From Bubble valuations to zombie companies to Cleantech, 2021 is likely to deliver more of the excesses of 2020.
Barring a negative event out of left field, it will take a meaningful interest rate hike and/or corporate tax increase to derail the asset bubble of 2020 that bled into equities, fixed income, home values, lumber, private company valuations, Bitcoin and other asset classes. We certainly don’t see interest rates ticking up for the next two or three years. A tax increase may come in 2H 2021.
- More fiscal and monetary excess: We expect a Biden administration to flood the zone with more pork-laden fiscal spending – another $3-5 Trillion in calendar 2021. This means more of Treasury and The Federal Reserve working hand-in-hand. Further asset inflation and wider fiscal deficits will be the result.
- Look out below for the USD: It is difficult to imagine a scenario in which the DXY trends higher in 2021 and 2022 given the amount of money printing that will be required to support various fiscal initiatives and expansionary monetary policy.
- Night of the Zombie companies: Many zombie companies will hang around (both public and private), allowed to persist only as a result of Fed intervention. Zero interest rate policy and asset purchases being the Fed’s primary enabling programs. Zombie companies are marked by negligible revenue growth if any growth at all, inferior profit margins if at all profitable and inferior products and services – all the signposts of a classic value trap. Plenty of zombie companies exist in Softwareland and Fed intervention has only exacerbated the problem.
- The SPAC bubble will persist: There is a sucker born every minute. Many retail investors as well as momentum-chasing institutional investors are happy to speculate by betting on unproven management teams who wish to fly close to the sun. Look for a number of Cleantech companies to go public via SPACs in 2021 as the Biden administration will make a big push here. Our expectation is for Solyndra 2.0.