Tuesday, October 20, 2020

Good News, Denial Is Fully Priced In

Stoned gamblers have been front-running mass delusion since the March lows. Why stop now?

In the standard denialist tradition, we need not fear that anyone sees this coming...

I just skimmed this article on Zerohedge claiming that the race is tightening deja vu of 2016. All Trump needs now is for the FBI to open a specious investigation on Biden's emails this coming week, as they did against Clinton four years ago. I will be the first to admit, I have no clue who will win the election. I will also admit that Zerohedge has no clue either. In their election analysis they spent all of their time sifting the tea leaves and none of their time questioning Wall Street's Peter Pan outcomes. 

Which is where honesty comes in handy. 

Because putting aside all of the usual bullshit, there really is only one straight line path to economic reflation, which is the blue wave scenario. Which also happens to be conveniently already priced in to markets.

Here is my own infographic on the various election scenarios, below. As we see, three out of four scenarios lead to gridlock and economic deflation, which will result in extreme societal acrimony. One can argue, as I have, that even the blue wave scenario will likely push stimulus back until February/March due to the lame duck session. When Trump goes to jail, his supporters will likely rise up against the Deep State. I can't wait to watch that on TV. Running Man 2021. 

The operating assumption in all of these scenarios is that the House remains Democrat.

It used to be said that political gridlock was good for the markets, because it meant no major changes to policy. However, that is no longer the case. Now, stimulus IS GDP hence any impediments to further stimulus will be deflationary. The current political impasse - evident every single day now - will only greatly worsen after the election. The key issue is that the GOP is dead set against helping out the states, which means that a gridlock scenario is tantamount to mass insolvency at the state and local levels. The next domino to fall.

True to form, with only two weeks until the election, gamblers have already priced in the best case scenario. Which is what drove this recent rally from the September lows:

Here we see the S&P Advance decline percent (10 dma), which peaked at the same level as June. 

The top performing (single levered) sector ETF is solar. One can make the case that a Biden win is "priced in":

"Invesco’s Solar ETF (TAN) has become one of the market’s hottest exchange-traded funds, up almost 139% year to date and counting as former Vice President Joe Biden leads President Donald Trump in presidential election polls."

In summary, per the denialist tradition, we can rest assured that once again, "no one" sees it coming: