Money is a tool. It's something that supports your life!

A Year in Review

1) Fastest bear market ever, Shortest bear market ever, Fastest bull market ever, Fastest correction ever!

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2) Oil traded negative for the first time ever

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3)  Largest drop in GDP ever

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4) Largest job losses ever
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5) Highest closing VIX ever

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6) Stock/bond correlation broke down

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7) The world came to a stop

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Source: Strider Elass (@StruderElass). 31 Mar. 2020. Twitter

8) Corporate bond ETFs (LQD) fell 20% in 2 weeks

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Source: Bloomberg

9) Tesla with a market cap of 659 Billion dollars is worth more than Nissan, Ford, Fiat-Chrysler, Honda, BMW, GM, Mercedes and Volkswagen combined!

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Source: Sdw. investing (@ShadowInvesting). 20 Dec. 2020. Twitter

10) 100 years of style trade: 2020 was one of growth’s greatest years ever

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Source: Cornerstone Macro


11) The market “disconnected” from the economy (GDP) for the first time ever

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Source: Cornerstone Macro


12) P/E expansion drove strong equity returns for the 2nd year in a row!

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Source: Cornerstone Macro


13) These popular stocks would be much lower if they only traded off of earnings! (without P/E expansion)

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Source: Cornerstone Macro


14) Financial conditions improved at a record pace, as the economy and P/E rose sharply


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Source: Cornerstone Macro


15) Market composition became even more extreme as cyclicals underperformed growth

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Source: Cornerstone Macro


16) Central banks around the world came the rescue

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Source: Haver Analytics

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17) Call option buying exploded to the upside

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18) Largest stocks have the biggest weightings ever

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Source: BofA Global Investment Strategy, Bloomberg


19) Stock market is not cheap

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Source: BofA US Equity Strategy, Factset

So…2020 was quite the eventful year.  The most important part of 2020 was the massive intervention by central banks around the world. 

A Story on Markets... by Sahil Bloom

It is the year 1500 and you enter a market in Renaissance-era Italy.
 
There are buyers and there are sellers.
 
Prices of the various goods are determined by the interactions among these individuals.
 
Now in walks Mr. FEDerico, a man of endless means.
 
Mr. FEDerico climbs a tower in the centre of the market and proclaims, "I am a buyer of any and all goods in this market, regardless of their price."
 
He climbs down off the tower and exits the market to return to his mansion.
 
What happens when he leaves?
 
Sellers, knowing they have a buyer, increase their prices. Buyers, previously unwilling to pay these prices, realize they can flip and sell the goods at a higher price, so they increase their bids.
 
Even you, the silent observer from the future, are tempted to get in on the fun!
 
The fun continues for a while. Buyers and sellers flip goods at higher and higher prices, turning profits as they do. Wealth accumulates.
 
The poor and middle class are forced to go to a market several cities away. They cant afford to pay 5000 Florian for a bag of corn
 
But one day, Mr. FEDerico returns to the market, climbs the tower, and proclaims, "This market is incredible, bustling and vibrant. I am no longer needed and will move on to new cities in need of my brilliance!"
 
What happens next?
 
Without a buyer at any price, sellers frantically try to sell. But buyers are silent, and prices plummet.
 
Back in your time machine, you see the irony - Mr. Federico never actually had to buy anything, only his intention to do so.
 
"History is wild," you say, "I prefer 2020." 
 

The last time the Federal Reserve hinted that is might stop its intervention in the markets was at the end of 2018. Here’s what that looked like: -20% correction.  This time the intervention has been considerably larger.

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Technical Comments

The yearly S&P500 candlestick chart (each bar is one year) has a big outside up bar for 2020. This year closed on its high at a new all-time high, and far above last year’s high. This is a sign of very eager bulls, and it makes at least slightly higher prices likely in 2021.

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The bulls hope that it is the start of a new, stronger leg up. But when an especially strong bull bar comes late in a bull trend, it often attracts profit takers within a couple bars (years). Therefore, it has an increased chance of being an exhaustive buy climax. That typically leads to about 10 bars and 2 legs of sideways to down trading. Consequently, while this is an extremely strong bull trend, it probably is getting too strong. It will probably lead to a decade-long trading range beginning within a year or two. There was about a 10-year trading range after the 1965 buy climax, and again after the 2000 buy climax. Each had at least a couple pullbacks of 40 to 70%.

On the yearly chart, a 10-year sideways to down move of 50% is still just a pullback, because the stock market will continue to be in a bull trend on the yearly chart for at least another century. There is no sign of a top, and the S&P 500 should go at least a little higher. However, this rally will probably lead to a prolonged trading range beginning within a couple years, like after 1965 and 2000.
 

The Portfolios

December was a busy month in our portfolios. We trimmed our bond holdings and took profits where available. We also sold Teldoc and Workhouse.
 
We added CAE, Cameco, Centerra Gold Corp, Fubo TV, The St. Joe Company, Linamar Corp., Nio Inc, Renewable Energy Group and Vroom Inc.
 
Snapshot of some of the new names: 

Cameco Corporation

Cameco Corporation produces and sells uranium. The company operates in two segments, Uranium and Fuel Services. The Uranium segment is involved in the exploration for, mining, and milling, as well as purchase and sale of uranium concentrate. Its operating uranium property is the Cigar Lake property located in Saskatchewan, Canada. The Fuel Services segment engages in the refining, conversion, and fabrication of uranium concentrate, as well as the purchase and sale of conversion services. This segment also produces fuel bundles and reactor components for CANDU reactors. The company sells its uranium and fuel services to nuclear utilities in the Americas, Europe, and Asia. Cameco Corporation was incorporated in 1987 and is headquartered in Saskatoon, Canada. 

fuboTV Inc. 

fuboTV Inc. operates a live TV streaming platform for live sports events, news, and entertainment content in Europe and the United States. Its platform allows customers to access content through streaming devices, as well as on SmartTVs, mobile phones, tablets, and computers. The company is headquartered in New York, New York. 

Linamar Corporation

Linamar Corporation together with its subsidiaries design, develop, and produce engineered products in Canada, Rest of North America, the Asia Pacific, and Europe. It operates through two segments, Transportation and Industrial. The Transportation segment engages in the design, development, and manufacture of precision metallic components, modules, and systems for vehicle and power generation markets. It manufactures precision-machined components and assemblies that are used in transmissions, engines, and driveline systems; driveline systems, such as power transfer units, rear-drive units, and engineered gears; and engine components, including cylinder blocks and assemblies, cylinder heads and complete head assemblies, camshaft assemblies, connecting rods, flywheels, fuel rails, and fuel body/pumps. This segment serves automotive original equipment manufacturer and commercial vehicle customers. The Industrial segment designs and produces mobile industrial equipment, primarily aerial work platforms, telehandlers, and agricultural equipment. It offers mobile products, such as compact and rough terrain scissor lifts, vertical mast lifts, and booms primarily to construction equipment rental companies. This segment sells harvesting equipment, including combine grain header attachments, self-propelled windrowers, pick-up headers, and hay products through wholesale dealer and distributor network. In addition, it designs and manufactures combine corn and sunflower headers; and private label agriculture and industrial equipment assemblies. Linamar Corporation was founded in 1966 and is headquartered in Guelph, Canada.

Renewable Energy Group Inc.  

Renewable Energy Group, Inc. provides lower carbon transportation fuels in the United States and internationally. The company utilizes an integrated production, distribution, and logistics system to convert natural fats, oils, and greases into advanced biofuels. It operates through Biomass-Based Diesel, Services, and Corporate and Other segments. The company produces biomass-based diesel from various carbon feedstocks, including distillers corn and used cooking oils, and inedible animal fats, as well as from soybean or canola oils. It is also involved in the purchase and resale of biomass-based diesel, petroleum-based diesel, renewable identification numbers, California Low Carbon Fuel Standard credits, and raw material feedstocks acquired from third parties; and sale of biomass-based diesel produced under toll manufacturing arrangements with third party facilities using its feedstocks. In addition, the company provides day-to-day management and operational services to biomass-based diesel production facilities; and construction management and general contracting services for the construction or upgrade of biomass-based diesel production facilities. Further, it sells petroleum-based heating oils and diesel fuels, as well as operates fermentation facilities. The company owns and operates a network of 13 biorefineries, including eleven biorefineries located in the United States and two biorefineries located in Germany. Renewable Energy Group, Inc. was founded in 1996 and is headquartered in Ames, Iowa. 

​Returns on our 60/40, 70/30, and 80/20 portfolios before fees: As of January 8, 2021

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This year we outperformed the TSX by 3% before fees and did it with half of the volatility.

And Something Interesting...

This month we'd like to share an article written by Lance Roberts called Shades Of 1999 As “Market Mania” Returns In 2020. He looks at the similarities between today and 1999 and some of the problems in the markets today. Click here to read.