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Weekly Memorandum 12/7/2020

Equities closed out at their highest daily and weekly levels in history last week, which is not something usually witnessed in a bearish market environment. As such, this share rally continues to be technically sound, as markets continue to work towards their price objectives highlighted in the latest Mercator Letter. Speaking of this publication, only one remains in 2020, and some of the calls this year have been exceptional. Namely, we highlighted the various risk-off indicators present in the market during early-February and called for a decline (admittedly, it fell further than we thought), but we also became very aggressive from the long side as equity markets rallied off their March lows. For the remainder of December, we are offering $40 discounts off all annual subscriptions. Be sure to use coupon code 'MERCATOR' at checkout.

Perhaps the most notable move in the market last week came in T-Notes, which closed out at their weekly lows. This market continues to appear vulnerable to further downside in the short-term. Keep in mind that interest rates are a function of inflation rates, and higher rates means lower bond prices. It appears that capital markets are discounting higher inflation on the horizon, but also, possible political risks. If we consider that the Treasury market essentially represents the federal government, we could see how political risk could play a factor into higher interest rates. We must ask ourselves, "Why would lenders generously offer low interest rates to a dysfunctional government?" The answer is, they wouldn't. They'll demand more interest as a form of risk-compensation.

The U.S. Dollar also closed out at its lowest weekly level since April 2018, hardly a bullish characteristic. This is serving as a boon to commodity prices, many of which are trading at multi-year highs. So long as commodities continue to rally, we can conclude that inflationary pressures will continue to increase, and therefore, manifest into debt markets via higher interest rates.

In crypto-land, we see that Bitcoin just closed out at its highest weekly level in history last week. Once again, this is hardly a bearish characteristic. Ethereum and Litecoin continue to lag behind, but this isn't an issue at the moment--rather, an opportunity to still participate in the blockchain revolution. We encourage those new to crypto to pick up a copy of our latest Mercator Crypto report published last week for just $10.

Seasonally, we are entering one of the most bullish times of the year for stocks. So, this rally likely isn't over. Buckle up, enjoy the ride, and always mind your stop losses!

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