By Gorilla Trades. Originally published at ValueWalk.
In his Daily Market Notes report to investors, while commenting on the global semiconductor market growth, Louis Navellier wrote:
Q4 2020 hedge fund letters, conferences and more
The Biden Administration’s Infrastructure Plan
Finally, the Biden Administration’s infrastructure plan is largely being well received, since both political parties back new infrastructure spending. However, support for infrastructure spending can quickly breakdown after proposals on how to pay for the infrastructure as well as infighting on “pork” projects breaks out in Congress. Joe Biden was wise enough to pledge to work with Congress, so I suspect an infrastructure bill will be passed.
As far as raising taxes are concerned to pay for infrastructure, the proposed corporate tax increase was not a surprise, so there was no negative stock market reaction. The most important factor is the tax rate on dividends and long-term capital gains must remain the same, otherwise companies may curtail paying dividends. If the qualified dividend tax rate rises to 39.7%, then companies will likely curtail their dividend payments, since they are already taxed at corporate level, so they deserve to be taxed at a lower rate, since dividends are double taxed.
Members of Congress were disappointed that the Biden Administration did not propose increasing the state and local (SALT) deduction from $10,000, since it hurts many higher tax “blue” states. As a result, I expect a lot of infighting in Congress about the Biden Administration’s proposed tax increases.
Negative Real Rates And Gold Bullion
One way to gauge where real interest rates are going is to keep an eye on TIPs yields, which at last count were -0.69%. That reading means that the nominal 10-year Treasury yield has to rise by 69 basis points and inflation has to remain constant in order for real interest rates to turn positive.
Inflation is expected to rise, but in my view the Fed may intervene in the Treasury market somewhere in the 2.0% to 2.5% range, as it did during World War II, so it is entirely possible we won’t see positive real interest rates for some time, perhaps for much longer than the last time this happened, in 2012-13. I do not think we have seen the lows for real 10-yr yields, which may be in the negative 3-4% range, if not lower.
If real rates remain negative for a long while, as I expect, then I doubt gold bullion has major downside risk at present levels. Gold is down from last summer’s record $2,000+ highs and declined to levels last seen before COVID became a global pandemic in March 2020. With deficit spending off the charts, one could argue that the fundamentals for gold have rarely looked so good, yet we are $300 off the peak.
Semiconductor Market In Focus
Worldwide semiconductor market growth is expected to accelerate in 2021. It’s important that investors not get too caught up with the back-and-forth of the growth vs. value debate. High-tech companies that are crucial suppliers to cyclical companies stand to benefit hugely from the economic rebound, arguably more so than the companies they supply. This might be why Nasdaq is off 8% in a market where the shares of some leading chip and chip-equipment makers are at new highs.
The takeaway is that regardless of the ongoing growth versus value debate, the chip and chip equipment sector can claim to be both value and growth. They perform well in deflationary environments, when most of the economically sensitive industries are out of favor, and they should perform just as well and maybe even more so as all the businesses they touch begin to flourish as GDP reaches a 6%+ growth rate.
The post Global Semiconductor Market Growth To Accelerate In 2021 appeared first on ValueWalk.
Sign up for ValueWalk’s free newsletter here.
