The debate result was clear, but the impact on financial markets is not.
The wildly varying costs of Taco Bell across the USA show limits to cross-state taco arbitrage
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Flat
The debate happened and by any unbiased numerical metric, Harris won. But here’s some perspective.
While the Trump/Biden debate moved the election odds by 10% across the board, and Biden dropping out moved the odds that much, too… This one has left the Republican Sweep and Democrat Sweep odds unchanged and only bolstered the D Prez R Senate D House odds by a few percent.
The DRD outcome is a gridlocky, market neutral outcome, not a “here come massive tax hikes!”, left-wing progressive regime change.
It was hard to gauge market reaction in real time during the debate because Nakagawa (BOJ) spoke during the debate and continued the hawkish refrain and that saw USDJPY lower. Overall, I would say the debate outcome, while good for Harris, is neutral for financial markets.
CPI is a fade, I think, as it was not that surprising to see a small beat given the asymmetries in the micro data. Also, September data will be soft again and this isn’t going to lead to a big jump in PCE.
The idea that the US cycle is ending has some logic as downward labor market momentum tends to be unstoppable once things turn. On the other hand, the labor market in 2021/2022 was clearly unsustainable and so there has to be some allowance for the possibility that we are just mean reverting back to 2017/2018 levels and can stabilize here. Consumer Credit grew at a 1-year high in July, Claims are 230k. Hiring has slowed but firing has not started and may never start.
Yesterday, the bears got some food from Ally, as they spoke about a constrained consumer and their stock fell 18%. Dollar Tree and Dollar General were also said to be harbingers of a consumer squeeze. The problem with anecdotal evidence is that data is not always the plural of anecdote (but sometimes it is!). Looking at some of Ally’s competitors, you get a chart that looks like this the one below. All those other consumer finance stocks are within 8% of the all-time highs and only off a bit in sympathy with ALLY.
It’s the same problem you get if you try to extrapolate to the macro economy from micro stories like DG and DLTR. Walmart and Costco at the all-time highs and DG and DLTR at the lows. You can find a stock to suit any narrative. Meanwhile, Retail Sales, Initial Claims, Consumer Credit and even nonfarm payrolls don’t show anything conclusive other than a bit of a mid-cycle slowdown off an impossible to maintain overheating economy in 2021/2022. I guess I’m just open minded. I see both sides.
We now have copious feedback from those who have completed Spectra School’s flagship course: Think Like a Market Professional. The course is a great way to level up your knowledge and/or the knowledge base of your sales and trading teams. I would love to run the course for your organization or a group of your newer hires and/or analysts.
The course is targeted at anyone with less than 5-7 years of experience in markets and the idea is to provide practical frameworks for thinking about financial markets. Not what to think about markets. How to think about markets.
You can see all the information here. Watch the short video, then click the yellow button to get everything you need to know, quickly. Please email me and we will set you and your people up. Here is some feedback from a bank treasurer:
I have just completed the course. I found what you wrote in your concluding words massively true: I did learn a ton and found the structure, lessons and content enjoyable. I’m glad I found little overlap with your books (from which I had learned a lot, too). And I want to stress: you are presenting practical information and knowledge in a highly captivating and enjoyable style. The course was fun, even exciting to take! Thank you! And looking forward to continuing to learn from you whether from your newsletters, or otherwise on my journey to finance/trading!
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Contact me, sign your peeps up for Spectra School, and convert them into Spectra Disciples. Thanks.
The Many Worlds Interpretation (MWI) of quantum mechanics suggests that we may live in a universe with infinite branches, where each branch appears as a probability-weighted extension of the current timeline. That is, if you flip a coin right now, you create a series of non-overlapping branches or timelines. In 50% of those timelines, the coin lands on heads, and in 50% of them, it lands on tails. Or, on a more serious note, if you drink and drive… You kill someone in some small percentage of timelines and get away with it in many others. Every possible outcome of a quantum event exists in a separate, non-interacting branch of the universe.
I am sympathetic to this theory, and I like how it makes the concept of expected value less abstract. If you put on a trade that’s 70/30 in your favor and it pays 2:1 … Then you lose… You can just say “Well, I made good money in most of the timelines… Still a good decision for my infinite selves and just not great for this particular one.” The MWI makes good decision / bad outcome irrelevant because your infinite selves in all the other timelines still reap a benefit from the good decision.
And… It makes bad decision / good outcome unequivocally bad. Even if this you escapes consequence free, a majority of your other selves suffer from the bad decision, even if you are not privy to the outcomes and consequences transpiring in those infinite other worlds. Yay, expected value!
If you would like to read a spicy 10,000-word short story related to quantum theory, check out “Divided by Infinity” by Robert Wilson. It contains some dark themes and a few amazing bits of prose. It’s a mindbender.
Today is a good day to think outside the bun—and live más.
Midjourney imagines infinite doppelgangers
US economy is fine. US stocks, all-time highs. China and election are wildcards.
Traders will be glued to Bloomberg tonight as the latest Chinese news drops.
The Spectra Markets Trader Handbook and Almanac is back and better than ever.
