durden
A lot of pundits and analysts insist inflation isn’t a problem because the bond market isn’t signaling any inflation concerns. But in his podcast, Peter Schiff argues that you can’t rely on this bond market to tell you anything. The bond market is broken, thanks to the Federal Reserve. It’s rigged and it’s sending false signals.
US stocks continue to make new highs as the markets anticipate not only an effective coronavirus vaccine, but also a new round of fiscal stimulus.
Even if the vaccine works, we’re going to keep getting monetary stimulus and fiscal stimulus, and that is really what is driving the stock market.”
This, coupled with dollar weakness, has also pushed gold prices back up over the last several days.
Inflation is the driver. It’s what’s driving the stock market. Because the stimulus is inflation. That is what it’s all about. It’s printing money to monetize government debt to artificially prop up asset prices. And that is what is driving investors into gold and will drive them into gold in a bigger way in 2021.”
Maybe you can fight fire with fire, but you can’t fight inflation by creating more inflation. And the markets still haven’t come to grips with this. Even though you’re hearing a lot of talk about inflation, it’s mostly to dismiss the concerns.”
Many mainstream analysts insist we don’t need to be concerned about inflation because the bond market isn’t signaling a problem. Interest rates remain relatively low. Even though the yield on the 10-year Treasury has gone up a good bit in recent weeks, it remains below 1%.
So, it’s hard to say a 10-year yield below 1% is a warning sign for inflation. After all, if investors were concerned about inflation, why would they be willing to loan money to the US government for 10 years at 1%? Therefore, the bond market is not showing any signs, any worries, about inflation. Therefore, we don’t have to worry because the bond market gets it right.”
In the past, it has certainly been the case that bond prices dropped and yields rose as a harbinger of inflation. Inflation is a major concern to lenders. The interest rate should reflect the expected rate of inflation over the term of the loan. If the lender expects a high rate of inflation over the next 10 years, she will want to be compensated for the decrease of purchasing power of her money over that time by a higher rate of interest. If lenders expect higher inflation, they will build those expectations into interest rates.
Since we’re not seeing a huge spike in bond yields, most analysts assume inflation must not be a concern. But Peter said they’re missing the elephant standing in the middle of the living room.
That is the Fed! And actually, there are a few elephants in the living room in the form of other central banks that are distorting the bond market. The bond market is not working the way it has in the past because the Fed is artificially manipulating interest rates. The biggest buyer is the Federal Reserve.”
As we reported recently, the Fed now owns a record 16.5% of US debt. In the last 12 months, the Fed has doubled its holdings of Treasuries, adding a staggering $2.4 trillion in US government bonds to its balance sheet – most of that since March. The Fed’s total share of US debt has spiked from 9.3% in Q1 to 16.5%.
Central banks aren’t concerned about losing money on a loan. They aren’t lending money in the way an actual lender does. The Fed isn’t making a business decision. It’s making a political decision.
The Fed is trying to affect policy. It’s trying to influence the economy, stimulate the economy, prop up the stock market. That is the purpose of the Fed buying Treasury bonds. So, the Fed is not looking at Treasury bonds yielding under 1% and thinking, ‘Wow, this is a lousy buy. Why do I want to buy these bonds at less than 1% and hold them for 10 years? We’re going to take a big loss.’ The Fed doesn’t care about losses. The Fed doesn’t have to work for its money. It creates it out of thin air. What do the guys at the Fed give a damn how much they lose by buying these low-yielding bonds? And so when you have the Fed in the market, the whole thing is distorted.”
The Fed’s presence in the bond market also drives speculators into the market. They can buy dips in the market knowing that if worse comes to worst, they can always sell to the Fed.
They can flip the bonds back to the Fed because the Federal Reserve is trying to keep a lid on long-term interest rates because the economy is so loaded up with debt – and again thanks to the Fed. The Fed has to keep interest rates at rock bottom so people can afford to pay. Also, the Fed is trying to maintain these excess stock market valuations. And the key to the overvalued stock market is the overvalued bond market.”
So that’s what’s going on in the bond market. You have speculators who are front-running the Fed. They have no intention of holding the bonds to maturity. And then you have the Fed that will hold to maturity and isn’t concerned about how much money it loses to inflation.
The bond market is broken. You can’t look at the bond market.”
via ZeroHedge News https://ift.tt/3lZCpgL Tyler Durden
DoorDash Shares Open At $182, Up Nearly 80% In Dizzying Debut Tyler Durden
Wed, 12/09/2020 – 12:45
After reaching $102/share last night – conferring a fully diluted valuation of roughly $41BN – a flurry of pre-debut reports Wednesday morning appeared to suggest that DoorDash’s anticipated valuation was moving higher minute by minute. And when it finally debuted at just before 1245ET on Wednesday, its opening price was $182.
After starting out around $102/share last night (itself more than 30% higher than the $75/share expected over the weekend), reporters were gauging the valuation at between $195 to $200 a share just before the action started.
At $102/share, DoorDash’s fully diluted valuation would be roughly $41BN, more than double its most recent private valuation, while raising more than $3.4BN for the company on the day.
Despite the fresh memories of Uber and Lyft’s immediate post-IPO struggles, and DoorDash’s own admission that it might never become profitable, the company’s debut, which immediately preceeds Airbnb’s IPO by a day, is one of the highlights of the busiest weeks for deals of the year.
Though DoorDash isn’t the first food-delivery company to debut on US markets (Uber’s Uber Eats is the standard), the company has roughyl 50% market share in the US. Still, questions about the viability of the business model remain, as WSJ reported in a deep-dive series on the prospects of third-party delivery that the economics of the industry present a difficult conundrum for delivery drivers, restaurants and even customers.
As one NYT reporter reminds us, SoftBank was once criticized for overpaying for DoorDash (Though DoorDash is hardly the only company for which SoftBank overpaid).
this is almost double their opening price
im old enough to remember when the chatter was “how is doordash going to live up to it’s sky-high valuation b/c of the Softbank investment”
Another Twitter analysts reminded us that DoorDash is hardly the only food delivery competitor. In fact, it’s a pretty crowded space, where valuations seem wholly disconnected from reality.
Just a reminder on competition and crowded spaces:
By the time DoorDash was founded, GrubHub, Caviar, Postmates, and OrderAhead all existed and were venture funded.
Didn’t matter. Today, DoorDash is going public at 4x of those competitors combined validation.
According to DD’s S-1, DoorDash reported its first quarterly profit ever earlier this year. And like Uber and Lyft before it, some analysts have warned that DD, once it achieves enough market share, will squeeze both restaurants and its drivers as it grows increasingly desperate to produce profits.
With DoorDash posting its first profitable quarter for a food delivery company leading up to its IPO, I’ll repeat something I’ve said before:
“Make Them Pay”: Michigan Lawmaker Calls On Leftist Soldiers To Attack “Trumpers” Tyler Durden
Wed, 12/09/2020 – 12:45
Is Michigan Rep. Cynthia Johnson trying to stoke civil war?
In a three-minute video posted to her Facebook page, the Democrat from Detroit said “This is just a warning to you Trumpers… be careful. Tread lightly. We ain’t playin’ with you…“
Johnson then added “And for those of you who are soldiers… you know how to do it. Do it right. Be in order. Make them pay.”
Johnson, perhaps realizing what a massively stupid thing she’d done, posted a follow-up video on Wednesday morning which appears to ‘clarify’ that she was talking about ‘soldiers for Christ, against racism and against mysoginy.’
She then went into victim mode, claiming she’s received personal threats after participating in a Dec. 2 Michigan House Oversight meeting featuring Rudy Giuliani – who brought a Dominion Voting System whistleblower that testified to fraud at the TCF Center in Detroit.
Well, lt looks like the Democrats ( who started the Civil War) are looking for a rematch…wow https://t.co/TBrY2BnX1m
Will Facebook suspend Johnson for her obvious call to violence?
Does this qualify as a threat to a specific group, hate speech, cyberbullying, oath breaking, sedition, conspiracy to commit up to & including murder by calling to action a specific, apparently trained militia? @RudyGiuliani@JennaEllisEsq@DHSgov
Russia Warns Citizens Not To Drink Alcohol For Six Weeks After COVID-19 Vaccine Tyler Durden
Wed, 12/09/2020 – 12:30
Russians are being asked to make the ultimate sacrifice; no drinking alcohol for two months after takingthe country’s COVID-19 vaccine.
In a statement to state-owned Tass, Deputy Prime Minister Tatyana Golikova said that Russians will need to take heightened precautions during the 42 days that the ‘Sputnik V’ coronavirus vaccine requires to reach maximum effectiveness.
“[Russians] will have to refrain from visiting crowded places, wear face masks, use sanitizers, minimize contacts and refrain from drinking alcohol or taking immunosuppressant drugs,” she said.
(So, no transplant recipients or HIV-positive individuals?)
A woman receives the COVID-19 vaccine injection in Moscow, Russia. (CHINE NOUVELLE/SIPA/Shutterstock)
And as the New York Post notes, the head of Russia’s consumer safety watchdog, Anna Popova, echoed Golikova’s statement in the Moscow Times – saying “It’s a strain on the body. If we want to stay healthy and have a strong immune response, don’t drink alcohol.”
Russian health officials say the Sputnik V vaccine is over 90 percent effective, but reports say medical workers who have taken the shot have come down with COVID-19. Russian President Vladimir Putin has reportedly refused to take it.
Western experts have expressed skepticism at the speed at which the purported vaccine was developed and Russia hasn’t provided any data to back up its claims for the shot. –New York Post
Over 42,000 have died in Russia from COVID-19 out of a total recorded 2.4 million infections.
Of note, Russia is the fourth-largest consumer of alcohol per person in the world – with the average Russian consuming nearly 4 gallons per year, according to the World Health Organization (2010).
via ZeroHedge News https://ift.tt/33ZbThr Tyler Durden
Elon Musk Says He Has Officially Moved To Texas Tyler Durden
Wed, 12/09/2020 – 12:15
“I have moved to Texas,” Tesla CEO Elon Musk confirmed on Tuesday, speaking in a live interview with The Wall Street Journal.
The admission comes after weeks of speculation as to whether or not Musk would be the latest in a long line of California citizens that defect from the state in favor of Texas’ lower regulations and lower taxes. In fact, Texas has no personal income tax, while California imposes the highest personal income taxes on the rich out of any state in the country, Bloomberg noted.
Musk slammed California in his Journal interview, stating: “If a team has been winning for too long they do tend to get a little complacent, a little entitled and then they don’t win the championship anymore. California’s been winning for a long time. And I think they’re taking them for granted a little bit.”
“Silicon Valley, or the Bay Area, has too much influence on the world, in my opinion. The Bay Area has outsized influence on the world,” he continued, making the most sense we’ve heard from Musk in years.
Musk’s tenure in California lasted two decades, and (for the time being) SpaceX and Tesla still have their headquarters in the state. Musk will likely continue to bounce back and forth between states using his private (non-electric) Gulfstream G650 private jet. In addition, he will likely continue making “frequent international trips to Berlin and China,” where Tesla is expanding.
We brought up speculation that Musk may make the move earlier this month. Prior to that, back in May, amid reports that he was considering the Lone Star State for the location of his next Gigafactory, we asked whether or not Tesla CEO Elon Musk might move to Texas permanently.
In our report earlier this month, we pointed out that Musk had reportedly been “cozying up to Republican Gov. Greg Abbot,” and that he was spending an “inordinate amount of time in the state”, where SpaceX has a test and launch site called the Starship Production Complex.
Previously we also covered Musk’s spat with California over Tesla’s operations back in May when the CEO referred to the state as “fascist”. It was then when Musk said he had decided that Texas would be the location of his company’s next Gigafactory.
Frankly, this is the final straw. Tesla will now move its HQ and future programs to Texas/Nevada immediately. If we even retain Fremont manufacturing activity at all, it will be dependen on how Tesla is treated in the future. Tesla is the last carmaker left in CA.
We also noted late last month that Musk had now become the second richest person in the world, with a net worth that grew by more than $100 billion this year alone.
via ZeroHedge News https://ift.tt/3n5y7pu Tyler Durden
Exxon Surges After DE Shaw Goes Activist Tyler Durden
Wed, 12/09/2020 – 11:55
Exactly two months ago we mused rhetorically (and comically) when some hedge fund would finally go activist on the world’s formerly largest company, Exxon, which in 2020 became a shadow of its former self, seeing its value slashed in half despite a hefty 9% dividend yield (which may or may not be cut in the future) its market cap shrinking to just $180BN (which Snowflake may soon surpass at the rate it’s going).
*CHEVRON TOPS EXXON AS BIGGEST U.S. OIL FIRM BY MARKET VALUE
Will some activist please tell Exxon to halt the dividend and pivot into video streaming
The answer came moments ago when Bloomberg reported that DE Shaw had finally taken up our challenge, and had gone activist on Exxon, sending the oil giant a letter in which it demands the oil major to “cut costs and spending”, ostensibly to preserve the dividend and potentially to prepare the company for a value maximizing transaction. And, as Bloomberg adds, Exxon is reviewing the letter and will comment shortly.
*D.E. SHAW SENT LETTER TO EXXON ON TUESDAY: SOURCES
*D.E. SHAW IS SAID TO PUSH EXXON TO CUT SPENDING, COSTS
*D.E. SHAW IS SAID TO HAVE INCREASED EXXON STAKE SINCE SEPTEMBER
*EXXON REP: COMPANY WILL REVIEW LETTER BEFORE FURTHER COMMENT
While we look for more, we are curious to find out just how big DE Shaw’s stake in Exxon is, and of course what DE Shaw’s strategic vision is. Clearly a key concern is what happens to the dividend which is probably unsustainable at the current price of oil and with Exxon’s current cost structure. It is also why the dividend yield is a whopping 8% (was 10%+ just a few weeks ago) as Wall Street is confident the company will have to slash the generous dividend.
For now, the stock is clearly happy that someone has finally decided to intervene and do something about one of the year’s worst performers.
via ZeroHedge News https://ift.tt/3qAV85U Tyler Durden
Gundlach Asks “Why All The BLM Protests Disappeared One Week Before The Election” Tyler Durden
Wed, 12/09/2020 – 11:55
In his latest, roughly 80 minute DoubleLine webcast, Jeff Gundlach filled all the usual blanks, discussing the economy, the market and the unprecedented divergence between the two, the unsustainable trends in government spending hence the title of the webcast “no end in sight” referring to the explosive growth in US public debt…
… as well as his views and outlook (even if he did not explicitly lay out his 2021 forecast). All of that was to be expected.
What however, was a shock, is what Gundlach said amid his discussion of the US political climate which nobody had expected him to say – and what no major news organization has actually reported perhaps out of fear that it may be canceled by association. Addressing the outcome of the election, Gundlach touched on a very sensitive – to the liberal media – topic, when he mentioned the BLM riots that had spread across the country for much of the summer and fall, and yet “oddly a lot of these protests disappeared one week before the election. Makes you wonder what is going on behind the surface” Gundlach said to what would have been audible gasps from the audience if the audience had microphones.
For those who missed it, the rest of the presentation also had some notable observations starting with his view on economic indicators which suggest that the 10-year Treasury yield could double to nearly 2%, who warned that the U.S. could face higher inflation over the next several years. Pointing out that since the onset of the pandemic, the yield on the 10-year Treasury bond has not exceeded 1%, although it nearly got there in late May and was at 92 basis points when Gundlach spoke. He warned that if the yield breaches the 1% “resistance level,” it could easily rise to 2%, something we first discussed last week when we pointed out that CTAs would puke once the 1.02% level is breached.
In such a scenario, the only thing that could prevent a spike in rates would be yield-curve control, whereby the Fed would purchase longer-dated bonds, according to Gundlach. Moreover fundamentals do not support today’s Treasury rates according to the bond king who noted the the performance of cyclical/defensive equites and the copper/gold ratio say the 10-year yield should be 2%. As such, he urged listeners that now would be a good time for first-time home buyers to take a mortgage, while rates are low.
Addressing inflation, Gundlach expects it to be in the 2.25% range in 2021, but said that it is a “good bet” that inflation will be higher than the mortgage rate of 2.92% over the next several years. That would happen if the Fed went to “true money printing,” which Gundlach defined as “making its debt legal tender”, something which would happen once the Fed launches a digital currency, and which would spark “hyperinflation.”
For now this is not a major concern, even though inflation expectations are elevated based on the Conference Board metrics, but are lower in Michigan consumer survey data. He pointed to the NY Fed’s Underlying Inflation Gauge which has reliably predicted inflation, and it is showing very subdued inflation pressure. The five-year break-even inflation rate has risen from a low of 0.18% in March to 1.85%, but it is still below the Fed’s traditional target of 2%. In other words, inflation is about the same at yield on 30-year bonds, meaning that its real yield is zero, and much higher than the five-year yield.
Gundlach also gave an overview of a struggling U.S. economy. He observed that COVID case counts are declining and the case patterns in the U.S. are trailing Europe by a couple of weeks. Deaths in Europe have peaked, but not yet in the U.S.
Similar to this website, he is worried about skepticism about vaccines in the U.S. and Europe, especially in France. Even if it is free, he said about a third of Americans are hesitant to take one.
Meanwhile, mobility data, which track the movement of people, has not improved since May or June; it’s why restaurant activity is down 60% year-over-year, and he fears significant small business closings now that outdoor dining has closed. Gundlach also noted that hotels are operating at about 40% of pre-COVID levels, and travel, based on TSA data, has been cut in half, noting that “LAX was empty for Thanksgiving.”
Going back to the topic of the presentation (and the top chart), Gundlach said that public debt which has been an ongoing source of concern, has risen dramatically as a percentage of GDP, and surpassed its WWII high. Mortgage debt came down this year, he said, but that was more than offset by the rising federal and state government deficits.
The DoubleLine founder pointed to the velocity of money supply (M2), which has been collapsing, and has been cut in half since the onset of the COVID crisis. He said that the “law of economic physics” shows that incremental debt produces less marginal GDP growth, he said.
Picking up on an observation we have made on numerous occasions, Gundlach said that “the economy is living off of government support” and, referring to the title of his presentation, he asked rhetorically, “Will there be any end?” The “mindset,” he said, is to continue that support. It has led to a spike in disposable income, which has generated a divergent response across sectors of the economy; travel and entertainment have suffered, but other consumer purchases have risen.
As we pointed out many months ago first, Gundlach showed that government benefits as a percent of household income went from 10% to 24% as a result of response to the COVID crisis. It came down a bit, he said, but will go up if there is another fiscal stimulus.
“This does not lead to a healthy economy or a harmonious society,” because so many people are relying on government support Gundlach said, echoing our conclusion that the US is on its way to becoming a banana republic, if it isn’t one already.
There was some good news: consumer-loan and car-loan write offs and delinquencies are down, in part because fewer people need auto transportation. Gundlach called this a “very unusual situation,” which is as a result of government actions. Consumers still lack confidence in the economy, as measured by the Conference Board indicators, with Gundlach noting that people are worried that government programs might end. Obviously.
What all this means for the market is that as the federal debt soars, Gundlach said his greatest conviction call remains a weak dollar. That started early this year, as the dollar went from 103 to 91 on DXY index, weakening particularly against the euro and some emerging-market currencies. “The amount of debt in the U.S. is responsible for this,” as are reduced bond purchasing by foreigners and pension plans. He said he had another high conviction call early this year, which was to buy bitcoin. It is now at approximately 19,000, and has performed much better than gold.
As we noted last night, Gundlach also showed a chart on the China Credit Impulse, an indicator which he said leads industrial metals. It has been increasing this year, which presages strong performance for emerging markets.
The U.S. stock market is at its all-time high based on the ratio of market capitalization to GDP. “This is clearly a non-undervalued stock market,” he said. It is at the highest valuation across a range of metrics:
Addressing the leadership in the market, i.e., the “generals”, Gundlach said that there has been a change in the performance in U.S. equities as the FAAMGs had outperformed the S&P 500 by 50% since September 2019 but that has “rolled over” and the “generals may have abandoned the army.”
He then showed an indicator based on S&P 500 earnings 24 months in the future. Even that indicator shows valuations at dot-com-lock levels; at the same time, the Russell 2000 small-cap index has performed better relative to the overall market over the last month, which Gundlach called a “powerful move.” He said he is “starting to see a reversal,” with the moves in the dollar, FANGS and small caps.
And while U.S. stock performance continues to dominate the rest of the world, particularly over the last 10 years, Gundlach said that emerging market performance will be superior to the S&P 500 going forward.
One final point: hours after Elon Musk said that he was not a Texas resident, Gundlach said that he has heard that as many as 700,000 people have moved from California as a result of the pandemic and its 12.3% income tax rate. While the bond king (who has a house in Buffalo) isn’t moving his firm from California – because other states like Florida and New Hampshire will be forced to impose higher income taxes as they develop the infrastructure to support businesses moving there – if California raises its income tax to 16.8%, which is being discussed, he said he will look more closely at moving.
His full presentation is below:
via ZeroHedge News https://ift.tt/3oGvA5t Tyler Durden
