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Japan’s central bank is in a nightmare situation…and so is the economy of the Rising Sun. The Japanese yen wants to rise sharply against a basket of major world currencies. The Japanese central bank wants to weaken it in order to ease the burden on exporters.

USDJPY

The situation has reached an impasse. Against the background of the global crisis, the yen is set to strengthen sharply. This is always the case when Japanese investors sell assets abroad (including stocks and bonds) and transfer the proceeds into the yen.
A logical question might arise. Why do they do that anyway? The fact is that all Japanese corporations and funds, which work on the domestic market, keep their balance sheets solely in yen. And that means that it is important for them how much yen they have returned to the bank account and reported back to their investors.
Next problem. Fall of the US dollar. The US dollar is falling against the euro, the pound sterling, and emerging market currencies. At the same time it should fall even faster against the yen. However, if you look at the chart above, you can see that the Japanese currency is strengthening against the US dollar at a much slower pace.
The key question is “why”? There are two reasons for that. The Japanese central bank is stimulating the economy by printing huge amounts of new money. And with all its might, it is trying to squeeze that money out of the country (via exchange to the same euro and dollar) to keep inflation from rising.
But even that does not help much. That is why currency intervention is the “weapon of the last day”. It can happen if the level of 100 yen per 1 dollar is broken through. Otherwise, the exchange rate can move sharply towards the 90 level, seeing that the Japanese central bank takes no action.
Conclusion. In the nearest future the Japanese Yen will remain in a narrow descending corridor, which can be easily recouped by a pullback. The main thing to remember is that volatility can jump much higher in both directions, in case of breakdown of the level of 100 Yen per 1 USD.

09.30 Construction PMI for December for Euro Area
11.00 Core Inflation Rate for December for Euro Area

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The first 2 trading days of the new year have been extremely volatile for black gold. Take a close look at the chart below. On Monday we saw a strong reversal red candle, which first showed a new high for the last 10 months. And on Tuesday another reversal candlestick, but a green one, with an even longer daily range. So what happened in the market?

OIL.WTI

Monday

On Monday, two events collapsed the oil price at once. UK Prime Minister Boris Johnson announced the start of the third lockdown. In his statement he mentioned that the number of patients in the healthcare system is already 40% higher than the spring peak. At the same time, the rate of new hospital admissions is increasing. Mortality rates are also rising.
That would be all well and good. But we know that with some lag the situation could repeat itself in continental Europe and then in the US. This would be a huge blow to the already low demand for oil.
Talks that Russia and Saudi Arabia cannot agree on a cap on oil production in the new year have also added fuel to the fire. Against this backdrop, the oil price simply plummeted on Monday.

Tuesday

Tuesday, however, brought us new news. Apparently the OPEC+ countries have realised that the negotiations cannot drag on any longer behind the scenes. Otherwise the situation of spring last year might repeat itself, when even a sharp reduction in oil production could not stop the strongest fall in prices.
Representatives of Russia and Saudi Arabia reached an agreement under which the current limits on the volume of oil production for the first 2 months of this year are fully maintained. This was reported by the Wall Street Journal (WSJ), citing its own sources of information.
This decision is to be approved at the negotiations of OPEC+ countries on 5-6 January. At the same time according to the latest data, Russia will still be able to increase oil production by 65 thousand barrels per day.
On Wednesday, we are in for a very interesting day. A third reversal candlestick in a row is possible. On the back of profit taking after the OPEC+ agreement and the worsening situation with COVID-19.

14.00 German consumer price index for December
14.15 ADP private sector employment report for December in USA
20.00 US Federal Open Market Committee meeting minutes

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The first newsletter of the year is of course about the first cryptocurrency, and you can see why! On Sunday, Bitcoin was actually trading at $34,800, more than $5,000 higher than in the last days of December.

The first bears on the foreign exchange market and the stock exchanges have been in mischief since the opening of trading on Monday. Massive margin calls and position closures by brokers.
We have warned our subscribers of exactly this development, under the low liquidity conditions during the New Year holidays.

What happens next?

The decisive factor is what happens with the opening of the US trading session. It is possible that the price will fly up by another 10-15% when the stops are closed. There will simply be no one left in the market who wants to short Bitcoin again. However, another scenario is also possible. First, stops are removed above the $35,000 level and then profit taking and a sharp reversal are possible.
This could be favoured by regulators. This is one of the last chances to dramatically defeat bitcoin before everyone in the world realises that it will become a major investment asset for the rest of the year.

We remain conservative

Although BTC has risen 15% in just 3 days of the new year, we still do not expect levels of USD 100,000-200,000-300,000 etc. in 2021. These levels are being vigorously predicted by a growing number of analysts, including from the banking sector. The number of such forecasts is likely to increase sharply in January. Our conservative forecast is that BTC will grow 2-3 times from its closing level of $29,000 by the end of the year. That would be a range of $58,000-$87,000. And of course, we’d love to be wrong on the downside!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

This is our last newsletter of the year. And it won’t be quite the usual one. Let’s try to imagine what traders and investors can look forward to in the coming year, 2021.
1.Bitcoin is becoming a new investment asset that the world recognises. After crossing the $50,000 per BTC mark, the capitalisation of the first cryptocurrency will reach $1 trillion. And no one else will be able to ignore it.
We assume that many nations around the world, especially the U.S., will try to strike one last blow to shake bitcoin. If it fails, there is nothing anyone can do about the asset.
2.Gold will finally lose out in the eyes of young investors, to BTC. Why exactly “young”? People who are now 60-80 years old and who own most of the capital in the world, it is very difficult to make them change the values on which their lives were built. But the young do not have such a long historical memory and decidedly don’t understand why gold, which is totally losing out to BTC in many ways, is needed at all.
Yes, gold will still be 5-10 times the capitalization of BTC during the year. However, the dynamics of money flowing from one asset to another, will only increase.
3.Oil. The world will deal with the COVID-19 pandemic in the second half of 2021. Against this backdrop, the price of 1 barrel of WTI could even reach $60 at a moment’s notice. However, demand will not be fully recovered in any case. But the shale companies will once again sell a huge amount of futures for a year ahead. Then they will unseal some wells and fill the market with oil that has already been sold, lowering its price again.
4. the US stock market. There is no reason to expect anything to change in 2021 compared to the current year. The only difference will be lower volatility. Unless there are new global cataclysms, US equities will slowly rise. As zero interest rates will remain unchanged and the world’s leading central banks will continue to print money.
5. the US dollar. We lack consensus on this issue. The US dollar is capable of bringing surprises. At the end of the year it could either rise sharply or fall sharply against a basket of the world’s leading currencies.
A lot will depend on the new US President Joe Biden. If he completely focuses on the problems that exist in America today, increasing aid to the economy due to the pandemic, we will see a decline of the dollar. If he instead focuses on the “outside world” which Donald Trump refused to do, we could see a strengthening of the dollar.
Either way, the coming year will be very interesting.

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

On Wednesday, terrible news came out for the crypto industry. The US Securities and Exchange Commission (SEC) has filed a lawsuit against Ripple. The agency alleges that the California-based blockchain company sold unregistered securities in the form of XRP tokens to retail investors for seven years. And generated $1.3 billion in revenue.

BTC

For those who only follow BTC, a little clarification. Ripple is the 4th most capitalised cryptocurrency. The company that issued it is based in the US and works closely with US banks. It is a shareholder in the world’s second largest money transfer system, MoneyGram.
One could argue that 99% of cryptocurrencies are even more vulnerable to potential SEC claims. So this is indeed a black day for the cryptocurrency market. Ripple tokens are down 35% in the moment.
Against this backdrop, bitcoin, by mid-day, had fallen from $24,000 to $22,900. There was panic in the market and a massive sell-off of any altcoins. But, suddenly, bitcoin surged upwards like a phoenix bird, briefly surpassing the $24,000 level again.

What does that tell us?

The first cryptocurrency is in the strongest bullish trend. Any pullbacks, even on the worst news, are used by investors to ramp up purchases. Speculators follow the usual pattern: they sell on a fall, but they cannot buy back the asset (cheaper) any further, the price is constantly rising. Thus, more and more “smart money” is pouring into the market, standing on the trend. The situation resembles what we saw in late spring and summer on the US stock market. Any pullbacks were immediately redeemed.
Therefore, in the last days before New Year and the first days of the new year, we could see very strong moves in the low liquid market. There is a high probability of not only touching the $25,000 level, but also significantly exceeding it.

What awaits us today?

01.00 Address by Bank of Japan Governor Kuroda

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

23.12.2020 – Special Report. A bitter case of “sell the news”: Tesla shares completed their first day on the S&P 500 on Monday. And it plummeted by a hefty 6.5 percent. Yesterday was hardly any better, with another 1.5 percent drop. If that is not a bad omen for the overheated overall market. We analyse what the mega-event means for investors.

Sellout at Tesla

Sobering performance of the giant: Tesla investors had to witness how the share, which had previously been pulled upwards by call options like a dust storm, suddenly became a loser. Up to now it had been going steeply uphill: Last week Tesla had reached a market value of around 615 billion dollars. The e-car manufacturer thus surpassed Toyota, General Motors, Daimler, Volkswagen, BMW, Honda and Ford together – all these manufacturers, which have mutated into dwarfs by comparison, only made 580 billion dollars. And Tesla has hardly made any profits so far. However, we don’t begrudge the ingenious Serbian-Croatian inventor Nikola Tesla his late tribute on Wall Street.

Sell the News

But for Tesla shares, the previous week may have been the peak. Craig Irwin, an analyst at Roth Capital Partners, told Bloomberg, “Hedge funds will treat this as a negative catalyst for Tesla given buying pressure eases off very quickly.” So it could go further downhill. Especially as the share is now hovering at around 640 dollars, quite far above the 50-day line, which was last at 505 dollars. And the 200-day line as the next possible stop was at 315 dollars.
Index pioneer Rob Arnott believed in the bursting of the bubble even before the SPX took off. He recently published an article called “Tesla – The Largest-Cap Stock Ever to Enter S&P 500: A Buy Signal or a Bubble?”. Arnott dug through 31 years of data and found that a stock that makes it into the top 100 drops 7 percent in the year after it joins the index. Not a good sign for the SPX. On the other hand, the share that was thrown out of the index for the newcomer gained 20 percent. An interesting argument, then, for the share of Apartment Investment and Management, which has lost 46 percent this year.

Maybe the air is out

According to Arnott, the index decision-makers at S&P Dow Jones Indices tend to misbehave in this way: “buy high and sell low. And further: “too much dependence on companies whose best days may be behind them.” Arnott told Bloomberg: “It’s run up 800% from the March lows. Now you want to add it?” Since the news of its inclusion in the S&P 500, the stock has risen another 50 percent – the question is what positive news is left now, he said. Market strategist Vincent Deluard of StoneX was also less than enthusiastic. He wrote “Time to Fire the S&P 500 Index Committee.”

Goldman does not see a big problem

Chief Equity Strategist David Kostin of Goldman Sachs, on the other hand, took a positive view of the index inclusion, which may not be entirely altruistic. He wrote: “when Tesla joins the S&P 500 next week it will lift the index P/E ratio by just 0.4 multiple turns, much less than most investors expect.” The share will only have a weighting of around 1.5 percent. In other words, nothing will actually change and even a volatile giant like Tesla will not affect the index. And then Kostin’s somewhat contradictory main argument – which the index operators probably also see: If Tesla, with its stellar performance, had been part of the index all year, its return would have climbed by 2 percentage points. So the stock does have some influence on the index.

Apple or checkout

We think: Tesla has to deliver now and bring in profits – otherwise the share could quickly deflate a lot more and drag down other tech stocks as well as the entire SPX. The share brings a price-earnings ratio of around 280, so so much hope and euphoria must first be justified in real business. Especially since other well-known manufacturers such as VW and Porsche are also coming up with interesting e-cars and Tesla is not a monopolist.
The remaining possible positive news is the possible inclusion in the Dow Jones. In that case, many fund managers who track the index will have to buy more shares – as was already the case before the inclusion in the SPX. Perhaps the current setback was just a completely natural pocketing of profits. Also partly responsible for the selloff was the fact that Apple announced plans for its self-driving car – what mean timing of “Project Titan”. Perhaps TSLA will recover from this little competitive shock.

Sign for a top

But perhaps the appearance of the mega-share TSLA is a bad omen for long investors – a signal for the peak of the bull market. We already know this from the dotcom bubble some 20 years ago: Great global market leaders making zero or little profits were traded on the stock market at gigantic valuations.
We are keeping an eye on the situation for you – the Bernstein Bank wishes you successful trades and investments!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The coming year 2021 brings with it two huge risks to sterling at once. Withdrawal from the deal with the EU without an agreement + the new COVID-19 strain rapidly spreading across Britain.

GBP/USD

British Prime Minister Boris Johnson has rejected requests from Conservative Party lawmakers to extend talks with the EU in the new year 2021 on the parties’ future relations after Brexit. This was reported by The Guardian newspaper on Monday. “Our position on the transition period is clear. It will end on 31 December. Our decision will not change,” the paper quoted Johnson as saying.
If the parties do not meet each other, in fact, a full customs regime will be imposed on the borders of Foggy Albion from January 1. Of course, this will hit the economy, the UK background market and the pound sterling hardest.
However, this was predicted months ago. The Black Swan has come from a very different direction. The new COVID-19 virus strain has already led to flight closures with most EU countries. But this is just the beginning. If the situation continues in the same vein, a radical solution in the form of the closure of the Channel Tunnel to cars and a total ban on British citizens entering the EU is possible.
The first target for the English pound will be 1.30 in the Pound/USD pair, further things might just roll downhill. However, we have to keep in mind the following. A sharp decline of the American dollar is also possible in parallel. Therefore, from the speculation point of view, it is more interesting to look at the EUR/USD pair, which, in the short term, risks rising to parity.

What awaits us today?

14.30 US Personal Spending in November
14.30 US Personal Income for November
14.30 US Personal Goods Orders for November
16.00 New home sales in the U.S. for November

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

22.12.2020 – Special Report. There is a lot of rumbling in the Bitcoin market. On the one hand, JPMorgan has just issued a potential price target of $650,000 for BTC. On the other hand, there is a lot of trouble brewing in Washington. Bitcoin disciples fear regulation of the e-currency – a deadly embrace of politics.

JPM sees potential $650,000

Early New Year’s Eve firecracker from JPMorgan: In his last “Flows and Liquidity” report of the year, quantitative analyst Nikolaos Panigirtzoglou from JPMorgan has fired a truly remarkable price rocket: $650,000 for BTC could be it.
First, the analyst looks anxiously at the newly created debt – mainly via the issuance of $13 trillion in new US government bonds, the 2020 level has climbed to around $21 trillion. According to JPMorgan’s calculations, all financial assets in the world are now worth almost 300 trillion dollars. The creation of air money out of thin air naturally fuels demand for real assets.

Parity with gold

And here comes the interesting comparison with the usual inflation hedge gold: all mined gold in the world brings it to a market cap of 12 trillion, according to JPM – which is 27 times that of Bitcoin, which even at its all-time high only comes to around 443 billion dollars. If Bitcoin reaches parity with gold, BTC would have to rise to 650,000 dollars.

Life insurance buys BTC

That could take a while. BTC is hedged on the downside, Panigirtzoglou says, pointing out that the momentum from institutional demand is simply too great at the moment “(to) allow any position unwinding by momentum traders to create sustained negative price dynamics”. In other words, he probably does not believe in falling prices. In fact, about a week ago, the life insurance company MassMutual reported investing 100 billion dollars in Bitcoin. So the e-currency is becoming increasingly accepted even in conservative circles. And retail traders believe in BTC anyway, as a look at the futures shows. Last Thursday, the open interest in futures reached a new record of 1.4 billion dollars.

JPM continues “difficult not to characterize bitcoin as overbought at the moment”. However: “the inflows into the Grayscale Bitcoin Trust, at $1bn per month currently are too big to allow any position unwinding by momentum traders”. This fund is also the canary in the mine for BTC traders, he said: “any signs of significant slowing in the flow trajectory for the Grayscale Bitcoin Trust 9 would raise the risk of a bitcoin correction similar to the one seen in the second half of 2019.” So much for the bulls’ party.

Fear of crypto-regulation

The bears also have arguments on their side. On Friday, the U.S. Treasury Department announced new rules for virtual currencies: Banks and other financial institutions are to keep records and verify the identity of customers for some transactions. Details are still pending. An unloved crypto-regulation, then. Joseph Young from CoinTelegraph calmed the nerves of the BTC bulls: The threat of regulation of the sector is credible and has also had a negative impact on crypto prices in the past; however, the matter is already priced in and a crash will therefore not happen.
Jeremy Allaire, CEO of the payment service provider Circle, said that a possible regulation would be harmful for the entire cryptocurrency sector. Then the all-clear was given again: rumours had recently been circulating in the scene that only transfers worth more than 10,000 dollars would have to be reported. Everything could be half as bad as feared – especially since conservative institutional investors who bring some lobbying power with them are also becoming increasingly involved.
We think: Whether and how the regulation will turn out is still completely open in view of the change of government in the USA. However, a fatal blow against the unloved digital currency competitor is possible by several central banks around the world. So you see: The situation in the crypto market remains exciting – the Bernstein Bank keeps you up to date and wishes you successful trades!

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

There are probably 2 diametrically opposed and disastrous scenarios based on the rise or fall of the dollar in 2021.

DXY

Above is a weekly chart of the DXY dollar index. We have posted it to understand exactly what is happening to the US dollar globally. We can see that the US dollar is falling disastrously against the major world currencies in the DXY index.

We propose 2 completely opposite and rather disastrous scenarios for investors. They can be fulfilled by the 4th quarter of 2021.

1.The US dollar falling 20-30% against a basket of major world currencies.

The fall of the US dollar could accelerate. The following inputs contribute to this: the huge amount of unsecured money printed by the US Federal Reserve, the election victory of US President Joe Biden as well as the end of the COVID-19 pandemic.
All of these factors “in theory” lead to a weakening of the US dollar. However, this could prove to be a real disaster for the emerging countries. Why? In fact, the Americans would be exporting their own inflation to the rest of the world, through the depreciation of their currency.
What would a sharp rise in inflation in South-east Asian countries, for example, lead to? First of all, a fall in the value of their bonds and rising bond yields. This would mean higher borrowing costs and put enormous pressure on businesses and local stock markets, which are already in bad shape, not to mention the total paralysis of the tourism business.

2.A sharp strengthening of the US dollar and the taking of the 1.0 level for the euro/dollar pair.

The scenario in point 1 seems the most likely to happen. However, what happens when everyone expects the same thing? Correct! The expected scenario plays out no more than 50% of the time.
An angry market can turn completely around and the US dollar can start to rise quickly. The absurdity is that this could also be facilitated by the end of the COVID-19 pandemic. Only the logic of the market will be slightly different. Since the pandemic is ending, then there is no need to print new money.
If no new money has to be printed, then the old money should be withdrawn from the system to prevent a massive increase in inflation. And that could lead to the collapse of the stock market, which is an inflated bubble all over the world. And it is the emerging markets that are going to collapse the most. Investors, getting rid of stocks and bonds denominated in local currencies, will go back into American dollars.
We all know what that leads to. It creates a rush demand for American treasuries. And an absurd situation is created. Yields on them drop sharply, and the U.S. dollar rises sharply at the same time.
Which of the 2 scenarios above will we see in 2021? Nobody knows, the main thing traders should remember is not to get in the way of the locomotive and try to look for market logic.

What awaits us today?

02.30 Bank of China interest rate decision
14.30 US Federal Reserve Bank of Chicago National Activity Index for November
16.00 EU Consumer Confidence in December

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

18.12.2020 – Special Report. Rebalancing of funds at the end of the year”.

Of course, no one wants to say goodbye to a frenetic market – and many believe that it will go on forever. But this is exactly where we have to quote Warren Buffett: “The market is a lot like sex, it feels best at the end.” In fact, there is a concrete argument for an interruptus in the near future: at the end of the year there is a threat of a sell-off on the stock market because of the portfolio rules of large funds. The bull market led to an overweighting of equities here, and this must be corrected.

Already at the end of November, JPMorgan had sent out a drastic warning: According to this, “some $160 billion in negative equity rebalancing (read selling)” is pending by pension and investment funds. If the December rally continues, funds could dump another $150 billion or so of assets, as they have to maintain the 60/40 ratio between equities and government bonds. In other words, the value of equities has risen too high in the meantime. Of course, forced selling in a dried-up market at the end of the year is likely to have enormous consequences.

Threat of outflows from pension funds due to Corona

And there is another little-noticed bearish detail that Larry McDonald’s reported in his “Bear Traps Report”. According to this, a small fiscal loophole in the CARES Act (Corona Aid, Relief and Economic Security Act) could cause further substantial outflows from pension funds. The programme was launched on 27 March this year in the amount of 2.2 trillion dollars. Under Section 2022 of the CARES Act, the 10 per cent tax penalty for an early withdrawal before retirement is waived if someone is under 59.5 years old, hit by the Corona crisis and withdraws up to $100,000 from their retirement savings from passive managed funds, i.e. index funds. The window closes at the end of the year. Many households left high and dry because of the Corona crisis could use the opportunity to cash in.

Dollar alert in the money flood

And what should investors look out for when they are looking for a warning signal of a correction? First and foremost, the dollar. Investor Sven Henrich from NorthmanTrader.com recently pointed out an interesting correlation, which you have of course also noticed long ago: Dollar down, market up. And vice versa. Specifically: “I’m not a currency trader, but like it or not we are all currency traders now as the movements of the dollar and equities are tightly linked.”

In a world that no longer sees any risk, a sell-off threatens if the greenback regains strength. In November and December, for example, the dollar dipped enormously, which is not surprising given the extraordinary expansion in the money supply. Literally: “This acceleration in M1 money supply in 2 weeks is the most aggressive in US history yet, even more vertical than during the height of the crash in March. Why now? Why is the Fed not confronted with this? What are the consequences? Why is nobody asking these questions?” We think: Rest assured that a lot of professional investors are wondering how long this steep curve can continue to shoot north.

The looming Biden disaster

“The Hill” sees disaster looming – Joe Biden is pitiful, he is like a dog that has finally caught the bus and will now soon end up as roadkill. Monetary policy cannot make up for deficits in his realpolitik. And all the announcements, for example of a New Green Deal, could not be financed.

Biden’s only message was that he is not Trump, wrote political veteran Grady Means, once an adviser to Vice President Nelson Rockefeller. “The deadly trap is that Trump did very well on many key measures and Biden inevitably will do much worse, creating a failed Biden presidency.” For example, he said, Trump has ensured a gigantically fast availability of Corona vaccines – Biden will have to take over the complicated distribution. The tax increases announced by Biden and the hidden tax of inflation, which would be pushed by the various Corona stimuli, were further dangers: Just as under Barack Obama, they would lead to a flight of capital and higher unemployment. All this in comparison to the enormously successful predecessor: “Trump delivered spectacular growth to the economy, record private-sector jobs and record low unemployment for Blacks, Hispanics and women. Real wages rose under Trump and the wealth gap got smaller.”

We add: These are all strong factors for a bear market on Wall Street. In addition, China will probably push the USA to the wall. Biden is no match for Beijing because of his clan’s corrupt dealings in the Middle Kingdom. Which is ultimately worth considering a China long trade. The Bernstein Bank wishes good timing and successful trades.

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