Macro Dragon WK #4: Zero Probability of No Violence in the US Given Inauguration Week
Top of Mind…
- TGIM & welcome to WK #4… Its going to be a great one!
- In case you missed the Dragons so far this year:
- Given that WK #4 is Inauguration wk in the US, the probability of no violence is exactly zero…. Perhaps one could argue that delta should be negative. As is sometimes the case, KVP hopes to be wrong on this… yet following the spectacle that was Capital Hill a few wks back, hard to imagine a calm & peaceful wk up ahead. Watch the gun stocks which has a massive spike last time.
- With all that said… it sometimes has to get worse, before it gets better. Say what you want about Trump, +75m still voted for him & while he has done next to nothing structurally concrete for the benefit of hi base – he did expose some structural truths about America that have been under the rug & in the skeleton closet.
- Would not be surprised if we see cases of Domestic Terrorism before, on & post the event… while most of this will likely be noise from a capital markets & price action perspective – i.e. you’d need the deaths of Biden|Harris and/or Trump for markets to temporarily freak out.
- Still any actions of violence & the debacle (& almost certainly inside job) on capital Hill, does continue to deepen the room for any credible conciliation between those that voted for Team Blue & those that voted for Team Red.
- And yes, some Republican have smartly, courageously & strategically done a U-turn (Liz Cheney positioning for 2024/2028? Or actually just demonstrating the need for leadership & accountability? Perhaps both…) – yet the vast majority are either still firmly on Team Trump (out of fear and/or loyalty) or are silently complicit. This was basically the biggest get-out-of-jail card for the Reps of the Senate (rid themselves of any association with Trump)… & they are gonna blow it.
- Still the Meta Regime remains one of infinite printing in an MMT world, that is focused on social stability, infrastructure & climate crisis themes… & likely to run not just for a year or two but potentially a decade or two lead by the US & EZ. So was no surprise to see Biden talking up the Fiscal bill to $1.9trn from
- Lastly, a key tactical risk to assets this wk is what is announced by the new administration, as well as how its announced. This is likely going to be an administration that will want to set the bell-curve from the beginning, showing that there is a brand new & credible sheriff in town. So measures around a Federal Induced lock-down, 100days of masks & +100m vaccines in the first day, etc… are all things to be on the look-out for.
- Any Federally induced lock-down would put a pause on the US economy & likely see a reversal in the Value > Growth conventional view that has been running since Q4. And would also likely see some near-term headwinds for the US-World reopening basket. If we do get a big sell-off from this, we could see a touch more legs on the USD.
- However, if its also pretty clear that there is a lot of fiscal spending & initiatives on accommodation around the corner (Yellen in, unwinding, Mnuchin’s unwind) – then we may actually see the Equity market trade up on a lock down, as would bond prices & the USD get hosed… while Gold & Bitcoin (+Crypto) pop up.
- Don’t mistake the tactical move up in the USD nor US yields, as a structural turn-around in what is almost certainly a multi-year US dollar bear market & a regime of negative real yields heading lower, for longer.
- One things seems to be for sure, the continued relative outperformance of EM Assets (especially Asia & in particular North Asia, given China’s economic North Star), seems set to hold both on a tactical & strategic horizon.
Some SaxoStrats Specials from KVP’s peers that were likely missed during X-mas Season
- Saxo’s Outrageous Predictions for 2021
- Special Edition Podcast: Equities and interest rate sensitivity
- Special Edition Podcast: Commodity Outlook for 2021
- Podcast: Energy sector ready to rip in 2021? FOMC preview.
- Also look our for our 1Q 2021 that will be out shortly…
Rest of the Week & Other Top of Mind Thoughts
- US: Its long wkd given MLK Mon, yet its all about the Wed swearing in of the new POTUS – the King & Queen Maker, Joe Biden. Naturally Biden’s speech will be highly anticipated, how much it moves markets, let alone sway’s tribal anchored views, is a whole different thing.
- There will be TIC long-term purchases, Phily Fed, housing data & flash PMIs.
- EU: ZEW figures from the block & Germany, as well as final CPI. We do have ECB on Thu, with Flash PMIs Friday.
- CH: Beat on YoY GDP 6.5%a 6.2%e. Monthly growth data mixed, a beat on IP 7.3%a 6.9%, miss on FAI 2.9%a 3.3%e & Retail Sales 4.6%a 5.5%e
- UK: BoE Bailey speaking on Mon & Fri (2130 SGT & 0100 SGT), CPI, house prices, retail sales & flash PMIs.
- CA: CPI, Housing Starts, BoC on Wed, ADP & Retails Sales.
- AU: MI Inflation expectations, Jobs data due on Thu & Flash PMIs Friday.
- NZ: Milk Auction, Visitor Arrivals & 4Q CPI 1.1%e 1.4%p due on Fri (0545 SGT)
- CBs: Quite a number we have decisions out of Malaysia, Canada, Brazil (Chance they are more hawkish than is expected despite economists seeing 2.00%e/p), Norway (already have less dovish / more hawkish skew relative to other CBs), Turkey (big girl hikes in 4Q20, expected to stay on hold at 17%… yes seventeen percent), Euro-Zone, South Africa, Indonesia & Japan.
- Hols: US out on Mon on MLK day.
Dragon’s Heavy Rotation…
More of these on the way – editing ran into year-end, house moves & the like. What can we say, can’t rush greatness. Yet two more Dragon Interview coming up before the month is over – they are stuck with my editor… patience… KVP cannot do it all… apparently…
In case you missed it previously – been super well received, thx for feedback, sharing & support on this project folks – the first in a string of exclusive Dragon Interviews series with exceptional professionals with skin-in-the-game, across different strategies, asset-classes & backgrounds.
We kicked off with Singapore Based, AVM Global Opportunity, run by the talented & always exceptional Ashvin Murthy. Who in KVP’s view is world class in his approach, process & even more importantly trade construction & money management. Point being, if the process is pristine & consistent, the returns will take care of themselves overtime.
The timing of the interview is uncanny as it was at the cusp of the last US presidential elections that AVM was launched. It’s 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.
Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Idea.
This is the way