Archive for September, 2020

An election battle that matters

Posted: September 15, 2020 in Uncategorized

The key political battleground is the Care Act 2. The Care Act 2 is practically the US version of JobKeeper. A stimulus that help people survive the Covid-19 income crash.

The Republican and Democrat are still miles apart upon agreeing in a new stimulus. The Democrats request an extra large stimulus to be combined wth a stopgap measure to stop the US Government shutdown.

The economy fared quite well in this Covid-19 time because due to the Cares Act 1, people could continue spending.

If Cares Act 2 is not introduced consumer spending would fall off a cliff…and consumer spending represents 70% of US GDP. And if Care Act 2 is not done before the US Election, it probably will be done in December and January.

Democrats have a vested interest in making the Care Act unpalatable to Republican. The market would probably crash and there is an interesting statistic.

The behaviour of the stock market in the three months prior to election it is an 80% reliable predictor of the Presidential winner.

A market crash in September/October could spell the doom for President Trump.

President Trump knows it and is calling the Congress for a second round of stimulus cheque by reallocating USD300Bn, but still needs the US Congress approval.

A dirty battle.

Update as 14 September: the Republlican “skinny” stimulus (USD300bn) has been rejected. There are gossips of discussions – Republicans offering USD1.5 trillion and Democrats not available for discussion unless the sums is around USD2.5 trillion.

A critical week for the market

Posted: September 14, 2020 in Uncategorized

This is a critical week for the market to understand if this is a NASDAQ consolidation or a rotation from tech- momentum to value.

The money flow now suggest a rotation – but it happened before and after a sell off, tech resumed its momentum.

At the moment looks like more a consolidation even if in September probably we will still have more pain to come.

Citigroup m0del show that the sell machines are primed to attach (algo trading) at SP500 3,254 and at Nasdaq Futures of 10,843 (at the moment 9:16, 14 Sept SP Fut 3,345 and Nasdaq Fut 11,157).

A machine attack would bring SP500 to 3,000, Nasdaq 9,800. Unfortunately SP200 does not offer much support until 5,400/5,500.

This would be a temporary reset , not a change of trend. But painful.

Calendar base a bad start of September get a worse end (funny enough, almost everybody is scared of October – in reality the early days of October has the big sell off that started in September – but October ends up positive more than recovering the initial losses).

Again Calendar base, in an election year September behaves better than average.

So pay attention

Here numbers that do not lie (unlike certain models)

Preliminary weekend Australian auction figures (CoreLogic)

  • National
    • Clearance rate 67.5% vs year-ago 72.3%
    • Number of auctions 882 vs year-ago 1,533
  • Sydney
    • Clearance rate 69.5% vs year-ago 75.7%
    • Number of auctions 625 vs year-ago 528
  • Melbourne
    • Clearance rate 33.3% vs year-ago 74.0%
    • Number of auctions 28 vs year-ago 765

Usually are quite similar (2 to 3% point to Sydney).

First as a start I am not a Covid-19 denier. It is a serious sickness and problematic due to the easiness of the spread – but it is also not as close as the killer virus the political class is making it.

Unfortunately Australia, and Victoria in particular, is ot a very open or democratic country.

Stats are hard to come by – what I could collect a good of new cases derive from first line healthcare workers and over 50% aged care related. Very far from a widespread issue within the population.

My two biggest gripe are different:

  1. There is not a clear path out of this – even the dates selected for freedom are conditional to a number of cases (and by the way there is no option that says there are no cases by mid October so you will be free again.
  2. The model. The paternalistic approach of Premier Andrews really annoys me. You cannot discuss the model? I do and see models for the stock market all the time – from my one to Goldman Sachs, JPM and all the best. They are all as good as the inputs and often a non-considered variable destroys the model.

In this model, even without studying it tehre are some basic errors.

The virus data input are coming from overseas (different hygiene standards, different geography, potential different strands of Covid-19)

The weather impact (various studies show that UV kills the virus and we are going into Australian summer).

There is no testing and tracing.

It considers halving of the cases every 18 days – while other models shows a halving between 10 and 8.9 days.

The 14 days average is a completely arbitrary parameter.

On top of this the current pandemic shows a major constitutional issue for Australia – in emergency the Federal Government has no emergency powers to overrule a State. This should be a critical factor as, aside the virus, in the next decade we will be confronted a range from challenge from China and other situation that require a united nation.