On the earnings front:  We're getting into the heart of earnings.  Remember, coming in, Wall Street was looking for a contraction in S&P 500 earnings for Q4.  So far, the big banks have led the way with good numbers, showing a strong consumer.  That’s a good sign.  And Wall Street is projecting energy, as the sector to be the biggest gainer on the year. 

With the above in mind, if you believe (as I do) that we're in for a year of above trend economic growth (finally, 10 years after the financial crisis), then we should like the two sectors that had the biggest weighting dislocation in the S&P 500 over the past decade.  In 2006, the financials represented 22% of the S&P 500. Today, the financials are just 13%.  In 2006, the energy sector represented 10% of the S&P 500.  Today its 5%. 

So, was this an abnormally large move in gold?  Is it something meaningful? 

It turns out, this type of aggressive move has some rare company.  Take a look at this chart I worked up on the 20-day moves in gold since the beginning of the Financial Crisis.  This $146 move in gold puts it in what I called the "big event zone" (Iran blowing up oil tankers, the surprise Brexit vote, the ECB intervening to avert sovereign debt defaults in Europe, the global financial crisis).    

You’ll notice half of the group was either a financial or industrial conglomerate.

Clearly they like the prospect of seeing the opening up of China (giving international business access to its 1.3 billion population) and the opportunity to own full control of a business in China. But they are also simply interested in a more stable geopolitical environment, and therefore a better economy (and one with more visability from which to plan and execute).

On the note of “opening up China,” Lui mentioned in his speech that China’s per capita GDP is now exceeding 10,000 U.S. dollars. Aside from the sheer size of the Chinese population, that per capita GDP makes for a very valuable consumer.

Why? Historically, every major developed world economy hit a point of per-capita GDP that triggered an exponential rise in the consumption of commodities. When you hit a certain level of per capita wealth you get the kind of improvements in quality of life that begin to drive demand for things like electricity, air conditioning, cars, etc.

With this in mind, remember this chart of commodities we’ve been looking at here in my Pro Perspectives notes …

Markets always seem to find the pain point for speculators. And the painful position for oil, at that time, had been the long side. And markets tend to squeeze those positions out just before finally moving.

George Soros is a good example in his Thai baht trade back in the 90s. He tried to force the central bank in Thailand to abandon the currency peg and was ultimately forced out of his position (from the cost of carrying the position) just before they de-pegged/devalued the currency.  Hall had a similar fate with oil.

Have the hedge fund closures of the past year similarly capitulated at just the wrong time?  Maybe.

The post-Great Recession decade has proven to be unlike any other trading environment seen by some of these long-tenured hedge fund managers — distorted by government and central bank intervention.  Now we enter a year, finally, where the path has been paved for markets to be less dictated by macro factors (trade disputes, central bank policy changes …) and moreso by the fundamental drivers of the economy and corporate profits.   And it’s a year where things are lined up for a resuscitation of inflation (a missing puzzle piece, over the past decade, for those that have made their living solving the global market puzzle).

And economic growth went on to do this …

With this in mind, as we open 2020, following the 2019 Fed flip-flop, stocks are already off to a hot start.  But it doesn’t mean we should expect things to cool down.  Here’s a look at the “January effect” on the late 90s …