Well, it seems like I might have been a bit too hasty in my pessimism. On Wednesday I worried that we might be facing a possible Trump re-election sceanrio. As I write, Georgia looks like it might be tipping Biden’s way. Overall, the Democratic candidate is now nearly 4 million votes ahead of Trump so perhaps those polls weren’t so catastrophically wrong…
If we do have a Biden presidency and a Republican senate (highly likely) then we might be in the worst possible outcome. Back to our Monday chart from CheckRisk which suggests a deflationary outcome. And that analysis is being echoed stateside. The excellent Felix Salmon has a piece on Axios which suggests a dismal outcome. His argument is that in effect the Republicans will hang the Biden presidency out to dry and fight back against job measures to deal with Covid at the state level.
But Rob Arnott at Research Affiliates provides some necessary balm, reminding us with a close, contentious election, market rallies are the usual outcome, no matter who wins. “ Why? Before yesterday, 40% of the population dreaded a Trump win and 40% dreaded a Biden win. This week, one of those cohorts will no longer be fearful and happy to invest more into risk assets like stocks, while the other will have their fears realized, but likely are already risk-off. The net effect is a rally in risk assets, like stocks.” Crucially Arnott argues that we over estimate the importance of politics and elections in particular. According to Arnott, “ Long-term, the election outcome makes shockingly little difference, for a surprising reason. We did a global study in 2017 looking at the relative impact of conservative versus liberal election outcomes around the world. Average outcomes are surprisingly similar. The narrative that Dems are better for stocks than Republicans is dominated by two years, 1932 and 2008. In other countries, there is no similar bias in the results”.
My own sense is that the deflationary outcome is not pre-determined and that the Senate can probably be persuaded to pass a stimulus bill of some sort. And if that happens, and 2021 sees a bigger recovery from the pandemic, we could experience a reflationary new year. Again according to Arnott “there’s a little-known but very direct link between deficit spending and subsequent corporate earnings. This means that unprecedented deficit spending may lead to an unprecedented surge in profits for surviving companies in 2021-22. The market may be taken by surprise. This would be the one bullish shock that could justify today’s lofty valuations.”
Reminder to sign up for Festival of Finance
Next week ww.altfi.com kicks off its eagerly anticipated Festival of Finance, a weeklong extravaganza of an informed analyst about fintech.
The graphic below gives you most of the details.
If you still haven’t booked go to www.altfi.com or drop my colleague Sophy Moyes an email at email@example.com
Interview with Michael Howell of Cross Border
Next up, sticking with the events vibe, earlier this week I interviewed Michael Howell, of Cross Border Capital. This research outfit has an excellent helicopter view of global markets through the prism of global liquidity flows. It’s a really interesting interview and ranges widely but is a great primer for any investor looking to work out what might happen next. Clue – Michael is bullish for equities and bearish for fixed income. The event was for ETF Stream and was focused on fixed income etfs – you can see all the videos here: https://etfstream.com/events/big-call-fixed-income-etfs-2020/
If you want to skip straight to my interview with Michael, here is the YouTube link (what a terrible image of me though!!!):
Last but by no means least Bitcoin has crossed the $15,000 barrier for the first time since January 2018. According to CoinDesk, the “cryptocurrency is now up 7.8% over the past 24 hours and over 108% on a year-to-date basis, with little sign of slowing.
CoinDesk’s Omkar Godbole notes this recent rally represents a ~40% climb in the last four weeks alone. Buoyed by an imminent sense of monetary stimulus, indeterminate of who wins the U.S. presidential election, analysts predict this rise to continue.
It’s also been reported that BTCetc’s Bitcoin Exchange Traded Crypto tracker (ticker BTCE) has reached $90million assets under management (AuM) since it listed on Deutche Boerse’s Xetra in late June 2020.
The chart below – courtesy of Sharepad – compares Bitcoin to the S&P 500. I see some correlation in a broad risk-on way but Bitcoin does seem to have recovered its mojo and is possibly slipping into bubble territory again.
Bitcoin in black
200 day MA in Blue
20 day MA in red
S&P 500 in Green