Jack Ma Suspected to Be Missing; 2020 in 12 Stunning Charts; Enrique Abeyta's bullish outlook; Great News Quiz of 2020

By Whitney Tilson

Monday, January 4, 2021
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1) Wow, what a reminder about the type of government we’re dealing with in China… Jack Ma Suspected to Be Missing. Excerpt:

Mystery has deepened about the whereabouts of Chinese billionaire Jack Ma following reports that the Alibaba founder has not made any public appearance in the last two months…

The entire episode is further intriguing given that in the past, there have been a few billionaires in China who suddenly disappeared.

Between 2016 and 2017, during China’s infamous anti-corruption drive, a number of billionaires went missing. While some reappeared, stating that they were ‘helping the authorities,’ others never returned.

This is why I won’t invest in China (ditto for Russia) – at the end of the day, there’s no rule of law.

2) I enjoyed this ZeroHedge article: 2020 in 12 Stunning Charts. Here are my favorite parts:

  • The rally off the [March 2020] lows (Exhibit 9) has surpassed all of the four greatest rallies off the lows of the past century (1929, 1938, 1974, and 2009).
  • Wall St. optimism heading into 2021 means the S&P 500 trades on a trailing [price-to-earnings ratio] PE of >25X (Exhibit 10), a level only exceeded in 1921 and 1999.
  • The capitulation of consensus to “don’t fight the Fed,” front-running MMT, secular tech-led productivity… many catalysts exist for more years of big equity gains… but an old-fashioned bubble remains most plausible catalyst.
  • Wall St. in 2020 was also marked by significant polarization of returns: in recent months, the top five companies in the S&P 500 represented a breathtaking 25% of the index (Exhibit 11).
  • The rally broadened by style, sector, size & region in 2020, and the year ended with the majority of equity & credit investors adopting a fashionable “barbell” approach to investing.

3) This related ZeroHedge article had two more charts that caught my eye…

The first shows that short interest as a percentage of the market cap of S&P 500 Index companies is at the lowest level in at least 16 years, reflecting no doubt the pain that short sellers have been feeling nearly the entire period since March 2009:

And the second chart shows that a basket of stocks most popular with retail investors (think the Robinhood crowd) outperformed those owned by hedge funds by 14 to 1 in 2020!

4) So, do all of these signs mean the market is about to correct (or worse)? My colleague Enrique Abeyta, who knocked it out of the park in 2020, thinks not. Here’s an excerpt from his weekly newsletter, Empire Elite Trader, in which he explains why:

Moving on to the outlook for 2021, I remain bullish.

I can break this market view down into four key pieces:

1. Interest rates remain low.

Inflation remains low, and global financial authorities likely want to keep the liquidity flowing given the ongoing recovery from COVID-19. This is unlikely to change in 2021.

2. Massive liquidity injections.

This is the same rationale as above. In the chart below, you can see the year-over-year percent change in “M2” – the measure of money in the economy. I’ve shared several versions of this chart throughout the year… and you can see that the U.S. Federal Reserve’s liquidity injection is still moving higher:

Similar to the interest rate situation, it’s likely that global monetary authorities keep the money (or “oxygen”) flowing to the economy.

Remember, more money supply means more money to buy assets – whether precious metals, baseball cards, cars, real estate, bitcoin, or stocks.

As long as this liquidity flows, the bias in asset prices will likely be upward.

3. Global synchronized economic growth.

In my 25-plus years of looking at financial markets, I’ve never been as confident about economic growth as I am right now.

It just comes down to the math.

Think about it… The globe went into a hard lockdown from March to May. Restaurants, gyms, most retail stores – closed.

In 2021, many (if not most) of those will be open. That means more economic activity than the year before.

This will continue pretty much through 2022… and it will happen everywhere.

I’ve never seen global synchronized economic growth like this… and it’s a positive for the stock market.

4. Massive company-level earnings growth.

This works using the same math as above.

Think of airlines, for instance. Those that survive will see massive increases in revenue and earnings. So will casinos… and so will restaurants.

All of this will drive overall earnings growth higher. And where earnings go, stocks follow.

Many investors will respond, “How much of this is priced in?”

As regular Empire Elite Trader readers know, I don’t think that’s necessarily how it works.

This sentiment implies that there’s some valuation at which the market is “correct.” Instead, stocks (and markets) go up when there are more enthusiastic buyers than sellers… and down when the sellers are more enthusiastic.

With low interest rates, lots of incremental money printing, and massive economic and earnings growth, the buyers will likely be much more enthusiastic.

Despite this bullish outlook, keep in mind that we will see corrections.

Remember, a correction is different than a bear market (although it may not feel that way in the heat of it).

In my view, a “bear” market is a multiyear downdraft that takes the market down 30%, 50%, or even 70%. It’s likely that we’ll see another one (or possibly even more than one) of these in our lifetimes… just not in 2021.

But with the kind of explosive upside we’re currently seeing this market – especially fueled by massive liquidity – don’t be surprised by a 30% “correction.”

In the type of market I envision, investors can see some of the best returns of their careers… but the plan and how they trade that plan will be paramount.

Thank you, Enrique!

He had a monster year in 2020… and I can’t wait to see what he has lined up for 2021. If you’re not already subscribed to Empire Elite Trader, you’re missing out… You can learn more and sign up right here.

5) Despite only correctly answering 18 of 30 questions – an embarrassing performance! – I really enjoyed the New York Times’ Great News Quiz of 2020.

Best regards,

Whitney

Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

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