“It is not the strongest or most intelligent who will survive but those who can manage change.”
-Charles Darwin

It was somewhat inevitable. We had our first COVID-19 positive test at Hedgeye yesterday. Our teammate who tested positive is doing fine. And the operating team here, led by our President Michael Blum, had a great, proactive plan in place for this eventuality. Over the next 10-14 days or so, we will be broadcasting The Macro Show (our daily morning 30-minute macro briefing webcast) remotely.  

Ironically, I received the call about the positive test just after finishing my bi-weekly Covid-19 webcast with my colleague Neil Howe.  As Neil and I discussed, we are continuing to see a second wave of cases globally.  As expected, this comes with the cooler autumn weather, increased mobility, and more testing.

A few pieces of data to highlight:

  • The R naught, or transmission rate, of Covid-19 is now above 1 in 46 of 50 States. The positive test rate in the U.S. is also sitting at around 5%, which is roughly a doubling from a month ago
  • Globally, positive daily COVID-19 tests are at all-time highs as of yesterday coming in at just under 480,000 cases
  • Much of Western Europe, specifically the U.K., Spain, France, Italy and Germany are well above their highs in daily new cases versus the first wave in March - April

Although we have much better treatment, testing and tracing, and vaccine progress for COVID-19, it doesn’t change the fact that viruses are viral. There is a positive to the pandemic, which is that the we are likely to have one of the weakest common (for lack of a better word) flu seasons on record. The Chart of the Day below highlights current flu cases in the Southern Hemisphere so far this year versus prior years.

Managing Change  - 07.20.2020 burning dollar cartoon

Back to the Global Macro Grind…

After last night's debate, we now enter the final stages of the 2020 Election. More than 49 million Americans have already voted by absentee ballots, which is up almost 600% versus 2016 and already about 36% of the votes cast in 2016. At this point, many if not most minds have already been made up, which corresponds with what the polls in aggregate tell us - namely that the group of undecideds in 2020 remains very small.

Generally, the polls give Biden a sizeable lead nationally.  In the RealClearPolitics National poll aggregate Biden is at 50.7 and Trump at 42.8. At Five Thirty Eight, which weights polls differently, Biden is at 52.1 and Trump is at 42.2. Among the swing state polls, the margin is much closer and Biden has an average edge of about 4.1 at RealClearPolitics. But while polls tell a story, they are probabilities with margins of error, so while Biden is positioned well and at or near 50 in most places he needs to be, this is not a done deal.

In fact, the betting markets have the odds of winning the Presidency at closer to 60 for Biden and 40 for Trump, so a little better than a coin toss for Biden. The electoral college remains reasonably winnable for Trump.  It’s not so much that the polls are wrong, but there are other factors at play - the possibility of a shy Trump voter in polls (not a lot of evidence of this, but there is some), the reality that mail-in ballots tend to have more errors than in-person voting and are skewed about 2:1 to Democrats, and the demographics of swing states remain, on a relative basis, more favorable than national demographics for Trump and the Republicans.

Luckily for most of us that are getting tired of the campaigns and politically charged environment, the voting will be over in 12 days.  But we should expect some fireworks in Election Day.  While I think we all hope the election is resolved quickly, the fact that mail in ballots are typically counted last (and in some states may be counted after the polls are closed) suggests that it will, at a minimum, appear to be a nail biter on Election Day as the mail-in ballots, which skew heavily Democratic, come into the tallies late.  

As we witnessed in the Bush vs Gore debacle, any contested election will be bad news for risk assets.

Not unlike the uncertain personal and political environment, the macro investing environment remains uncertain as well.  As Keith and I have been discussing on The Macro Show, the probabilities between #Quad3 and #Quad4 have been shifting for Q4 2020.

There is also some evidence that the market is looking forward to a transition to #Quad2 in the first half of 2021 in the U.S., although not so much in Europe as COVID wave two takes hold. PMIs across Europe were reported this morning and they are decidedly decelerating as my macro colleague Darius noted in his daily morning grind:

“France Manufacturing (-0.2 to 51.0), France Services (-1.0 to a 5mo low of 46.5), Germany Services (-1.7 to a 4mo low of 48.9), Eurozone Services (-1.8 to a 5mo low of 46.2), UK Manufacturing (-0.8 to a 4mo low of 53.3), UK Services (-3.8 to a 4mo low of 52.3)”

If one thing is clear from the political debate and current economic environment, the macro path forward seems to involve devaluing the U.S. dollar.  So it’s probably wise to continue to HODL those bitcoins ... and other assets that benefit from dollar debasement. 

In the short run, there will be money to be made on monetary inflation. But in the long run, perhaps Ernest Hemingway said it best:

"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”


Immediate-term @Hedgeye Risk Range with TREND signal in brackets:

UST 10yr Yield 0.70-0.88% (bearish)
UST 2yr Yield 0.13-0.17% (bearish)
SPX 3 (neutral)
RUT 1 (neutral)
NASDAQ 11,317-11,961 (neutral)
Tech (XLK) 117.03-124.25 (bullish)
REITS (XLRE) 35.00-36.98 (neutral)
Utilities (XLU) 62.95-64.88 (bullish)
Financials (XLF) 24.34-25.49 (bearish) 
Shanghai Comp 3 (bullish)
Nikkei 231 (bullish)
VIX 24.06-30.27 (neutral)
USD 92.45-93.45 (bearish)
Oil (WTI) 39.35-42.16 (neutral)
Gold 1 (bullish)
Silver 23.79-25.67 (bullish)
Copper 3.05-3.21 (bullish)

Keep your head up and stick on the ice,

Daryl G. Jones
Director of Research 

Managing Change  - jt1