Is LONG & Strong about to lose its luster? Massive debt has been the bullish catalysts!

Investors have still been massively long (the vast majority all on the same side of the proverbial boat) “Big Technology”’ on a 10-year basis, entering the year in/at the 98^th percentile it is a bit more subdued on a trailing basis, ~80^th percentile, leaving them a tad bit “underexposed” into 2020/Q4 earnings, but this divergence has already shifted significantly as new net exposure now sits at the 98^th percentile on TTM horizon and the 100^th a percentile again on a 10-year view. So much for investors rotating out of technology names; and we saw that within the price action this past week to name a few”

• v NFLX            (up13.49%)
• v GOOG           (up  9.55%)
• v AAPL            (up  9.38%)
• v FB                   (up  9.21%)

Was this week another major inflection points of a potential rotation back into “Big Technology” or is it a sly head fake we will soon find out (watch the semiconductors for a signal) as undoubtedly, investors have been rewarded over the past decade for following the TFAANG+M playbook.

Interestingly I saw data: this week that the NAAIM (National Association of Active Investment Managers Index) jumped to 106.76% this week from 94.51% equity exposure last week; this is a very extreme reading.  I have been watching our greenback, dollar quite closely currently the commercials traders have been buying the dollar and hedge funds are now sporting record shorts.  Historically commercials usually have it right, and as I last week that may have some short term “counter-trend” negative implications for the market.

While the Dollar has been in a clear downtrend, the recent buying by commercial traders could result in a swift (countertrend) bullish counter-trend relief rally as I said last week this would potentially become a near-term headwind for stocks and commodities that are priced and denominated in dollars.  The incessantly hyped on CNBC [by their paid cheerleaders] re-opening trade could potentially take a significant breather and due to extreme overbought conditions, a likely price-pullback. In the event the dollar does show some short-term strength, you could see a bounce in recently weak sectors like utilities and consumer staples (as well as bonds as yields get compressed).  The massive bullish 75% plus or minus gains off the March 2020 lows are more likely to experience a decent pullback. As I have written in recent weeks, this is the beginning of a near-term massive stimulus induced new business cycle and it does not pay to get too cute trying to predict the depth and timing of the pullbacks as the locoweed feasting herd has been firmly conditioned like Pavlov’s dogs to buy any and all dips no matter how shallow.

Does this mean we will experience a nasty retracement / pullback...not necessarily; but it may mean that a near term pause or pullback is desperately needed to consolidate the massive 75% gains off the March 2020 lows.  

This past Tuesday, Bank of America issued their monthly Global Fund Managers Survey; their key takeaways support my general view that we can expect decent breather / retracement in weeks ahead likely when most of the behemoth player earnings have been posted.  The implication I am trying to convey is that the short-term risk-to-reward ratio is skewed more than it has been for the 9+ months we have been in a non-stop liquidity (fiscal stimulus and FED easy-money policies) bullish trend in the face of increased skepticism every step of the way.  Interestingly we have seen that overall cash level of investors dropped to a paltry 3.9%, the lowest level experienced since March 2013, triggering one of my recent “sell-signals”

Also, another bearish contrarian signal that recently tripped for me, overall exposure to Emerging Market stocks increased a whopping 7.4-percentage points to a net 63% overweight (the highest overweight for Emerging Market stocks on record)...NOW with investors the most optimistic on massive profit expansion since the levels, we saw back in 2002 meaning that they are “extremely bullish” said one-directional sentiment raises the overall risk that a market correction is “potentially close at hand.”  Despite these and other technical and fundamental indicators pointing to a near-term top and market weakness we cannot underestimate the massive power of unabated gigantic government stimulus(s) and how they placate and euphorically enhance the bullish spirits and reckless buying. 

We have seen a huge A tsunami wave of deficit/debt stimulus from the CARES act about $2.34 trillion the recent $935 billion Covid-19 relief bill and now another $1.9 trillion proposed from Uncle Biden called the “American Rescue act” and just when you thought it could not get worse Uncle Joe Biden has proposed another $2.0 trillion in what he calls the “Climate and Infrastructure package.”  If we just add those items up we are at ~$6.7 trillion if we couple that with another ~$3.0 trillion or so of balance sheet expansion by the FED and you are approximating $10 trillion in massive stimuli (almost 48% of current GDP).

• Here is what the well-primers believe what is coming in the next 2 massive stimuli proposed packages:
• An additional $1.9 trillion to basically tide over consumers and businesses until so called normalcy returns (if it ever does).
• $1,400 stimulus checks (in addition to recent $600 payments to middle- and lower-income households).
• Supplemental weekly unemployment benefits would rise to $400 from $300 and last through September instead of March...the unemployed and those gaming the system will be delighted.
• Extremely needed $350 billion to state, local and territorial governments.
• A proposed $15.00 an hour minimum wage (unlikely to get passed as the GOP is adamantly opposed to helping the working class at the expenses of businesses).
• Eviction moratorium extended to March 31^st as a landlord I dislike this can-kicking proposal.
• Student loans payments will remain on hiatus regarding payments until September 30^th.
•  $30 billion to help struggling households catch up on overdue rent, and energy bills.
• $20 billion to state and assist with a national vaccination program, including launching community vaccination centers around the country and mobile units in hard-to-reach areas.

With Uncle Bidens 2^nd proposal for $2.0 trillion for Climate and Infrastructure programs and to eliminate 0% Carbon from the power grid by 2035...and just some of the highlights I have referenced below.

ØRebuild Roads, Bridges, Infrastructure.

Ø  Ban Fracking on federal land.

Ø  Cut emissions in half by 2030.

Ø  Cash for Clunkers: EV trade in program.

Ø  500,000 new charging stations around the country.

Ø  Converting Capital Gains tax rate to Ordinary Income rate (Wall Street, fund-managers etc.  will hate this as they have been gaming the system for years).

Ø  Increasing Corporate Tax Rate from 21% to 28% (this alone could result in a loss of ~$20 to $24.75 in SPX-500 earnings).