Forecast for an Insane 2021

 You are seeing some truly amazing charts in some of these small cap names.  The latest one is BNGO, a biotech company that diluted their shares several hundred percent over the course of 2020, lingering around 50 cents and out of the blue, the stock goes up over 1300% in a few days to over 7, gaining nearly $1 billion in market cap.  On nothing.  Then you had the copycat sympathy plays as the retail investor piled into other low dollar biotech stocks like CHEK and SYN, expecting the same thing.  

There is so much new and dumb money in this market, that it is infecting even the more experienced money that are trying to get in front of their buying in a game of musical chairs.  The volume is through the roof on these plays.  BNGO traded 579 million shares on Monday.  

The Robinhood herd goes from one pump and dump to another, gifting some of these companies with a tremendous opportunity to raise capital at bloated stock prices, some who are doing it aggressively, like SNDL, IDEX, KNDI, NNDM, while others just sit on their hands, being short sighted by not taking advantage when their stock becomes way overvalued due to daytraders.  

Just like bitcoin, the action is a sign of the times.   Bubbles don't happen in isolation.  They happen in bunches, one after the other, or simultaneously.  The sports card bubble in the late 1980s happened after a big bull market in stocks.  The Beanie Babies bubble in the late 1990s got huge during the beginning of the dotcom bubble.  The bitcoin bubble in 2017 coincided with a big rally in global stock markets at the time.  And again in 2020. 

The animal spirits are flowing freely on Wall Street.  When it gets this hot, and this widespread, with near record stock valuations, its not sustainable for the long term.  As in more than 1 year.  Let's generously say that the insanity started after the big move higher last November post election, with the EV craze going into hyper drive.  IMO, we have at most another 10 months of this craziness before hitting the peak and crashing lower.  At most 10 months.  At a minimum?  Probably until the majority of the population has gotten the Rona vaccine, side effects be damned, so probably 6 months.  So my ball park estimate for the top of the bubble is 6 to 10 months.  

During those 6-10 months, I'm guessing SPX goes up another 10-15%, so SPX 4100-4300. Then, like most bubbles, after they pop, there will be an extended bear market, probably taking back all the gains made in 2020 and 2021, so at least down to 3250, but more likely down to 3000.  Unlike the previous 2 bubbles, this one will be aggressively defended by the Fed, who probably will bring out their biggest bazooka yet:  equity ETF purchases, taking a page from the QE trailblazer, the BOJ. 

That doesn't seem too bad, and I don't expect a dotcom or financial crisis 50% bear market drop from high to low.  But a move from 4200 to 3000 would be extremely painful, especially for those who got into the money game late in the bubble. 

The results are out for the Georgia runoff:  it will be a 50-50 split in the Senate, meaning that VP is the tiebreaker.  This means that legislation will be determined by the moderates, both Democrats and Republicans, as they will be the swing voters.  That means big stimulus but no tax increases.  Most moderate politicians in the middle have no backbone, they pick and choose policies by looking at the polls, so they will choose the popular aspects of the Democrat agenda:  big stimulus checks, big government spending, and oppose the unpopular aspects of the agenda:  tax hikes.  So in the end, you will end up with a truly monstrous budget deficit, putting a huge amount of pressure on the bond market.  

That will put the ball in Powell's hands.  Will he try to keep rates low and thus increase bond purchases even as the SPX bubbles higher?  Or will he just go with the current rate of purchases and accept higher long end rates?  

I believe he'll try to accept rates going higher up to a certain point, maybe up to 2% on the 30 year, but if it gets higher than that and the stock market revolts and demands more QE, expect him to fold like a cheap lawn chair and give the market what it wants.  The guy has no backbone, he was scared shitless back in December 2018 when the market went down and didn't like his final rate hike, and he won't do that again.  

He is a caver.  A folder.   The free money will continue until the market self combusts on its own, which will be from a torrential flood of SPAC issued POS equity jammed down the throat of TINA investors who eventually suffer huge losses as the fair value for most of these private but soon to be public companies is a goose egg.  When these new investors realize that they've been had, they'll sour on the stock market and say its a rigged game and stay away for another 10 years like last time.   

For the first half of the year, expecting a weak bond market, a weaker dollar, and a strong stock market, especially small cap stocks.