Archive for the ‘Uncategorized’ Category

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.

Biden finally chose has made his choice of Vice President.

While his already signalled he would choose a black female candidate, the choice is the least controversial choice.

This choice will be exacerbating the US divide. It has a few good things and a few bad things.

  • She is not extreme left (she did not support the wealth tax nor the breakup of Facebook).
  • She is Indian- Jamaican so it consolidates Biden’s appeal to the Black Community – he is clearly hoping on the Obama effect (under Obama 64% of the Black voters turned out vs normally 60%).
  • She is quite eloquent and she would held up in a debate (remember Palin)
  • She was a prosecutor and a very hard one- people call her “Cop Kalama”. Especially she was not lenient at all against the Black poor community.
  • She is not liked by the Left of the Democrat Party
  • In the 90s while dating San Francisco Mayor Brown, she got a few special favours (government car, and highly paid State position) and the mayor got investigated by the FBI

The really interesting thing that could put off a lot of voters is that Biden, 78, always considered himself a “bridge President” as he will be 82 (if he is still fit) in the next election.

This means that American should be prepared to have for the next election an immigrant born (Indian-Jamaican) female Black President. So definitely she will increase the divide (if possible) between Trump supporters and Biden supporters).

At the moment I think she will not have much sway on the outcome (VP rarely do – but the age of Biden could put her more on the centre of attention.

US Election 2020

Posted: August 10, 2020 in Uncategorized

The US election are on November 3rd.

President Trump is at light disadvantage to Biden at the moment (less than the media would like you to believe), but the real game will be the US economy in September.

There are a few other factors to consider

-With Corona Virus probably it will be a Postal vote with issue of recounting and errors with the nominee not known until late November/ December (remember the 2000 elections Bush- Al Gore and the Florida mess.

-The issue of the popular vote and the electoral college (The system in the US is made like that as New York and California have enough votes to win the popular vote. As New York and California are traditionally pro Dem – Republican Presidents would never have a chance to be elected on a popular vote only basis).

While stats will tell you that the stock market has generally been better under a Democrat rule – it has been more a merit of history than a real bias.

Probably the effects of the new President will last just a few months.

A mess with the postal vote would translate a 5 to 10% correction.

A Republican win would bring a 2% upside – especially for defence, energy, big tech. More problematic for companies that rely on business with China.

A Democrat sweep will be a limited down side (5% to 10%) positive for green companies, materials. bad for big tech

A Democrat win, but with the Senate still in re hands will be the best option as would be good for big tech and big pharma.

China would be “enemy number one” for both sides but Chinese will be making more offers to Biden as they do not like the unpredictability of President trump.

What happened is terrible.

While it has been most likely it has been an accident provoked probably by poor practices and bribes, the story that is ammonium nitrate is a cover up.

  • Ammonium nitrate explosions are yellow, not orange
  • the building was not large enough to store the required quantity (Olympic size swimming pool)

Most likely it was a cargo of missile stored for delivery probably from Iran to the Syrian government.

Sources say that there was welding work going on.

The real first day of the stage 4 lock down are showing some terrible data.

I saw some modelling and it shows that infection will peak to 1,000 for the enxt 8 days.

What is most scary is that by the end of the lock down models show still a 300 people a day in mid September and a return to pre second wave by end of October (by the way consistent with the Sweden timeline with NO lockdown.

The hit on Victorian economy is AU$3 billion a week (vs A$1 billion a week in Stage 3).

Disruption in supply chain, increase in suicides, death by other illnesses (diabetes leading).

A government with clearly no strategy and no sense in what they are doing.

Also a constitutional issue for Australia – clearly the Federal government has no power to intervene in local matters even in emergency cases.

We are now in a second lockdown that will cripple Victoria for a number of years.

I am not here to criticise Dan Andrews (I already spoke about this) or be a Covid-19 denier.

I am just criticising the approach.

We are in a second lockdown and there is no assurance that at the end of this lockdown things will be better.

Actually it has been shown that almost all the cases are genomically traceable to the Quarantine Hotel Bungle – probably 2 to 4 people infected.

By 13 September you can be sure there will be a dozen of infected people not respecting the quarantine. And what…after 3 weeks we go back to lockdown and 80% of business fail?

Also, politics and media like to sensationalize.

Last year circa 160,000 Australian died of cancer and serious sicknesses. 3,855 from flue.

The Spanish flue (quite talked about by the media ) killed 0.3% of the Australian population (Covid-19 0.0008%)

There are a 20 excess suicides per week on the average and 700 extra death for diabetes (less prevention) – font ABS.

A sustainable approach would be a “Sweden Hard” –

No large gathering,

Compulsory masks

Real hefty fines (proportional to wealth status with ATO checks. So if you are in a lower ATO bracket you pay $2,000 if you are in the top marginal rate you pay $50,000+) and even jail for Covid-19 positive. Or to the extreme GPS bracelet tracking.

The issue is that all this is not sustainable and we cannot wait the vaccine to reopen the economy – the earliest widely available could be March 2021, if we are lucky.

Yesterday the ABS data showed that for the first time Australia entered in deflation and the media duly scare mongered us.

This is a very good example how data can be misinterpreted.

The deflation happened as the government subsidised childcare and in April oil price crashed.

As the childcare subsidy will disappear in July and oil price recovered we are already out of deflation! It was just a statistical quirk!