G Who?

G20 meets this weekend - remember the G20? No, well don't worry - you don't have to because it's irrelevant in the Tri Polar World unfolding before our eyes. Asia forms the world’s largest FTA, Europe integrates through its Green Deal & Joint Recovery Fund while the Americas sit back and sink into dysfunction.

It's a simple question; Is Mr. Market right to look through US political dysfunction and failure to pass stimulus or is it not? It clearly has been right to date, with the SPY up 4% over the past one month though the big action has been offshore with ACWX up almost 8% led by Europe and Japan. One should use these coming weeks to come up with one’s answer & get right sized for 2021.

BofA reports US credit card spending through Nov 14th up 6% y/y, suggesting Mr. Market is right on the stimulus Q. A strong stock market does tend to limit political spending appetites, no matter the need. A spending bill required by Dec 11th to avert a Govt shutdown is likely to create some movement though the White House actions of late suggests there is no bottom to the dysfunction level.

US political dysfunction is epic in the true sense of the word, as in never seen before as the President displays the full depth of his narcissism; the failure to initiate the transition, during the worst pandemic in 100 years, is deeply worrying & depressing.

How 77% of Republicans can say that Biden won by fraud - in an election certified as the most secure in modern history and one in which further microscopic review has turned up no evidence of fraud whatsoever- suggests America has a very deep problem with facts and truth.

The average state vote recount over the last 20 years averaged just over 400 votes changed; the largest # of changed votes was 2300… as was just verified in Georgia, recounts will not change the outcome of the election, suggesting Mr. Market is right here as well.

Perhaps most importantly, the vaccine news keeps getting better - back to back vaccine Mondays - 1st US in-home rapid Covid test approval, while Pfizer’s EUA application suggests folks could start being vaccinated before YE.

The Rotation Trade is well underway but the tug a war between back to back vaccine Mondays and the daily case count surge helps modulate the move and in doing so protects against a blow off top & supports a risk on move that can extend far longer than many think.

Yes sentiment is extended and yes some areas of the global equity market are overbought in the near term but that's ok. Flows into risk assets have been robust but keep in mind the old MMM, Money Market Mountain, now stands at well over $4T with a T.

Similarly, Tech’s slow relative turn lower reflects its LT dominance, betting against US equity/tech has been a decade long widow maker trade. This too is very supportive of a longer and healthier sectoral & geographic rotation that leads to a broader and more sustainable risk asset advance.

Speaking of tech, one interesting question is how ESG handles the Rotation? Early days of course but a quick look shows ESGU (main US ESG ETF) peaking vs IUSV (US Value) back at the beginning of Sept, at the same time XLK (Tech) peaked vs IUSV. Something to keep an eye on. There are lots of clean energy opportunities - ask anyone who owns NIO, BLNK, ICLN etc.

Good news in Europe - case counts have peaked and are slowly rolling over as lockdowns have the desired impact. JPM notes that the recent up move in EU Small/Mid Cap stocks has plenty of room to go - highlighting a 300+ stock screen with the average stock down over 40% from 52 week high even after a 20% gain the past few weeks.

That's a good reminder that the Growth/Value, Tech - FIn, Cyclical/Defensive spreads have gotten so extended that there is lots of room for further relative outperformance through YE and 2021. Do not get off the good ship Rotation too early!

As we consider 2021 some surveys have drawn interest; an MSCI poll reports strong majorities expect US equity and Tech to sharply outperform in the year ahead - I’ll take the other side of that. BofA’s well regarded FMS reports the #1 2021 trade is long EM equity, followed by long US equity - no mention of EAFE in the top 5 favorite trades - opportunity knocks!

Let's finish with a couple of cross asset points: a Brexit deal could come next week - watch the USD; DXY has bounced off the 92 level repeatedly over the past few months while hedge funds net long gold position is at a 17 month low. On the Fixed Income side the steady rise in China’s 10 yr Govt bond, now yielding 3.3%, could be the lead dog for the UST market - we have highlighted since the Spring the 1st in, 1st out, follow the leader nature of Covid… does it work for rates too? Time will tell, as it does all things.