Macro Dragon = Cross-Asset Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)
Macro Dragon: Trading a Trump Victory…
Top of Mind…
- Whilst its Trillionaire Thursday today in the US, given earnings due from the likes of Apple, Amazon & Google (we also have Shopify & Facebook) – the key scheduled known unknown on the calendar is the US elections on Tues.
- You know the Dragon’s skew on this, unchanged for a few months now… yet as is always in the interest of being world class, in whatever your craft is, one must consider all scenarios…
- This will be One of Three pieces – with the 2nd tmr focusing on potential pathways on a Biden & Democratic Congress Victory & the 3rd also touching on the more complicated cases of a contested outcome, which will also include a 4th scenario which would be the worst case outcome from the underlying global macro framework that KVP has been operating from.
- The ideas here are meant to be super tactical & obviously event-driven, which are always subject to where market prices & positioning are going into the events. With that said, they are also themes & names that are worth considering for long horizons, be it 3-6m or potential even up to 12-18-24months.
- Its worth noting that generally as a rule of thumb for the Dragon, scheduled volatility events are often not underpriced – i.e. they tend to be priced correctly. That caveat, plus the feeling that a lot of money has moved to the sidelines, cash reserves have been built up & no doubt we can expect to hear a positive message from ECB’s Lagarde today (given recent resurgence & lock-down measures in the Euro-zone, technicals looking atrocious for the bulls & downright delicious for bears), leaves KVP feeling that the “true risk” is to the upside.
- Yet the “real” juice of the action is likely to be sector & themed base, than necessarily the overall level of the S&P. These scenarios are predominantly focused on equities & on large US names that also offer a good range of liquid options – yet goes without saying for our VIP clients, reach out for the full cross-asset breakdown of potential pathways.
Potential Pathways & Knee-Jerk Reactions from a Trump | Republican Congress Victory:
- Likely to be a huge relief rally for fossil fuels such as oil, shale & coal players – be they single stock names like Exxon [XOM -55% YTD], Chevron [CVX], Pioneer [PXD], Concho [CXO] or etfs XLE (energy -54% YTD), KOL (coal -27% YTD), ENFR (energy infra)
- The Dragon loves the energy space & what’s there not to love:
1. Its under owned.
2. Its massively underperformed.
3. There is still decent yield offering even with div cut assumptions.
4. Valuation wise it cheap.
5. Its contrarian & out of favor, even vilified by many – its the anti-ESG.
6. The downside is likely capped when you have things like Exxon & the energy etf XLE down over 50% YTD.
7. Fossil fuels are not going extinct anytime soon, Biden himself said likely 2050.
8. The world will eventually open up & guess what? That’s right we’ll need energy for any major infrastructure & industrial bill.
- Can see scenario where 1-2yr 10% OTM long-dated calls in the space can return +3x to 5x, if we get a rerate to $50 to $60 oil over that period.
- Green Tech would likely take quite a beating with individual names such as NextEra [NEE], Tesla [TSLA +385% YTD] & especially Nikola [NKLA +90% YTD] coming under pressure, but etfs like TAN (solar) & ICLN (global clean energy) which are not only c. +210% & +133% from Mar lows, but also trading at ATHs.
- We’d likely see a relief rally in some of the Tech-antitrust names such as Facebook [FB], Apple [AAPL], Amazon [AMZN] & Alphabet [GOOGL] – i.e. as anti-trust concerns would be deemed less of a concern in this scenario. Flipside is likely neg. for CH & EM Space.
- We could also see a pullback in some of the infrastructure plays, based on an anticipated smaller & slower infra bill from a republican controlled WH & Congress. So etfs like IFRA, XLI, IGF as well as single names like Brookfield Infra. [BIP], Caterpillar [CAT], Deere & Co [DE], Union Pacific [UNP], United Rentals [URI], Ericson [ERIC], Nokia [NOK].
Dragon Heavy Rotation
- In case you missed it over the weekend, the first in hopefully a string of exclusive video series interviewing exceptional professionals with skin-in-the-game. We kicked off with Singapore Based, AVM Global Opportunity, run by the talented & always exceptional Ashvin Murthy.
- The timing of the interview is uncanny as it was at the cusp of the last US presidential elections that AVM was launched. Its worth noting since the interview, the fund has also been nominated for the Singapore’s Best Hedge Fund of 2020, given its consecutive five straight positive months at the start of this volatile year.
Please click here for interview link.
- Saxo’s US Election Cheat Sheet Which cuts into the three potential pathways into the elections, probabilities around them, as well as short & long-term positions across equities, bonds, commodities & currencies.
- US Election Countdown: T-minus six days – Scenarios and market reaction. John Hardy’s latest on the US election – as part of an on-going daily series until the Nov 3 election date
Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Idea
This is the way