“Enrique argues that, contrary to the current headlines, we’re in the 7th or 8th inning of defeating the coronavirus. He expects cases, hospitalizations, and deaths in the U.S. to plunge in the next six weeks, which, when combined with unprecedented fiscal and monetary stimulus, could lead to a 1999-style “melt up” in the markets going into the end of the year.”
Whitney Tilson, “We’re pitied & mocked; We may be through the worst of it”, daily newsletter
My approach when it comes to writing my monthly posts is to wait for that creative spark, after which a wall of words pours out. This month that process has been disrupted and instead of a single overarching narrative I have a jumble of thoughts bumbling around in my mind.
So, given that I will be away on holiday for the next two weeks, I thought I will give you a concise summary of my thinking on a range of subjects that I have covered before on my blog.
Let’s start with the big macro picture. I strongly recommend that you read the latest blog post by John Greer called “The Arc of Our Future” which explains why we are tracking the Limits to Growth BAU model and what is likely to occur in the coming decades. The short version is that the world is now facing a protracted and long-term economic and population contraction and the Covid pandemic appears to have been the trigger for that lurch down what Greer calls the Long Descent.
I have covered this extensively on the blog, see here, here and here, and don’t have a huge amount to add to the issue for now. The key will be whether the economic data over the next few years continues to track the peak and early decline as predicted in the LTG BAU computer model.
In regard to Covid there is much discussion about a looming Second Wave of infections. My earlier prediction, based on Farr’s Law, was overly optimistic, even if actual death rates from Covid has broadly reflected the curve of the Law (particularly if you factor in the possibility of hidden deaths from Covid prior to February/March which was not picked up by the official data).
Either way, folks are still picking up the virus and that is shown by the active cases being reported around the world. Having read extensively on the subject I am reasonably certain that effective herd immunity kicks in when approximately 20% of the population has been infected by the virus. The massive surge of cases we have recently seen in the United States hasn’t been in New York region but in the South and West of the country which was comparatively unaffected by Covid earlier in the year.
I agree with the recent analysis by Goldman Sachs and the analyst quoted by the hedge funder Whitney Tilson above that cases, hospitalizations, and deaths in the U.S. will plunge in the next six weeks.
If, and it is a big if, this assessment is correct it will be a clear positive for President Trump’s re-election prospects.
Some readers have reacted with understandable skepticism to my last post where I outlined why I still thought Trump was more likely than not to win the election. Whilst I do think there is a logical pathway to a Biden win; a grim Covid and economic picture going into the Autumn, continued dysfunctional comments and tweets from the president and a gaffe-free performance by Joe Biden, I don’t think that’s the end of the story.
The Covid public health picture is likely to improve over the next few months, and with that the economy which is a key issue for the president. In the UK, the Tories under Boris Johnson had a horrendous Covid healthcare crisis yet are still comfortably ahead in the polls.The truth is that the majority of voter’s care more about jobs than predominately older folks dying of Covid. Harsh but true.
The Tories were seen to have a relatively good economic Covid crisis even if they badly mishandled the public health side of Covid. I think something similar will happen in the United States should the virus abate over the next 6 weeks and the jobs situation start to recover into the Fall.
Joe Biden has lurched significantly to the Left, something that has barely been discussed so far, and his tax and spend policies are going to attract more attention once the election battle truly commences. Trump may be down but I still think he is not out.
And yes, for those who are interested, I have placed my own real money betting on such an outcome. Given the recent odds, even a relatively small deposit will yield a nice profit should I prove right and Trump does get re-elected. Odds on Trump getting re-elected have gone as low as 3 to 1 on betfair exchange. Still, I’m not betting the house on it given I still think there is a 40% chance that Biden will win.
As for the polling, one of the most accurate battlefield state pollsters in 2016, Trafalgar Group (TG), who factor in the possibility of “shy Trump voters” in their methodology, have released a very interesting set of polling recently showing that Trump is still competitive in battlefield states. What is most interesting about their polling is that they were virtually the only pollsters who accurately forecast Trump’s shock victory in Michigan (see below and note that excluding TG pushed Clinton’s average lead to around 5%).
Also note that “Cahaly’s polls in 2016 also showed Donald Trump winning Pennsylvania – again, he was nearly alone in projecting Trump’s narrow victory there – and thus taking the White House.”
Virtually all the other polling data was forecasting a comfortable Clinton victory in both states, many with Hilary 5% ahead of Trump. Mr Cahaly, who runs the TG, was one of the few pollsters who came close to the actual result on the night.
Some may say I’m cherry picking polls and maybe so, but his record is good in 2016 so I will take the TG polling seriously. They are currently showing that Trump is tied in Florida, behind Biden in Pennsylvania, Minnesota and Michigan but ahead in Georgia and Wisconsin. That sounds fairly reasonable to me at this stage of the race (e.g. Biden would narrowly win if the election was held now).
Those who are interested in reading more should follow Mr Cahaly at his twitter feed here.
In regard to the markets, I’m expecting a healthy correction soon in the stock markets as the perfect V shaped recovery priced in doesn’t match with economic reality. However, a surge in equity markets later on this year, assuming the Covid outbreak fades in the United States, the economy continues recovering and continued money printing looks likely.
Crypto markets also look bullish, with bitcoin breaking out of a key resistance level at $10.5k along with other quality altcoins being adopted in the real world.
In regard to Brexit, all the signs that a goods-based “skinny” trade deal will be agreed by October 2020, in line with my forecast at the beginning of the year.
So, overall, it will be fascinating to see whether I am right in regard to the US elections or not!
Take care everybody. I will return next month for my next monthly post.
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