In 2020, Dave Portnoy boldly stated that “Stocks only go up.” He was not wrong.
Is it over yet?
Everyone’s watching the election. Around the rest of the world, we have settled into a comfortable equilibrium.
In 2020, Dave Portnoy boldly stated that “Stocks only go up.” He was not wrong.
I’m so sorry, Dave. This is the best the AI could do.
Hello. It’s Friday. Thanks for signing up. I’m Brent Donnelly.
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Money keeps on flowing into the United States of America as rising yields attract money, soaring stocks and good earnings attract money, and the value of the dollar has risen 15 of the last 20 days. Many major assets are breaking through their 200-day moving averages, and a flurry of assets breaking the 200-day at the same time can often be a signal that something big is happening and trends are changing.
In this case, it does not mean anything.
Yields and the dollar are simply rebounding off depressed levels triggered by the August NFP release and while there is some benefit to the USD from rising Trump odds, it’s mostly just a simple economic story. The US data looked like it was turning lower, but it didn’t. We are through a little soft patch and there is nothing nefarious going on.
You may have seen charts showing the tight relationship between Trump odds and treasury yields. That relationship makes sense, but there is a fooled by randomness aspect here because the economic data followed the exact path of Trump’s odds, coincidentally. If you look at other asset classes that should track Trump’s odds (e.g., bitcoin and USDMXN), you will be hard pressed to see any relationship.
Are Trump’s rising odds pushing yields and USDJPY higher? Sure. Are Trump’s odds the principal factor driving US yields right now? No. Yields are going up because the US economy is performing better than expected. Atlanta Fed’s GDPNow is up to a lofty 3.4% as I type this. Claims have dropped back down to pre-hurricane levels. Durable Goods came in stronger than expected, bolstering the strong Retail Sales figure we saw last week. US consumption is strong, despite legitimate fears of rising delinquencies and soft anecdotal evidence from the Beige Book and corporate earnings calls.
The simplest reason that the recession has not arrived is that there has been no transmission from higher interest rates to US consumer or corporate liabilities. In fact, corporate interest payments have cratered back to levels not seen since the 1960s. These interest payments will rise one day, but they are incredibly low right now. US corporate and US consumer balance sheets are currently constructed of diamond.
Yellen is probably wishing she rolled some debt like her private-sector peers did!
Next week’s nonfarm payrolls release will be important as we continue to look for signs of weakness in an economy that looks like it has discovered mid-cycle equilibrium in a place not too different from 2017/2019.
China has not been in the news much this week as it’s been a consolidation story. Things there are not collapsing anymore. The floor is a bit higher but the ceiling on growth and on China’s contribution to global reflation is low. They are still in a balance sheet recession, and by refusing to name a stimmy number they have cooled the market’s steaming hot expectations.
Don’t forget to buy the 2025 Spectra Markets Trader Handbook and Almanac here.
The upcoming US election has me thinking back to 2020 and it feels like a good time to repost this:
https://x.com/stoolpresidente/status/1268542454086750208?lang=en
He was right, basically! Still, the old “buy stocks on a Trump win” feels too easy but there are still 6 more trading days before the election and if the S&P compounds at 0.5% per day (silly, but not even close to impossible) we will be trading above 6K in SPX before the most important election ever in history.
SPX compounding at 0.5% per day
I say “most important election ever” in jest because everyone always says that, of course. This is known as chronocentrism. It is the assumption that the present is more important, or a more significant frame of reference than other time periods, either past or future.
1864 Lincoln vs. McClellan
“We have had many important elections, but never one so important as that now approaching.” The New York Times, March 31
1888 Harrison vs. Cleveland
“The Republic is approaching what is to be one of the most important elections in its history.” New York Times editorial, July 2
1976 Ford vs. Carter
“I think this election is one of the most vital in the history of America.” President Ford, debating Jimmy Carter, Oct. 22
1988 Bush vs. Dukakis
“It may be the most important election of this century.” Senator Robert C. Byrd
1996 Clinton vs. Dole
“It’s the most important election of our lifetime.” The Washington Post
2004 Bush vs. Kerry
“This is the fourth presidential election which Pearl Jam has engaged in as a band, and we feel it’s the most important one of our lifetime.” Eddie Vedder of Pearl Jam
“For that reason, ladies and gentlemen, the election of 2004 is one of the most important, not just in our lives, but in our history.” Dick Cheney
And so on… As the girls in high school used to say: “Don’t flatter yourself.”
If you trade equity options and don’t have a position in DJT 15NOV’s, what are you even doing? They trade around 265 vols. There must be a way to make money there?! NVDA vol is 50 and AAPL IV is 28. Go! Go have some fun!
And… No need to change last week’s 14-word stock market summary:
Everybody is mega bullish into the 2024 presidential election. What could possibly go wrong?
First up: If you’d like to learn more about the MOVE INDEX (the bond market’s equivalent of the VIX, sort of)… There’s a nice explainer in here from Harley Bassman, the gentleman who invented it:
https://www.convexitymaven.com/wp-content/uploads/2024/10/Convexity-Maven-2024-Election-Special.pdf
The big news in rates this week is the ripper in the US along with the double dovish action out of Canada and Europe. Tiff Macklem hacked another 50 beeps off the policy rate, even as the Fed looks like it might be switching from hatchet to scalpel for its next cut. The neutral rate in Canada is maybe I dunno like maybe 2.25% to 3.25% and the market has that rate moving all the way down to 2.9% by April 2025. That’s juicy.
While the Bank of Canada can diverge from the Federal Reserve somewhat and go earlier or later than Big Daddy, the ties between the US and Canadian economies remain strong. Even as balance sheets in Canada are far more fragile (far less antifragile?) than those in the USA, the ties between the US and Canadian economies remain strong. Half of Canada’s population lives south of Seattle, for crying out loud.
So when you see interest rates this stretched between the two nations, you have to stop and scratch your beard for a second. This next chart shows that 1% has been the upper limit for US yields over Canadian yields (many times) and we’re there now.
So I have a hard time believing the Bank of Canada will cut as much as the market thinks they will. The only way the April 2025 Bank of Canada policy rate is going to be sub-3% is if the US economy turns down hard. Otherwise, US strength will filter through to Canadian data and the Canucks will continue to chug along the way they have chugged along for the past couple of years—with moribund growth but a pretty OK jobs market.
Currency markets keep doing the whoops thing at each end of the range and the USD dump in September was firmly rejected. Here’s DXY for the past two years. Gross.
This chart is a great way for me to show:
Every time you use a daily RSI or a moving average to execute a trading strategy, you are making an implicit assumption about whether the future state of that market will be rangebound, or trending. The trendier something is, the better the moving averages will work, and the more you’ll get roasted fading high or low RSIs. Just something to think about.
If you are interested in technical analysis, here’s a piece I wrote a while ago that covers a few patterns I like and why they work.
https://www.spectramarkets.com/amfx/technical-analysis-market-structure/
A pretty gigantic calendar for FX degens over the next 10 days or so as we are now 270 hours away from 9:30 p.m. on election night. Before that, we have a chock-a-block calendar next week that includes BOJ, the UK Budget, Swiss CPI and the US Jobs Report. Early nights and afternoon naps this weekend to arrive at full strength on Monday.
Good times! The BOJ meeting is not expected to be in play, and that’s why it’s probably worth paying attention just in case.
Some cool stats posted here by bitcoindata21 on Twitter.
Editor’s note: I will never call Twitter: X. I will never call Facebook: Meta. And I will never call Aberdeen: ABRDN. We need to hold onto some ethical red lines in life.
The relationship between attention and crypto is well known. The further you go out the risk curve, the less intrinsic value there is and the more attention matters.
Altcoins – crypto – memestocks – DJT Equity are all kind of the same. They need fresh buyers to come out of the woodwork so existing holders can dump their bags at better levels. The interesting thing about these charts is that we had a huge spike in the sentiment data in June, and price barely budged. But now interest has waned and we’re still near the highs. I dunno; it’s interesting but I don’t know what it means.
I will definitely say that my Twitter feed is as full as the last bus right now when it comes to altcoin shilling activity. Then again, the Twitter algo is optimizing for many things other than “what is this person actually interested in seeing” so I don’t trust Twitter sentiment much. For now, all’s good for every procyclical asset, whether it be crypto, shitcoins, DJT, SPX, Mag7, MSTR, or TSLA. We are in a bubblette of sorts, and we might get another full week of this before the election might stick a hot poker in the eye of the frothy asset bulls.
I’m torn on crypto. It trades OK, I guess, but like… Everything else is well through the all-time highs and mainstream crypto isn’t. ETH is 2500 and its ATH is > 4800. Not exactly performing.
And this just happened:
*US PROBES TETHER FOR SANCTIONS, LAUNDERING VIOLATIONS: WSJ
Gold’s weekly RSI is 82. That’s exuberant, to say the least.
Prior touches of 80+ in the RSI preceded two huge selloffs and two multiweek consolidations. If you’re long some Maple Leafs, sell some calls!
There are few things in this world more beautiful than this.
If you’re ever in Ottawa, check out the Royal Canadian Mint public tour. It’s more interesting than you would expect, and you can watch them produce these coins in real time. Pretty neat.
Whew! OK! That was 8 minutes. Thanks for reading Friday Speedrun.
Get rich or have fun trying.
Amazing cartoon from Grant’s Interest Rate Observer
(reproduced with permission)
Arstechnica: How government agencies follow your every move
Nikon’s Small World Photomicrography Competition Winners
And finally … Time to start prepping for 2028!
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Everyone’s watching the election. Around the rest of the world, we have settled into a comfortable equilibrium.