Accommodating the Fed’s Accommodative Policy, Aftermath of the GameStop Saga, and Biden’s Tax Proposal
January 29, 2021 | FIRESIDE CHARTS
The latest “advance” estimate on 4Q2020 U.S. GDP is reporting 4.0% and this will now serve as an inflation gauge for the Fed. Speaking of the Fed, while they maintain an accommodative policy and their response has helped lessen the pandemic-induced economic disaster in the short-term, this “super-easy monetary policy” will have to be reversed at some point. A preview of Biden’s tax proposal may be an indication of how we plan to repay all of this new debt. Turning to equities, as we look at valuations versus profits, the question remains—is the market disconnected from fundamentals? This question has been magnified by the GameStop saga which has forced regulators to evaluate whether websites’ members (like those of r/WallStreetBets) are giving “advice,” if the trading apps are “exposing investors to unnecessary trading risks”, and if trading platforms (Robinhood, E*Trade, Interactive Brokers, etc.) have the authority to “randomly” halt trading. This will be a historic moment in the story of our “free” markets.
1. As expected, the U.S. economy grew at 4% in 4Q20. The Fed is most interested in this data for their inflation gauge:
Source: The Daily Shot, from 1/29/21
2. The Fed and U.S. Government response has kept the Covid crisis from becoming much worse, but at some point all this liquidity is going to have to be withdrawn from the system…
Source: The Daily Shot, from 1/29/21
3. The Fed reiterated its accommodative positioning with no change in site. Add the recent volatility and thus yields retreated:
Source: The Daily Shot, from 1/28/21
4. Let’s not forget the tens of millions of Americans who have and are still losing their jobs to Covid induced circumstances…
Source: Oxford Economics, from 1/29/21
5. Do/will fundamentals matter?
Source: The Daily Shot, from 1/28/21
6. A synopsis:
Source: The Daily Shot, from 1/28/21
7. As heard on the news, regulators are already questioning whether or not these websites are giving unregistered (illegal) advice. Stay tuned!
Source: The Daily Shot, from 1/28/21
8. Regulators are already looking at these online websites for SEC and other rule violations. The little guy is going to get hurt and in aggregate presents more systemic risk…
Source: The Daily Shot, from 1/29/21
9. The websites promoting the retail investor are also encouraging 100:1 leverage via options. When the market moves the wrong way, many positions will be wiped out. Greed in, fear out.
Source: The Daily Shot, from 1/28/21
10. To wit, just ask the investors who got in at the end. This is not investing, it is not speculating. It is leading those who are ignorant to the “slaughter”…
Source: Bloomberg, from 1/29/21
11. Trading volumes are shattering records…
Source: The Daily Shot, from 1/28/21
12. The frenzy is already having side effects…
Source: The Daily Shot, from 1/29/21
13. Ignorance is bliss…many new market amateurs tried to buy Gamestop but ended up buying the wrong stock in Australia….
Source: The Daily Shot, from 1/28/21
14. How are we going to pay for all our new debt? According to Armanino, LLC, here is what is being considered. If it all passes, taxpayers making $401,000, with State income taxes of 5%, will have to pay ~67% of their income in taxes.
Source: The Daily Shot, from 1/29/21
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.