The TikTok Git Up Stock Market and Sentiment Results

This week, nearly every headline was, TikTok is too Chinese or TikTok is not Chinese enough so I had to take a second to find out what the heck is TikTok?

Turns out the U.S. Government is worried that the Chinese Government is using the social media app to get into US computers/phones/data. My take: if you see articles about a start up Chinese Hedge Fund outperforming with spreads on US Large Cap stocks, Ill know they breached my site through TikTok!

So I downloaded the app and set up a profile @OfficialHedgeFundTips so I could see what all of the commotion was, and why I was one of the few people in the developed world who hadnt yet downloaded TikTok (over 1.5 Billion Downloads globally).

My takeaway? America has retained its hegemonic hold on global dancing power, while simultaneously bartering to retain its economic supremacy. I have no idea how to use TikTok, but its unlikely youll see me join the ranks of prolific dancers on the app anytime soon. But never say neverit looks like fun!

In the context of the barter (trade negotiations), the market gits up and gits down on a regular basis or in the lyrics of one of the most popular dance themes on TikTok, Blanco Browns Git Up, the market vacillates on each new trade headline:

Take it down now, take it, take it down now
Take it down now, take it, take it down now

Bring it up now, bring it, bring it up now
Bring it up now, bring it, bring it up now

To listen to the song, Google: Blanco Brown "Git Up"

If you dont believe that millions of people are dancing to this song in front of their cell phones (from ages 10-80), just ask your 13 year old. Its ubiquitous.

So how do these lyrics apply to this weeks stock market commentary?

In last weeks note and video (below), The Lil Nas X Old Town Road Stock Market, we discussed that short term overbought conditions could warrant a mini-shakeout to scare the late money that has come into the market in recent days and weeks, but that due to market structure and most active managers coming into the end of the year underweight equities and behind their benchmarks it would likely be short-lived.

To see last week's video and article visit:

Yesterday, we saw a taste of the on again, off again nature of the negotiations. First we were down on the Reuters report that Phase 1 might not get signed until 2020. Then we recovered a bit following the Fed Notes which discussed the possibility of a standing repo to stabilize the overnight funding rates.

For the Chinese watching through my TikTok app, standing repo is Fed Speak for unlimited liquidity injection (a.k.a balance sheet expansion)! Simply put, it means that it is in your interest to cut a Phase 1 deal (buy some pork, gas, oil and beans that you need and use anyway) because Jays got our side covered regardless of what happens (and you dont want to fight the richest guy in the world dont bring a knife to a gun fight):

If the past couple of months are any indication, we should be able to unwind the $745 Billion of Quantitative Tightening that took place from 2017-2019 over the next 4-5 months.

The Fed has added $288 Billion of liquidity since August 28 (~2.5 months), so at a pace of ~$115B/month moving forward, all of the the tightening in 2017-2019 that caused the slowdown would be unwound by Springtime.

Im sure Chair Powell didnt meet President Trump for breakfast this week empty handed. His mama taught him to always bring a gift when someone invites you to their home for a meal. President Trump and Chairman Powells goals of continued growth are aligned. Their methods are divergent, but they will get to the objective nonetheless.

Last week we laid out the 7 conditions that supported continued strength for equities in the intermediate term (6-9 months) despite any short-term pullbacks or bumps we might have to weather. You can find the list and explanations here:

As for the short term, this weeks AAII Sentiment Survey result Bullish Percent came in at 34.24%, down from 40.72% last week. Bearish Percent lifted to 29.03% from 24.82% last week. Market participants curbed their short term enthusiasm somewhat over the past week.

This was confirmed by the CNN Fear and Greed Index which came in 13 points (from 87 last week to 74 this week).

And finally, this week the NAAIM (National Association of Active Investment Managers Index) dropped from 92.26% equity exposure down to 72.25%. The implication here is that on the next positive Phase 1 headline, managers will have to doubly scramble to get their exposure up into year-end.

At the end of the day, President Trump needs this deal for his 2020 re-election and to fend off the noise in the House about impeachment (despite having no risk in the Senate). The Chinese need this deal to recover growth and political stability (which is eroding by the minute). And Wall Street needs this deal to maintain their earnings estimates for 2020. The longer this drags on, the harder it will be for analysts to keep numbers up near double digit growth for 2020.

What no one is counting on is a Phase 1 deal getting inked and 2020 earnings estimates not only stabilizing at 9.7% growth, but starting to improve. The pressure apparently is not high enough yet for the Chinese to do what is in their interest, but as Hong Kong continues to devolve, the pressure will mount, a deal will get done, and then both sides can win.

In the mean time, we continue to use any short term turbulence to position for further intermediate term improvement. We followed our own advice and trimmed some runners. We also continue to add in those laggard sectors/stocks that are just beginning to have money rotate into them. You can see our September article on Biotech and our October article on the Exploration and Production sector here:

Google the two article titles:

Biotech EPS UP 8.58%, Price DOWN 9.52% (in last 2 months)

Snake OIL? How Portfolio Managers View Exploration & Production Stocks

Biotech is already up 18.6% in the last 6 weeks after the article, but there are still pockets of opportunity. Exploration and Production is flat from our article a few weeks back. We recently discussed one of Warren Buffetts picks in the sector Occidental Petroleum on Fox Business last week. You can review that commentary here:

So as Blanco Brown emphasizes in his catchy lyrics, we have just come off six weeks of a Bring it up now market.

Whether we get a few more days/week of a Take it down now market is to be determined, but I would not bet against the pressures on both the Chinese and the US to get Phase 1 tucked away, nor would I bet against the possibility of $100B of monthly liquidity from the Fed and $20B/month from the ECB.

Just as there was a lag to slow down growth from two years of tightening, there will be a short lag to realize increased growth now that easing is back in place (having started this summer with 75bps of cuts and $288B of balance sheet expansion).

Dont fight the Fed