Peak Uncertainty?

On BTV yesterday morning (at 16min mark), I suggested Wednesday’s no place to hide market action might have represented peak uncertainty across the Big 3 issues of US elections, fiscal stimulus, and vaccine outlook. In addition, while positioning is light & hedging heavy, Big Tech is for sale and the rotation trade requires clarity. It could have been worse and fun fact, 91 years ago Wednesday, it was worse, far worse … for that was the original OG 1929 Black Monday which ushered in the Great Depression… don't you feel better already?

There is a reasonable possibility that we get a Wednesday type move but to the upside next week as we get clarity around the election outcome and, through that prism, on the size & timing of US fiscal stimulus. Clarity on the vaccine front should materialize in the coming weeks as well; I remain optimistic on the speed of science and the capacity of global logistics to get doses to where they need to go in the coming months & quarters.

Here are my expectations: I continue to expect a Biden Blue Wave with results by Nov 4th if not the night of the 3rd (MS sees 35% odds of the 3rd). A steady polling lead that has expanded in the past few weeks, no 3rd party to split the vote as in 2016, very few undecideds (5% vs 15% at this point 4 yrs ago), and a Covid surge that should dampen Republican turnout on Election Day support this POV as do the polls, betting markets and stock baskets.

A Blue Wave would lead to stimulus akin to the already approved House bill for roughly $2.2T and would represent the start of what I expect could be a surprisingly active and progressive Biden admin. Don’t expect Biden to be a caretaker (check out Norm Ornstein’s piece on the 1st 100 days of a possible Biden Admin). A Trump win & Republican Senate would suggest a smaller stimulus sized around the WH $1.5T proposal. A Biden win and a Republican Senate would result in gridlock, be extremely problematic for the US place in the world and near term lead to a small stimulus - think Senate leader McConnell's $500B program.

Expect to hear about Phase 3 vaccine trial results by both Pfizer and Moderna in the coming weeks; China has several Phase 3 trials underway which should report at roughly the same time. All are already producing their vaccine candidates so the ability to get 40-100 M doses distributed in the coming months and billions of doses in the coming year is V feasible (Pfizer itself expects roughly 40 M by YE and over 1B doses in 2021).

The ex Asia inability to control Covid could lead one to think rollout and vaccine distribution will be sub par - that might be too negative as the private sector is much more involved, there has been time to plan and the global logistics business is one of the most forward thinking and aggressive segments of the global economy. We have long highlighted Covid speed and now focus on the shift from speed of science to speed of delivery.

Clarity on the Big 3, coupled with record global liquidity, continued fiscal and monetary policy support & China & US consumption growth underpin our view that 2021 will be an economic growth boom year that will catalyze the global Rotation Trade (both sectoral and geographical) and capsize the great Bond Bull market. Rising rates & vaccine = Tech “kryptonite”.

Our first in Covid, first out focus and our Covid investing formula ( control virus > reopen economy > broader stock market > outperformance) continue to work V well. Asia has far outperformed on its Covid response, its economic recovery and its financial asset performance & is breaking out vs the S&P. Ant FInancial’s Shanghai/HK based, record IPO, suggests a new boss in town.

Europe has been the portfolio problem child of late - we think current levels represent a great entry point; stocks O/S, banks are back to levels of a month ago ( European Banks a “Screaming Buy") even though Q3 results were better than expected and there is a growing sense of some dividend relief this year. Partial lockdowns of limited duration to save Christmas are not the same as full lockdowns of the Spring but EU stocks are back to late Spring levels. Deaths, hospitalizations, mobility indicators are all much better than Spring levels as well.

Levels are important in such markets: ACWI, ACWX, SPY all above 200d supports, if we are wrong 3150 is an important support for S&P. We remain positioned for the Rotation Trade: OW equity, focus on Cyclical/Value, SC in US, OW non US DM for cyclical exposure in Japan and Europe. OW East Asia and China in EM. Very UW long duration Sov debt, OW Credit incl US HY, EM $ debt, Pref, adding to RE. OW Commodities across metals both precious and base, miners, clean energy and building a position in oil. If 2021 is a boom year Brent will most definitely not be trading at $36 pb.

Enjoy this Youtube interview hosted Thursday by Roberto Attuch of Omninvest, an independent research platform in Brazil - a country near and dear to my heart. It's full length (hour) & I expand on all of the above plus more.

A cold NYC rain is falling & winter is coming, but so is clarity - I’ll take that trade.