The Melt-Up is Here!
After a +28% year, the S&P breaking and holding 2,800 in 2019 was only a surprise to stubborn perma-bears and those who underestimate the government’s willingness to do whatever it takes to keep the party going. Mark my words now: liquidity was the rainmaker in 2019 and will perpetuate an equally impressive rally in 2020.
As Tom Cruise famously said in Jerry Maguire, show me the money – the Federal Reserve is showing us the money month after month to the tune of $100 billion injected into the American banking system every month now. The message is loud and clear: the Fed’s got the market’s back no matter what.
It’s an experiment of epic proportions and they’re picking up the pace. Within four months’ time, the Federal Reserve’s balance sheet has expanded by more than $400 billion. That makes QE1, 2, and 3 look like chump change, and the current “not QE” bond-buying program is expected to last until at least April, though we all know they’ll extend it much longer than that.
After all, why wouldn’t they? It’s a tried-and-true formula for keeping the S&P 500 afloat. It’s no coincidence that the one month the Fed let its liquidity pump take a break, the stock market dipped:
The correlation between the Federal Reserve’s liquidity infusions and the S&P 500’s performance is incontrovertible. The government has figured out a way to manipulate the stock market not just over the long-term, but month-to-month.
As an informed investor, do you really want to fight the Fed right now?
You can’t afford to fight an entity with unlimited money-printing power – and I do mean unlimited. They’ve got the money supply growing at a rate of 7.4% per year, and the Fed has fully admitted that it’s ready to let inflation “run hot” and “play catch-up.”
That’s bad news if you’re planning on just sitting on a pile of cash in 2020, as those dollars are losing value fast.
You’ve got to put your money to work, and with the S&P 500 paying a dividend that’s higher than Treasury bond yields, don’t expect investors to sit around and watch their cash and bonds languish for another year.
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Investors are sitting on $3.4 trillion in cash right now just waiting to deploy it.
Even if the Federal Reserve didn’t use its liquidity gun to force the stock market up – which it will – hedge funds, index funds, and retail traders will buy each and every little dip going forward.
If those magical levitation devices weren’t enough, there are also corporate buybacks, which will provide a backstop if there’s ever any threat of the S&P 500 going down:
According to the most recent statistical data, corporations are prepared to buy back around $600 billion worth of their own stock shares in 2020. Between the corporations, the Federal Reserve’s money-printing machine, and sidelined investors itching to buy any dip, there’s a powerful triumvirate of forces working towards the same objective: a stunning market melt-up.
How high will they take the stock market in the coming year? With a baseline S&P level of 3,200 to start the year off, 3,600 is practically assured and 4,000 is a definite possibility. These figures are irrespective of earnings outcomes in the S&P 500, so if earnings happen to be overwhelmingly positive, the sky’s truly the limit.
After a robust 2019, it takes guts to say that 2020 will be just as good – or even better. But it takes even more guts to fight against the government, corporations, and hedge funds. This market might be crazy, but betting against it would be insane.
In general, we’re going to be able to make money on any asset right now due to the melt-up, which only makes me more conservative.
Why not hold safer assets that cash flow and will also appreciate during this melt-up?
If you’re looking for our top cash flow ideas for 2020, click here.
Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!
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This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. We are invested in every idea mentioned in today’s letter, we will not sell any investment mentioned in this letter for thirty days of any email or article mention. All of the ideas mentioned today are longterm ideas, and we have no intentions of selling for the next several months. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.