“The inevitable is no less a shock just because it is inevitable.”
- Jamaica Kincaid
As many of you know, we’ve had a few cases of COVID-19 at Hedgeye. Luckily, our operating team led by our President Michael Blum had a great plan in place for this eventuality. Quarantine protocols are in place. Unfortunately, Keith is one of our teammates that recently tested positive. The Thunder Bay Bear is generally doing fine, though is likely to be offline getting some rest for a few days.
On the topic of COVID-19, we are starting to see the much-anticipated, colder weather resurgence. The data (which is somewhat driven by massively increased testing) is accelerating around the globe.
A few points to highlight for perspective:
- Globally, we are trending at between 450,000 – 500,000 new positive tests per day;
- Europe had north of 220,000 positive tests yesterday with new pandemic highs in most countries in the past few days;
- The U.S. is now eclipsing the prior peak of daily new positives tests from this summer; 47 of 50 states currently have a R naught greater than 1 (in other words, active community spread).
For those of us that have studied COVID-19 closely, this resurgence was largely inevitable. The negative impact economically is that it will reduce mobility and in certain harder hit areas, we are likely to see some form of reduced business hours and intermittent lockdowns. The silver lining is that due to massive testing many of these cases are more benign (based on what we know) and our ability to treat COVID-19 has improved dramatically.
Life remains mysterious, yet predictable.
Back to the Global Macro Grind…
Another inevitability is the Presidential Election. At the moment, President Trump is lagging behind former Vice President Biden in the national poll averages by between 7.5 – 9 points depending on the poll. In the swing states, he is also behind the 8-ball, currently running behind in 7 of the 8 key states.
To many poll specific prognosticators, this implies a chance of Trump getting re-elected at anywhere from 5% (The Economist) to 12% (Five Thirty Eight). As we all know full well, polling has its flaws. No surprise then that the political betting markets present a much closer race, with PredictIt currently giving the President about a 40% chance of getting re-elected.
If that tells me anything, it's that we are likely to have some surprise on Election Day in less than a week. But, as we have had for some 250 years, it is inevitable that we will have a peaceful transition of power. Well, mostly inevitable . . .
With the VIX now above 36 and risk assets correcting globally, we are witnessing the reality of delayed stimulus (President Trump is now saying stimulus will come after the election) and the negative economic impact of the resurgence of COVID-19, particularly in Europe, is being seen.
As my colleague Darius Dale wrote this morning on that topic:
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“Eurozone Quad 4: The resurgence of the virus and targeted containment measures are obviously playing a role in Europe’s Quad 4 in Q4 slowdown, but the indebtedness of the private nonfinancial corporate sectors of core Eurozone economies is likely to constrain GROWTH even further in a low-capacity utilization = limited FCF generation world. If you chased the late-summer highs of French or German risk assets, then you clearly A) weren’t respecting the time series history of global pandemics and B) paying attention to our research.” |
The economic cycle is going to cycle and will continue to be more amplified for the foreseeable future.
In the U.S., the data is still showing us a more bifurcated cycle. To wit, though the Durable Goods new orders report from yesterday was -1.9% year-over-year in September, the items at the top end of the “K-Curve” performed much better.
Specifically:
- Computers +5.7% year-over-years;
- Communications equipment +17.6%;
- Autos +5.7%; and
- Household appliances +10.2%.
On the last point, household appliances are clearly being driven by a combination of work from home and a housing market that has been on fire. In the Chart of the Day, I’ve highlighted our housing compendium. It continues to show almost all housing related metrics getting better on a rate of change basis. But while things are strong now, the comparisons will eventually become more challenging.
The U.S. economic data is as much a story of "have and have nots” as the economy is generally. Luckily enough, with the advent of Bitcoin we are close to solving all the worlds problems. (Just joking bitcoin mafia!)
On the topic of Bitcoin, in the interest of full disclosure, I own some. I think the case is that there is somewhat finite supply, the supply/demand metrics are compelling, and in theory, as Michael Saylor articulated in his interview with Keith recently, it frees a lot of monetary energy for the system.
Personally, and perhaps I’m anchoring too much on the recent past, I struggle with the value (should digital assets in aggregate be worth close to $400 billion?) and volatility (see the major drawdown earlier this year).
But the trend of increased adoption is real. We see more and more data points suggesting this every day. So perhaps, I will get more uncomfortable long of Bitcoin. After all, isn’t a price of $100,000 inevitable?
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.70-0.87% (bearish)
UST 2yr Yield 0.12-0.18% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 11,280-11,731 (neutral)
Tech (XLK) 113.21-122.20 (neutral)
REITS (XLRE) 34.10-36.40 (bearish)
Utilities (XLU) 62.45-65.21 (bullish)
Financials (XLF) 23.44-25.33 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 235 (bullish)
VIX 26.03-37.22 (bullish)
USD 92.21-93.95 (bearish)
Oil (WTI) 38.01-40.55 (bearish)
Gold 1 (bullish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
