Markets beat polls this go around, as betting markets and the market as a whole seemed to be much better barometers of this election than polls. The story of the French guy who made a bunch of money betting on Polymarkets is pretty fascinating, he argues that pollsters should use "neighbor polls" where you ask respondents who they expect their neighbor might vote for, as apparently people will indirectly reveal their preferences in that manner.
With the Trump election victory and a likely Red sweep in Congress, so-called ‘Trump trades’ performed well. How much of the move is a reaction to expected policies versus simply “relief” that the election is over is somewhat hard to disentangle, but certainly some areas that will benefit from expected tax, trade and deregulatory ideas benefited from the election news.
Crypto, yields and stocks all moved higher.
Stocks hit their 48th new year to date high even as bond yields soared. The reaction in bonds is likely some combination of expected inflation, deficits (perhaps a driver of inflation) and growth expectations.
The 2Y heads into the Fed at 4.27% and the 10Y at 4.43%. We'll see where we end up after the BoE and the Fed today. Keep an eye on Germany as well where the coalition government is collapsing.
XTOD: The Fat Joe curse continues
XTOD: So the French Polymarket guy woke up $80m richer today by simply betting that polls were wrong yet again, just like they were in 2016 and 2020. “The simplest outcome is always the most likely.”
XTOD: Inflation has been an incumbent-killer everywhere. The U.S., it turns out, was not an exception.
XTOD: Upcoming deregulation wave will create an economic sonic boom.
XTOD: "I'm short bonds. I'm not mega-short...I'm like 25% NAV short 10-year equivalent." LOL. Druck is a GOAT.
XTOD: We are often so focused on being right that we miss the advantage of simply avoiding stupidity. https://pbs.twimg.com/media/GbswynnXYBM8Z5j?format=png&name=900x900
As of the time of this writing, the election outcome was unkown.
Markets were pretty happy during the election trading day. Stocks indexes rose almost 1%, there was some interesting trading in DJT stock, but hard to know what the drivers were. The 10Y ended the day at ~4.30% falling in the course of the morning and holding that changes through the day. the 2Y remained around 4.20%.
ISM non-mfg pmi comes in at 56 v. 53.7 est. the employment component and prices component were both firm and above expectations. The 10y UST auction was pretty good, printing slightly through where WI was trading and a solid bid to cover.
Boeing strike is over. West coast Canadian port strikes begins.
Limited data, so it's probably just a lot of hearing from pundits about policies.
XTOD: We need Blackstone to take America private, right-size our cost structure, clean up the capital structure, and get us ready for an IPO before the next election
XTOD: Millennials are aging faster as they spend >8 hours/day sitting. 30 min of daily intense exercise can counteract, making your body 5-10 years younger. A study published today showed that US millennials (28-49 years) spent >8 hours a day sitting which leads to faster aging indicated in markers including higher body-weight and increased fat in the blood at a younger age. Fortunately, Intense exercise mitigates this effect of longer sitting hours, as millennials working out vigorously for 30 minutes a day demonstrate a BMI (Body Weight relative to height) and blood fat levels (TG/HDL ratio) equivalent to that of 10 year and 5 year younger peers that do not exercise.
XTOD: "Fannie Mae...wrote that it anticipates decreases in the multifamily property values it projected, reflecting 'uncertainty relating to property values and the ongoing investigation of multifamily lending transactions with suspected fraud.'"
XTOD: Election "break even" analysis...
UST 10yr rate: 17bps; 1.33 points
$MOVE now @ 136
SPX: 1.8% or 102 points
$VIX now @ 20.3
Gold: 1.6% or $44
Let's hope it's a clear victory....either way
XTOD: When you hear the call to 'do more' and 'be more,' do you ever pause to ask: At what cost to my soul? Have you weighed what you are trading for the achievements you pursue?
"I conjecture that if you gave an investor the next day’s news 24 hours in advance, he would go bust in less than a year.” - Taleb
Are you familiar with the "crystal ball trading challenge"? Basically it's an experiment where participants are given the front page of the WSJ in advance and you basically get to trade knowing that information. The result was people did poorly, you can read more here. In a post by Victor Haghani, the conclusion is summarized as:
Most stories involving people seeing into the future... don’t have “happily ever after” endings. There are usually unintended consequences that come with perfect prescience – a reminder that even prophets can’t escape risk and uncertainty. The best we mortals can do is make our decisions with a framework that explicitly accounts for the presence of risk in just about every big choice we face.
Whether we know the election results by the end of the day or not, doesn't necessarily mean we will understand the market reaction. On top of that we often forget that everything can change because of some tiny event that no one is thinking about (ex. don't forget about Iran, Russia, etc.).
In yesterday's new Factory Orders fell in line with expectations but showed decent growth in core durable goods. The 3Y Note auction tailed by 0.9bps, printing 4.152%. Bond yields fell with the narrative centered around increasing odds of Harris winning.
Heading into the day we have the S&P at 5,712, the Nasdaq at 18,179, the Dow at 41,794, the 2Y at 4.18% and the 10Y at 4.29%. Where will it be this time tomorrow?
On the day ahead we get services data and the 10Y Auction.
XTOD: Time to trot out the Hindsight Bias Buster. To keep yourself from saying, after the election, that you knew all along that what did happen would happen, take a moment to leave a record for yourself.
Your predictions for:
the Electoral College vote (must sum to 538):
Trump _____
Harris _____
the popular vote:
Trump ___%
Harris ___%
XTOD: Goldman has some potential reaction functions: 🇺🇸
* Harris w/ Divided Government = 40% probability; S&P -1.5%
XTOD: NOBODY: WALL STREET/ SILICON VALLEY: what if private credit bubble was combined with AI bubble and then Nvidia related-party transactions were thrown in just for fun???
XTOD: Iranian-Backed Channels in Iraq are claiming that a Large Swarm of Drones have been launched from Iraqi and Syrian Territory towards Israel.
XTOD: Al Pacino. Love the work. "I want to do this forever." https://pbs.twimg.com/media/GbfVw0CagAAeWgD?format=png&name=900x900
"There are decades where nothing happens; and there are weeks where decades happen"--Vladimir Ilyich Lenin.
The media would probably make you feel like this statement is true most weeks, but nonetheless, a huge week ahead with the Election, the FOMC and a number of Treasury auctions in the mix. It's gonna be lit!
"Risk is what you don't see...The biggest news, the biggest risks, the most consequential events are always what you don't see coming. - Morgan Housel
If you've paid attention to this blog over time there is probably a message of avoiding market forecast, about preparation over prediction, being able to survive the volatility that comes from uncertainty, about patience, humility, avoiding complexity and noise.
"If you are merely forecasting the most likely outcome over the next year or two you will be most unlikely to hang your spreadsheet on predicting a discontinuity. It’s much more sensible to predict a continuation of current business or to follow guidance. It’s rare for us to know when a dramatic change will occur but frequent for it to be close to inevitable at some point. Certainty is an abject temptation. The world is too complex, too erratic and too full of surprises to make spot forecasts of anything of significance. I’d push this further: trying to be ‘correct’ is the enemy of good investing. It’s much more valuable to have doubt and to make portfolios the beneficiaries of potential Black Swan. Therefore the best we can do is to come up with a set of possibilities and probabilities, endeavour to make them extreme, blend them with each other and then think about the potential returns. Then we watch. It’s better than acting. Or as Charlie Munger urges “this habit of committing far more time to learning and thinking than to doing is no accident”. Occasionally we
adjust our sights as time, learning and our thoughts progress. We need to give up the excessive arrogance implicit in forecasts if we are to maximise returns." - James Anderson, "Abberration or Premonition" (2018)
As for the end of last week. Jobs missed big, but didn’t seem to matter, as investors seemed to look through the noise that was generated by weather and strikes. The establishment survey had a very low response rate and the household survey showed a large weather impact. Yields rose further even as markets price in 25bps of cuts at Thursday's FOMC decision (delayed a day due to the Tuesday elections). The 10Y is nearly 4.40% and the 2Y is over 4.20%.
ISM manufacturing missed but prices paid component beat by a lot, looking a little stagflationary, but really when was the last time ISM manufacturing really mattered, aren't we a services oriented economy?
Warren Buffett is sitting on over $300 billion of cash.
XTOD: Sure looks like Warren Buffett sees a storm coming. He’s liquidating out of the stock market.
Cash reserves now sit at a whopping $325 billion.
XTOD: “It's so easy to get so busy that you no longer have time to think—and you pay a huge price for that.”
XTOD: So why not buy the building and simply rezone it? Well... rezoning in NYC isn't a 'simply' sort of thing. The details of what that process entails are for another post. (You're not the first person to think of that 😉) The city has recognized this area is obsolete and has been working on a plan to rezone the "M" zoned areas of midtown south. But the plan is yet to pass. A draft of the plan is public, and there have been several public meetings about it. There is definitely progress. However, there is no certainty regarding the requirements or when exactly the change will go into effect. This means that the only possible value of 29W 35th Street is uncertain while the building continues to incur in costs.
Perhaps a low-enough basis can make it an attractive investment if an investor is willing to take the risk of an uncertain timeframe and an uncertain set of requirements-- which may cap the asset's value to an unknown degree. So far, it seems that the basis isn't yet low enough for anyone to accept those risks.
XTOD: “Look for the job that you would want to hold if you didn’t need a job.” — Warren Buffett
Jobs Day in 'merica. Consensus for the headline is +105K, with strikes and hurricanes (mostly Helene due to timing of Milton) expected to distort the data. The range of estimates seems larger than normal, with Bloomberg's Anna Wong at/near the low end expecting -10K. We go into jobs with a 10Y ~4.28% and a 2Y at ~4.18% compare that to where things sat prior to the last report back on October 4th where yields were 3.84% and 3.71% for the 10Y and 2Y respectively. Remember it was that report that came in way above consensus and led the market to start to price out the possibility of a 50bp cut. We'll see what happens this go around.
Stocks fell as the prior day's tech earnings disappointments (MSFT and META) filtered through. After the bell Apple and Amazon earnings are likely to help boost market sentiment as AMZN revenue and margins were up. Apple earnings were mixed, with iPhone sales exceeding estimates, but shares were trading mixed.
Later day news around Iran preparing for a potentially large retaliatory strike against Israel through Iraq made headlines, but didn't seem be a major mover, though it's a reminder not to discount the risk of attacks around the U.S. elections.
Yesterday, PCE rose 0.2% on headline basis and 0.3% on Core PCE, the highest in 5 months, with the Core PCE YoY rate of 2.7%. Jobless claims were super low again (216K v. 230K est), ECI up 0.8% below estimates (0.9%), spending rose 0.5% which was above estimates.
Over in the UK, I guess the budget situation is not quite Liz Truss level, but the rise in the amount of borrowing over the next several years definitely spooked investors, sending yields rising. Gilt yields are up something like 40bps over the last two weeks.
Payrolls and ISM on the day ahead. Sentiment out there in the X/Twitter verse is always interesting. Here's some bearish takes to start the month.
XTOD: $IBIT took in more cash than any other ETF in the world over the past week. This is out of 13,227 ETFs, which includes $VOO $IVV $AGG etc. It's so hard to beat those veteran Cash Vacuum Cleaners, even for a week, especially for an infant ETF (3mo-1yr old)
XTOD: Market’s message is crystal clear: governments wanting to steer away from austerity will need financial repression. It’s coming and with it capital controls.
XTOD: Here’s my advice regarding next week’s election. Don’t stay up all night on November 5th because I sense we will not know who actually won the electoral college vote. This will be the mother of all contested elections replete with recounts and legal challenges. It will be Gore vs Bush in November 2000 on steroids. Remember that period of political uncertainty lasted a full month and went all the way to the Supreme Court. The playbook: long gold, bonds and the VIX; short the SPX and the USD.
XTOD: suspect that, on the whole, this is not what the #FederalReserve expected data-wise when it suddenly decided last month to increase the pace of interest rate reductions from 25 basis points to 50 bps. According to today’s data, core PCE #inflation, widely regarded as the Fed’s favorite measure, was 0.3% in September, its highest level since last April (2.7% annually, 2.1% for headline).
The distribution of the price increases will also capture the #Fed’s attention, as will the robust increase of 0.4% in real consumer spending. Having said that, not all of today's data releases point in the same direction. At 0.8%, the quarterly estimate for the #employment cost index, another data series closely followed by the Fed, showed the smallest gain since the middle of 2021.
XTOD: The biggest quagmire of this market. You have two choices:
1) Sit in cash and watch your wealth get destroyed by currency debasement.
2). Take on tremendous risk and buy overpriced equities and attempt to keep up with inflation.
What’s an investor supposed to do? Neither of these are great options but neither presidential candidate has any interest in slowing government spending so the investment environment isn’t going to change. So you pick your poison and stick w it or do a little of both to hedge yourself. Plus buy some gold/crypto Unfortunately sitting in cash is no longer as safe an option as it used to be thanks to our deficit and out of control government spending.
XTOD: How to know if you are doing the job? by legendary NFL coach Bill Walsh https://pbs.twimg.com/media/GbMahHnW0AARbnY?format=png&name=small
Nothing too spooky in the markets this Halloween, we'll see if this morning's inflation data changes that, with the Fed's 'preferred' inflation metric, PCE, on the docket.
ADP payrolls crushed estimates, but ADP is historically noisy and generally provides a poor read through to Jobs numbers on Friday. The 3Q GDP data came in at 2.8% slightly below estimates but showed strong consumer spending and pulled down some due to weaker than expected fixed investment. Oh and productivity is up and at the end of the day, productivity is king going back to Adam Smith's Wealth of Nations.
The 10Y is back up to 4.30% and the 2Y is right around 4.20%.
UK Gilt yields fell following the budget, but when the market realized there was going to be a lot more supply, UK yields rose. As some would highlight that simply the global quantum of sovereign debt being issued creates a condition where the supply could mean that U.S. debt has to offer higher yields to compete. What might be at risk of being over-looked is that so far the market has really not struggled to absorb debt issuance, especially U.S. Treasuries. Remember that not too long ago people were talking about the risk of a "safe asset shortage", could it be possible that if at some point deficits are reduced that there might actually be a risk of creating a destabilizing shortage of safe collateral? That's probably a problem for another day, but it really wasn't that long ago that it was a concern.
Over in equities, EY resigned from their role as auditor of Super Micro Computer, while Microsoft and Meta earnings were met with kind of a 'meh', but mentioned AI so there’s that. Their shares are falling ahead of today. We'll get Amazon and Apple earnings after the bell today.
PCE is the highlight in data today. Less than a week until political calls and text stop.
XTOD: Donald Trump riding in a trash truck, after Joe Biden calls Trump supporters “garbage.”
XTOD: Former California Gov. Arnold Schwarzenegger criticized politicians but endorsed Vice President Kamala Harris in a lengthy statement posted to X on Wednesday
XTOD: British finance minister Rachel Reeves announced tax rises totaling 40 billion pounds, or 52 billion dollars — the biggest since 1993 — in a bid to upgrade health and education https://reut.rs/3NLuap1
XTOD: Celebrity is the most powerful currency in media, including financial media. It's more important than track record, novelty of insight, or ROI.
Most people just want to hear the latest take from the person they know, even if that person's been saying the same thing over and over again for years and has been consistently wrong doing it. It doesn't make sense rationally, but it's how most people behave in practice, which is why so many podcasts and financial conferences feature roughly the same voices with the same opinions saying the same things, no matter what is happening in the world. It's also easier for the producers of these media properties to source these voices. They have preexisting relationships with them, they know how to produce content around them, and who to sell it to. It's a win-win for everyone involved in the "ideas industry" even if those ideas are the intellectual equivalents of waste water or bad milk.
XTOD: "My journey in music taught me that sometimes you don’t need to force it. For years, I tried to make beats fit my ideas. Eventually, I learned to let the beat lead and let it show me where it wanted to go. It’s like magic when you stop forcing things and just let it happen." -Killer Mike
XTOD: "You climb as hard as you can by just advancing one inch at a time—that's the secret of life."
Shares of DJT Media stock keep rising, which some see as "prediction" for an election victory. Bitcoin crosses $70K for first time since June. Gold continued to be strong and the Nasdaq hits new records.
After the close Alphabet beat with strong cloud revenue and talked up some AI efficiencies, like AI writing a quarter of their code.
The 10Y hit its highest yield since July, but yields fell back after the 7Y auction was solid, with the 2Y at 4.11% and the 10Y at 4.26%.
In data, job openings declined to pre-pandemic levels, while hires, quits and layoffs were little changed. The Conference Board Consumer Confidence was very good, hitting the best level of the year with consumers feeling very well about their jobs while remaining concerned about inflation Perhaps that would seem to indicate the Fed should be focusing on inflation moreso than employment.
There has been plenty of talk about the distortions in the upcomding payroll report, out this Friday, as the impact of hurricanes and strikes is expected to make for a murky picture. With focus already seemingly shifting to jobs, we have 3Q GDP data and the Treasury Refunding Announcement out today. Yesterday's ATL Fed GDPNow fell back under 3 at 2.8% as we head into today's data. Across the pond the UK budget will also be a subject of some focus, though it's not likely to be anything like the 2022 Liz Truss mini-budget debacle.
XTOD: Gold just hit a new all-time high. $2,785 per ounce. Who's buying? Central banks, BRICS, and billionaires. Who's not buying? Everyday Americans ... yet.
XTOD: The obvious risk here is that the perception of certainty of a Trump win is running very high, the corollary is that if that win does not materialize then the risk of a chaotic outcome - very underpriced right now - would become prevalent
XTOD: Bond traders "believe the range of outcomes for this general election is much wider than all other elections for which we have records (1988)...The market is pricing an 18bps rate movement on the days immediately after the election:" Harley Bassman https://convexitymaven.com/wp-content/uploads/2024/10/Convexity-Maven-2024-Election-Special.pdf
XTOD: “The size factor (small cap premium) isn’t dead. It’l just lives in private equity now (bc cos don’t IPO till after they’re huge)” - Pankaj Patel on quant panel at the Astoria Macro conf w
@alphaarchitect @choffstein @cullenroche & Ben Lavine
XTOD: Of all the hot spots across global finance that were upended by the pandemic, few remain as fragile as the commercial mortgage-backed securities market. And within this market, the pain is most acute in a new breed of bonds, known as SASBs, that buildings like 1407 Broadway represent. A Bloomberg analysis of almost every SASB tied to a US office property, more than 150 in all, revealed that creditors across numerous deals are on track to get only a portion of their original investment back. In multiple cases, the losses will likely reach all the way up to buyers of the AAA portions of the debt.
This is in large part because unlike conventional CMBS, which bundle together hundreds of property loans, SASBs are typically backed by just one mortgage tied to one building….. “The AAA rating is designed to be a debt security that would typically default less than once every 5,000 years,” said John Griffin, a chaired professor of finance at the University of Texas in Austin. “Yet, here we are not far from the financial crisis observing defaults,” he said, adding that “it does not appear that the major issues in structured finance have been fixed.” …
https://t.co/W6Zm5jr9wB
XTOD: When you are washing the dishes, washing the dishes must be the most important thing in your life... Live the actual moment. Only this actual moment is life. https://pbs.twimg.com/media/Ga7-pdxXEAACDBP?format=jpg&name=small ~ Thich Nhat Hanh
The commodities market opined on the Middle East by appearing to price out risk of further escalation between Israel and Iran, or at least further escalation that endangers energy assets. The stock market was also happy ahead of key data and earnings reports from 5 of the Mag 7 this week. Yields continue to rise with commentary tending to continue to believe at some level it's tied to increasing odds of a "red wave". Both the 2Y and 5Y auction were relatively weak, the 2Y had weak bid-to-cover and foreign demand and the 5Y tailed 1.6bps. The 30Y mortgage rate is back to 7%, I don't think many saw that 100bp increase coming a month or so ago.
Speaking of Treasuries, there's been a little bit of talk about the return of "term premium" to the long end of the curve. As I mentioned back here, term premium in bonds is an excess expected yield over and above that expected short-rate path, which is compensation that investors get for bearing interest rate risk in a longer-term bond (additional compensation that the path of rates is not certain). What's interesting is that back in October of 2023, term premium was a hot topic. There was definitely a view of some FOMC members that rising term premiums would do some of the work for the Fed reducing the need for additional tightening, how does that play now that the Fed is cutting? At that time both 2Y and 10Y rates were over 5%. Additional views on term premium range from a view that "term premium" is really just a code word for where inflation expectations are hidden to a view that the U.S. is losing it's exboritant funding privelege.
Whatever the view, it's still interesting that the steepness of the 2Y10Y is only 15bps, with the 2Y is 4.14% and the 10Y at 4.29%. Is anyone in the term premium camp willing to bet on a bear steepening?
On the day ahead we have JOLTS and the 7Y auction as highlights in data and Alphabet on the earnings front.
XTOD: New: Airlines in the US are now *required* to give you a REFUND for a canceled or significantly delayed flight, automatically. The DOT's "automatic refund provision" went into effect today. Good news for travelers with a month until the holiday rush begins.
XTOD: This 10yr UST trend has certainly not been kind to anyone in #RealEstate. Equities continue to ignore yields.
XTOD: Channel 13 reports that the Israeli Security Cabient has made the decision to launch another Retaliatory Action against Iran soon, due to their Role in a recent Drone Attack by Hezbollah, which Targeted the Home of Israeli Prime Minister Benjamin Netanyahu.
XTOD: from $PLTR cofounder @JTLonsdale “I’m fucking rich, Michael”
“I would be fine to pay way higher taxes myself just to have a competent functioning society.
“I would pay a 90% tax rate if we could keep our society competent. If we could stop having illegals swarm into our country if we could fire unaccountable bureaucrats, if we could put systems in place to make our government competent, if we could stop having regulators harass and destroy and impune builders.
“I will pay whatever taxes that takes, I’ll pay 90% of my fortune. We need our country to be functional for my kids and grandkids and everyone else…”
XTOD: Cool story about Zuck teaching a class of middle school students about business (and life). He wrote 4 life lessons on the chalkboard: