“All the world’s a stage, and all the men and women merely players: they have their exits and their entrances; and one man in his time plays many parts, his acts being seven ages.”
- Shakespeare
Keith and I watched the debate last night alongside his son and dog at the McCullough residence. As President Trump and former Vice President Biden took the stage, I assumed I would witness something interesting to write, but after last night Jonesy is basically at a loss for words. Even for an introvert that is saying a lot.
Simply put, it’s doubtful to me that this debate changed anyone’s mind. It also seems questionable as to whether there will even be more debates. I mean: what’s the point?
Generally, if we look at the data, it seems as if Biden is probably in the proverbial catbird’s seat.
- Up in the national poll aggregate by +6.1;
- Up in the key battlegrounds of Michigan (+5.2), Wisconsin (+5.5), and Pennsylvania (+5.7) by between +5 and +6;
- And consistently polling at or near 50.
All of that puts Biden in a much better position than Clinton was in 2016. The caveat is many polls show more people expecting Trump to win and enthusiasm being slightly stronger for Republicans. In addition, on a rate of change basis Trump has been improving from his lows in the summer, so there is certainly more to the story then the headline numbers.
That said, to the extent the pollsters have adjusted for 2016 turnout numbers, Biden should still be in a good spot. But it is 2020 after all and with the massive amount of mail in voting, which is skewed by some estimates 3:1 to Democrats, my colleague Neil Howe may be correct in suggesting some sort of constitutional crisis is looming in terms of a contested election.
But don’t trust me, please let me know your thoughts on how the election may play out based on what you are seeing locally or based on a unique view of the underlying data. My email is .
The fact remains, we are living a Shakespearean tragedy in real-time my friends.
Back to the Global Macro Grind…
As luck would have it, in our Q2 Themes presentation yesterday we outlined the asset allocation that should out-perform in a contested type scenario. This is based on what happened in Bush-Gore. I’ve included an outline of it in the chart of the day and, no surprise, it looks like a deep #Quad4 asset allocation – treasuries, low volatility, and gold outperform. On the other side of the ledger, risk assets – high beta, U.S. cyclicals, and growth- get beat like a rented mule.
And low and behold, we seem to be getting a #Quad4 morning. As Keith noted, in his Direct from KM note this morning:
- USD – biggest reason for going net short was the #1 correlation across most of macro right now (USD was signaling immediate-term TRADE #oversold yesterday) – it will be a #Quad4 morning, with the Dollar Up, as a result
- GOLD – its immediate-term TRADE (15-day) inverse correlation to USD = -0.98 so selling a lot of Gold on green was an easy risk management decision yesterday; I’ll look to buy that back at the low-end of Gold’s @Hedgeye Risk Range
- TECH (short) – first time I have shorted Tech (via Semis, SMH) since JAN-MAR was on green yesterday as Semis (SMH) were signaling a big lower-high and #NazVol started flying higher again. NASDAQ Volatility (VXN) of 35 and rising is not a chase-charts-buy signal!
Dollar is up and risk assets are down this morning, so far, as investors are clearly voting risk off following the “debate” last night.
One key highlight from our Q4 themes presentation yesterday was the likelihood of increased economic dispersion and asset performance as the world comes out of the Covid-19 depression. Simply put, some nations have managed this better than others, specifically China, pockets of EM, and Northern Europe. In support of that, take a look at the data from Asia from this morning:
- China Official Manufacturing PMI: +0.5pts to a 6mo high of 51.5 in SEP
- China Official Non-Manufacturing PMI: +0.7 to 55.9 in SEP – highest reading since NOV ’13
- China Official Composite PMI: +0.6pts to 55.1 in SEP – highest reading ever
- Japan Industrial Production: +220bps to a 6mo high of -13.3% YoY in AUG
- Japan Retail Sales: +100bps to a 3mo high of -1.9% YoY in AUG
- Japan Housing Starts: +220bps to a 6mo high of -9.1% YoY in AUG
- Japan Construction Orders: +5,136bps to 28.5% YoY in AUG – highest reading since MAR ’19
Whatever your politics, that is a lot of positive rate of change data from both China and Japan. As usual, the data will set you free!
Back to the U.S.
If there was a key takeaway from our presentation it is that we are on this increasingly probable path of MMT. Regardless of who wins come November they will be faced with chronically high unemployment, earnings likely turning lower from their COVID bounce, and a recovery - based on recent industrial production, retail sales, and durable goods report - that is clearly stalling.
Employment may be the real harbinger as temporary job cuts risk becoming permanent and temporary reduced hours and payroll also become permanent. As in most recessions, jobs go away quickly and take their time coming back!
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.62-0.69% (bearish)
UST 2yr Yield 0.10-0.14% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 10,545-11,199 (bearish)
Tech (XLK) 109.51-116.95 (bearish)
REITS (XLRE) 33.50-36.20 (neutral)
Utilities (XLU) 56.68-59.55 (bullish)
Financials (XLF) 22.69-24.34 (bearish)
Shanghai Comp 3168-3348 (bullish)
Nikkei 23076-23644 (bullish)
VIX 25.00-29.94 (bullish)
USD 92.65-95.13 (bearish)
Oil (WTI) 37.97-41.37 (bearish)
Gold 1 (bullish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
