More fuel for market fire?

Abraham George Macro View

Markets are very hot. I am not talking only about the most tradeable equity markets. I am also talking about SPACs. If you don’t know what SPACs are you need to google up . As it will take some space for me to explain that.

The SPAC space was very hot last year. About 248 shell IPO’s raised 85 billion dollars. We are only over a month and two weeks into the new year and 135 companies have raised 42 billion dollars. About half of last year’s total money.

If we look back in the Obama years during the GFC, the allocated stimulus following the failure of Lehman Brothers , a good sum found its way into ‘new technology’ startups. Uber, Airbnb and WeWork to name a few were the main beneficiaries of that.

With the Biden administration it is clear that there is much bigger stimulus coming . Public markets will be again big beneficiaries of this. The SPAC structures that will allocate this money will be more towards the ‘clean energy’ movement.

The Biden administration wants to undermine the stimulus what the Trump administration already did and is painting a weak picture of the economy. That’s their argument for a much bigger stimulus to the tune of $1.9 trillion to rebuild the economy. While the bond market will take a hit, think the bigger escape valve will be through the dollar. Meanwhile stocks, housing, commodities and Bitcoin will continue to rise.

Equities

The US markets will be closed tomorrow on account of President’s day. Conditions are ripe for a top. Volume was very heavy on Wednesday and Thursday last week while Friday had the lowest volume for the week. New highs in S&P 500 and Nasdaq 100 were not confirmed by the Dow and Nasdaq composite. The closing NYSE a/d ratio was 1.18:1 . From a trading perspective it is risky to be long at current highs.

Bonds

Movements in bond prices should lead to 164 levels . Any levels above 167 are good levels to be short.

Euro

Prices should rise above 1.2350. Only a move below 1.2000 should invalidate this outlook.

Gold

The corrective rally in Gold topped out at 1856. As long as this level holds think gold is headed for much lower levels.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.