- McConnell says a deal unlikely before the election
- Stocks keep rallying in hope after Trump tweets; and
- Why no society can live by dread alone
“Hopeful” is how I would describe the market activity this week.
Hopeful in the sense it gets the ‘gift’ of more free money (approx $2 Trillion) from the federal government.
Money future taxpayers (and generations) will need to pay back but didn’t get to benefit; or nor did they have a say in it.
But they will responsible for all that debt.
Selfish?
Captain COVID tweeted today “Covid relief negotiations are moving along.”
Are they?
Senate Majority Leader Mitch McConnell indicated that it’s “unlikely” that a new bill will be passed in the roughly three weeks remaining before the Nov. 3 presidential election.
Who do you believe?
The market is leaning towards an optimistic outcome on a deal.
Trump also told talk show host Rush Limbaugh that he’d “like to see a bigger stimulus package frankly than either the Democrats or Republicans are offering.”
Of course he would!
He also wants the Fed to (a) cut rates further; and (b) print more money.
He’s a real-estate guy.
Cheap (or preferably free) money is his game.
Trump also knows more than anyone that short-term (sugar high) strategies like government deficit spending, artificially suppressing rates to zero; and printing money all in combination will turbo charge risk assets.
And that’s his barometer… the stock market.
Anytime there is a move higher Trump will tweet “market up bigly today”
This is his v-shaped recovery.
The stock market. Not the real economy. Not with tens of millions (estimates are around 25M) still lining up on unemployment queues.
Problem is these strategies do very little to help the real economy – apart from a short-term bump.
But they will make him look better.
For example, today when Trump tweeted “things are moving along” – it was a Pavlov’s dog response (up goes the market)
With that preface, let’s take a look at how things ended the week for the S&P 500
S&P 500 Rises on Hope
The S&P 500 put in its best weekly performance in months – mostly on the back of getting a fiscal deal done.
S&P 500 – Oct 09 2020
Some technical observations:
- The weekly trend remains bullish (advantage bulls)
- We closed back above the major high of Feb (advantage bulls)
- VIX has dropped sharply from last week – but still relatively high given where the market is (advantage bulls)
- Weekly MACD is bearish – showing strong negative divergence (advantage bears); and
- Volume has been weak on bullish days (advantage bears)
Net-net – I award the balance of power to the bulls here.
And whilst I think the upside is capped in the near term (as we head into the election and with stimulus unknown) – there remains the possibility of sharp pullback (similar to what we saw three weeks ago).
And unless the House Democrats yield to the Senate’s demand (controlled by the Republicans) – which feels unlikely (unless we see a smaller deal)
A Good Read on COVID
For those who have access to “The Australian“ pay firewall – here’s a great read on COVID (and pandemic) facts.
The author also talks to some of the indirect (and generally less spoken about) health risks of the long-term lockdowns.
There were two interesting graphics shared – which help put things into perspective.
First what we have seen over the centuries (by time vs scale)
And when it comes to deaths – here is a great visual from the devastation of the Bubonic Plague (200M deaths) through to Spanish Flu (50M) deaths.
I would encourage you to read the full article… however will share the columnists closing remarks.
No society can live by dread alone. And a society that stands quaking in the antechamber of its own extinction is condemned to a stagnation that no amount of stimulus spending can cure.
Eternally “keeping a-hold of nurse, for fear of finding something worse”, it inevitably saps the ambition, aspiration and self-reliance on which sustained growth relies, replacing them with dependence and the desperate search for security.
That, and not the staggering debt and unemployment the lockdowns have wreaked, is the greatest threat we face.
And that is why tackling the fear mongers is so important.
The facts, as far as COVID-19 is concerned, are becoming clear; it’s time our governments and their advisers proclaimed them from the rooftops.
And whilst you may strongly disagree with the columnists view (which is fine) – it’s true that as we move forward – what we know about this virus is becoming more evident.
Put another way, each day we get more data.
For the first ~6 months of living with this awful virus, we were still rapidly trying to understand things like (not limited to) virus transmission, mortality and infection rates.
But is the narrative shifting inline with what we are learning?
It doesn’t feel like it.
Personally (and I realize that many may not share this view) – I’m now far more worried about the (long-term) social and psychological damage this virus is causing… damage which will most likely become more obvious in years to come.
Before I close – just a note on the trade I issued yesterday.
Today PDD (Pinduoduo) piled on a massive 8.5% – closing at $79.54.
As such, if you were not able to put this trade on yesterday – you have missed it (for now).
For example, the Nov 20 $55 strike put options I sold for 0.78c per contract – closed today at just 0.46c
That represents an annualized yield of only 7.2% – and not worthwhile taking the trade (in my view).
I don’t know what propelled the stock so far today – as I could not find any news.
All I found was this opinion piece on SeekingAlpha today suggesting the stock is great value (but we knew that already).
I have my eye on a few other trades at present and will keep you posted.
Regards,
Adrian Tout
Fed Pledges Its ‘Support’… As Retail Sales Plunge
Why the Fed Will Continue to Print
