investorpolitico

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!

Sweden has been treated like a pariah as it did not implement the lock down. It simply forbade large gathering. How did it went?

Initially it went quite bad – but the numbers are actually a misrepresentation. The number are high as the Government, for their on admission (surprise!!), did not enforce a strict lockdown for elderly people.

Sweden faired worse than its neighbors – but also better than many full lock down states

Sweden 10.2 million -Deaths 5,667

New Jersey (full lockdown) population 9.2 million deaths 15,684

The reality that Sweden came in on average as middle of the pack.

The great advantage is that now there are only 2 deaths per day (similar numbers to flue and other diseases).

The chance of a second wave is low as they achieved the herd immunity.

The GDP fell just by -1.5% while other countries on average -10% and did not need any mega stimulus which saddles the next generations with debt.

So Sweden 1 – rest of the World 0

“Lockdowns made little difference to the number of people who have died from coronavirus, a study has claimed. Researchers from the University of Toronto and University of Texas found that whether a country was locked down or not was “not associated” with the Covid-19 death rate.

Experts compared mortality rates and cases in 50 badly-hit countries up until May 1 and calculated that only 33 out of every million people had died from the virus…The study found that imposing lockdown measures succeeded in stopping hospitals becoming overwhelmed, but it did not translate into a significant reduction in deaths.

“Government actions such as border closures, full lockdowns, and a high rate of Covid-19 testing were not associated with statistically significant reductions in the number of critical cases or overall mortality,” the study, published in the Lancet online journal EClinicalMedicine, said.”
(“Coronavirus lockdown ‘made no difference to number of deaths but stopped hospitals being overwhelmed”, Evening Standard)

Sources in Channel 9 and SBS are pointing to the fact that almost every case in Australia is linked to the quarantine hotel bungle.

If this is true this is not acceptable as Dan Andrew is always ready to point fingers at families.

In a Democracy Dan Andrews and his ministers should resign. Moreover there should be a massive lawsuit for the billion damages they caused.

I am simply disgusted.

This market is utterly scary. While it still playing with the June reversal island scenario (has not broken the 2 resistances on SP500 3180 and 3225) it is an utterly scary market. Yesterday intraday reversal was not seen since March 2008.

On one side we have the current market sistained by the Fed, Robinhood accounts and the vaccine coming ever closer.

On the other side we have continuous virus resurgence, elevated valuation, Fed balance sheet.

This can lead to a crash or a blow off top in equal measure.

Portfolio construction with real diversification (remembering that in 2008 only currencies and gold maintained diversification) can help. The most important is to be psychologically ready to anything as even both situations can happen before year end.

As per my July 2020 newsletter, unless the market clears 3,180 and then 3,225 the market is trapped by Island Reversal Pattern of early June.

It will clear it,there could be even a nice correction with a backstop at 2,925/2,960 but it takes a bit of time.

Why so sure?

There is too much stimulus in the market and too much cash on the sidelines.

All the “working metals” have recovered a lot and even the shipping (Dry Baltic) shipping rates went up 250% in June.

The earning season sentiment in the US is very low. Factset’s Earning Insights shows that SP500 earnings are expected to decline 44% and Bottom-up estimates fell 37% over the quarter – a lot worse than the average and it all happened in April when the market was stopped – so a quite easy beat as June the sentiment recovered a lot, economic surprises are at 2 years high and USD weakening.