CHART OF THE DAY: Contested Election = #Quad4 Allocation

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:

1. 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
2. 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
3. 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.