19 Nov REFLECTIONS OF THE CURRENT ENVIRONMENT
Equities slumped as fresh restrictions to curtail the spread of COVID overshadowed signs that scientists are making fast progress towards a vaccine. The dollar sank to a two-year low, a decline that at this juncture is not a market event. However, a strong case can be made if the decline continues it may become an issue.
As discussed many times money supply and Treasury issuance is surging, a major reason for the current decline of the greenback.
Radically changing topics, I was asked yesterday what is the ultimate black swan event of 2020. Negative interest rates? The concentration of monies in five names? The implosion of “risk free” quantitative models? The massive outperformance of passive indexing? The shutdown? I remarked the overturning of the election.
Like most I do believe Biden will become the forty sixth president. President Trump has made some incredible accusations, accusations that if true would equate the US electoral process is similar to the electoral process of faux democracies.
I ask even if you are ardent Trump supporter, what is worse—a Biden Presidency or the collapse of the integrity within the voting mechanics? I would argue the latter. It strikes at the heart of our democracy.
I rhetorically place the odds Trump overturning the election is around 1% to 2%. If such does occur, the potential ramifications are infinite.
The person who asked me the question as to what is the ultimate black swan event responded by reiterating data I have recently cited such as the odds of negative interest rates is 0.00006%. The odds of negative real interest rates are 0.007%. According to quant firm Great Lake Advisors the current quantitative shock that is/has occurring from growth to value is once in every 5,944,505,321,905,660,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 days. He commented based upon the events of 2020 he would bet the house the election will be overturned.
After reflection, I fully realized the enormity of today’s environment. The unexpected is occurring at a rate and at a speed no one had ever suggested.
What will happen next? Will value stocks become as overvalued as many growth issues? Will inflation increase at a pace greater than forecasted? Will monies gravitate into the real economy vs. Wall Street creating an unprecedented boom?
Life is stranger than fiction. All the above does have a probability of occurring.
What will happen today?
Last night the foreign markets were down. London was down 0.77%, Paris down 0.69% and Frankfurt down 0.87%. China was up 0.47%, Japan down 0.36% and Hang Sang down 0.71%.
The Dow should open moderately lower on lockdown fears. At this juncture, the markets are ignoring more positive vaccine news, a vaccine that produces a stronger immune response in older adults. The 10-year is up 4/32 to yield 0.86%.