Ideas - Double Bubble Ending, Stock Markets Will Go Down

Gregory C. Beier

Macro ESG Strategist

Sunday, June 20, 2021 08:20 PM EDT

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Ideas - Double Bubble Ending, Stock Markets Will Go Down

Analysis:

1. Vaccinated Market Risk is Ending

We had written on December 17 in “Vaccinated US Equity Market Will Hold,”

“In spite of these dire facts and likely projections, because the Fed has pushed so much money into the system, giving Airbnb a sky-high valuation on day one, and because of the vaccine - nothing is going to come down.

Equites are looking through the winter at the rebound that will come in the summer from economic activity snapping back.

The stock market is quite literally vaccinated from the covid crisis.”

The Fed confirmed that they are going to up their tightening schedule and are talking about tapering which makes total sense as the pandemic infection rate is going lower with the vaccination rollout. Therefore, it is reasonable for the US stock market to head lower.

2. The Bigger Problem is the Trump Bubble

We had written on February 12, 2020 in “Is President Trump Delaying Coronavirus Infection Reports?,”

“President Trump’s reelection strategy is a huge bet on stimulus from cutting taxes, interest rates, and regulation to pump-up the stock market and the economy. If the “sugar high” continues long enough, his gamble is that is that he will win the presidential election in November.”

President Trump couldn’t have done more to inflate the stock market and the economy in the run-up to the election. Particularly troublesome was when he berated the Fed until it cut interest rates three times for a total of 75 basis points starting in August 2019 that pushed the US Treasury market down to roughly no real yield.

3. Double Bubble Ending

We are keen to be short Nasdaq futures mainly because its dominant Big Tech names have been the biggest beneficiaries of price appreciation during the Trump Administration and during the Pandemic. Hence, it’s only logical that when the Fed’s protective bubble is unwound, that we should expect the Big Tech sector to also continue falling when the Trump Bubble collapses as well. We call this the Double Bubble - the first, constructive; the second, destructive.

4. Regulatory Scrutiny for Big Tech

President Biden just appointed Lina Kahn, a 32 year-old Columbia law professor, whose expertise is understanding the anti-competitive strategies of Big Tech to Chair the Federal Trade Commission (FTC). This clearly signals that under his administration, things are going to change substantially for Big Tech. There is also a bi-partisan bill that’s been introduced to break-up Big Tech - something that we wrote about on October 29, 2020 in “The Break Up of the Tech Platforms is Here,”

“As Macro ESG has been writing about for some months, the arrival of the Biden administration will lead to Big Tech being tamed. Ultimately, this is good for the sector’s long-term growth, but it won’t be easy in the beginning. At the minimum, European GDPR standards will be implemented in the US. Then, non-core businesses will be spun off. Of particular interest is how the information hegemony that is at the core of these businesses will be altered.

The entire investing tableau is about to change and while tech will still be strong, the regulatory environment will change so significantly that their profitability and growth profile will shift into an altogether new and, dare I say it, diminished utility’ish role in the economy.”

5. America and EU are Fed Up with Big Tech

We view the above political developments against Big Tech as the logical outgrowth of both the public (i.e., Macro S in ESG) and the government (i.e., Macro G in ESG) are exhausted by the persistent problems that Big Tech has created in America. The Europeans are also done with it too as indicated by the EU’s large fines against Google. In fact, the G7 global tax treaty is in many ways a tax on Big Tech.

Strategy:

Long Term Model Portfolio

100% T-Bills 

Leveraged Aggressive Model Portfolio

After getting stopped out of our NASDAQ short earlier this week, we are short Nasdaq futures again in the Leveraged Aggressive Managed Portfolio.

Short 85% notional September Nasdaq 100 futures @ 14121.00,   Stop 14221.00, Risk: 0.60%, Trade Target: 3850, Risk Reward Ratio: 1 to 102.7

Short 20% notional September SP500 futures @ 4239.75,  Stop @ 4269.75,  Risk: 0.31%,  Trade Target: 1817,  Risk Reward Ratio: 1 to 37.7 

Long-Only Unleveraged Model Portfolio

100% T-Bills