Stocks in the news
Walmart (offers Amazon Prime lookalike), Nikola (another EV fraud stock), Fedex (up a lot as things move to people), Sin Poong Pharma (Covid treatment hopes), Adobe (44% up YTD, for a product that’s been around since 1991), Snowflake and Unity (tech IPOs), Oracle (flogger of stodgy database software for corporates takes over some part of Tiktok, the ultimate Gen Z consumer stock: what could possibly go wrong? They made such a success of Open Office and Java, after all.).
US Politics
I look on with a mix of fascination and horror at the US presidential election. The campaign as about as far from the conventional meaning of “presidential” as could be imagined. It’s no an original thought, but I see the US electing Trump again, for the reason they voted for Brexit and that they elected the Conservatives here. Not because they think the candidate is smarter, or less corrupt or even more competent, but because he can be relied upon to deliver populist policies in the teeth of advice from the establishment not to.
What seems clear is that if Biden wins, the dollar will go down. My instinct is that US stocks will go up in this case, but there are a lot of moving parts. What is very odd is that volatility is so low, for all securities. Incredibly, Eurodollar futures (not the eurocurrency future, which is effectively a forward FX price) are trading at an implied vol of 0.2% at the short end, going up to a dizzy 0.5% a few years out. It has never been as cheap as this to take a protected bet on short-term USD rates rising.
If you didn’t believe me when I said that US stock prices were heavily influenced by the dollar, take a look at this chart:
Crowded trades
My guess is that the most crowded trades are:
- long tech ($QQQ),
- short dollar ($DXY or DX futures),
- long gold.
These seem overextended to me (especially tech). There is a lot of momentum in these, and huge weight of reserve buyers/sellers, but once the markets turn decisively there will be a lot of unwinding to do.
The “tail risks” are presumably biological (Covid), political (Biden) and economic (inflation, stagflation, unemployment).
Wrap
Equities, energy, metals, crypto up. Vol, grains down. Currencies, bonds flat. Summary: risk is still on, for now!
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