Monday, December 16, 2019

"3,333 By 3/3: BofA Expects Q1 S&P Meltup, And Just One Thing Can Spoil The Fun" (plus the FT's David Keohane)

Welcome to the party folks.
We started yammering about S&P to 3,000 when Jeremy Grantham of all people started thinking out loud about the number in 2017, later revised in January 2018 to a greater than 50% chance of "Bracing Yourself for a Possible Near-Term Melt-Up":
A range of 9 to 18 months from today and a price rise to around 3,400 to 3,700 on the S&P 500 would show the same 60% gain over 21 months as the least of the other classic bubble events....
—page 3
Summary of my guesses (absolutely my personal views)
■■ A melt-up or end-phase of a bubble within the next 6 months to 2 years is likely, i.e.,
over 50%.
■■ If there is a melt-up, then the odds of a subsequent bubble break or melt-down are
very, very high, i.e., over 90%.
■■ If there is a market decline following a melt-up, it is quite likely to be a decline of some
50% (see Appendix).
—page 12
Mr Grantham subsequently recanted the likelihood figure in an April 2018 interview with The Economist by backing it off to the charlatan's favorite probability: "40%".
(not that Mr. G. is anything close to a charlatan, just that the 40% figure is the default for folks who want to appear to never have been wrong)

In December 2018 we reposted the original figure via:
The Financial Times' David Keohane On The Role of Weather In Popular Insurrection (also Jeremy Grantham)
Mr. Keohane is currently based in Paris where in addition to SocGen and Renault and CMA CGM he is also looking at sociology in the streets. His latest at the FT, earlier this morning:
Police clamp down on fifth weekend of French protests 
*****
And the reason for this visit to Mr. K's Twitter feed?

We've been touting the S&P 500 to trade to the original target that GMO's Jeremy Grantham set over two years ago, at least 3000 and on up to 3300 before the real fun-and-games begin.
While looking at some search results ('search blog' box, upper left) this from early 2018 dropped out:

Thursday, January 4, 2018
The FT's David Keohane's Shorter Jeremy Grantham  
And after that rather lengthy introduction, the gist of the headline story from ZeroHedge:
 ....As BofA's Chief Investment Strategist, Michael Hartnett, writes, "the market is primed for a Q1 2020 risk asset melt-up" as i) Fed & ECB are still adding liquidity, ii) the two main global macro risks, Brexit and a Phase One US-China trade deal, appear to have been resolved for the time being, in the process removing lingering USD & 10Y TSY risk premiums. As a result, BOfA expects returns to be front-loaded in 2020, with the S&P500 hitting 3,333 by March 3rd, and the 10Y Treasury rising to 2.2% by 2/2 (Feb 2).
 Is there anything on the horizon that can spoil this late cycle melt-up fun for the bulls? Just one thing according to BofA:
As Hartnett writes, "the biggest vulnerability for markets in the 2020s will come from today's bond market bubble: >US$13tn negative yielding debt (of which c.US$1tn corporate), negative German/Swiss curves, Austria 100-year bond yields 
On the 10 year yield our last guess (Dec. 11) was:  
...What would get things going would be another increase in yields at the longer end. From today's 1.8240% on the 10-year, backing up to the 2.00 - 2.05% range should give the banks room to make some money and give lift-off to the stocks.
10-year yield: 1.8840% last

S&P 500 3,195.83 up 27.03 (+0.85%)  
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