Friday, October 30, 2020

Gambling Through Civil War

Having been burned by being too cautious in 2016, gamblers are front-running civil war to buy stocks...

What could go wrong?

The three largest power shifts during the past twenty years took place in 2000, 2008, and of course 2016. We all know what happened in 2016. Circus Donny got elected with assistance from the Russians (No collusion ;-), the FBI, Facebook, voter suppression, gerrymandering, Faux News, and human history's biggest Idiocracy. 

Good times. 

Now let's war game the major scenarios for this election. First off, unlike past elections, we can presume that all of the gridlock scenarios shown above will be viewed as highly deflationary, as they will reduce the likelihood of massive fiscal stimulus. In that case, reflation expectations will implode, as will the RECORD Treasury shorts betting on reflation. With bond yields collapsing, the $USDJPY carry trade will go RISK OFF globally. At that point four years of MAGA will turn back into a pumpkin.

Four years of deflationary supply side criminality for the rich. At a cost of $6 trillion combined monetary and fiscal profligacy in 2020 alone. 

Will explode. 

Next, let's consider the contested election scenario with Trump winning. For that we need look no further than the year 2000 when George W. Bush stole the election from Al Gore. Gore won the popular vote, but the entire election came down to a handful of contested votes in Florida. By sheer coincidence, GWB's brother was the governor of Florida at the time. No collusion! 

Before we get to the casino, imagine the world today if Gore had won that election instead of Bush: no Iraq blunder, no Middle East implosion, no de-regulated Wall Street, no tax cut for the rich, no mass outsourcing to China, no global financial crisis, and a green revolution to repair climate change. 

If this (below) hadn't happened, Trump would have been avoided as well:

Where it gets more interesting, is that the Y2K contested election also came during an imploding Tech bubble. If Trump wins next week we can be assured that deja vu of 2000, it will come down to a handful of contested votes and a re-count process that drags on for days if not weeks. 

Here we see the Y2K chart:

Stocks fell almost 25% after the election, making their lows in March of 2001:

Lastly, let's consider what is actually fully priced into markets, which is the blue wave scenario. It just so happens that 2008 was a blue wave that took place during an economic meltdown as well:

"But in the end, as far as climate change, it didn't matter who won the election, because Mother Nature imploded the entire oil sector with a virus that forced video conferencing from home. Tech billionaires made hundreds of billions under Trump, while fossil fuel executives went bankrupt"

"Exxon is confronting one of its biggest crises since Saudi Arabia began nationalizing its oilfields in the 1970s. If the company takes the full $30 billion impairment, it will be the industry’s worst in more than a decade, according to Bloomberg data."

In summary, we are in a big, fat, dumbfuck bubble.

Which is why no one sees it coming.

September, 2016: