Prepare For The Senate To Flip

Posted on April 13, 2020 by macromon

We think it will, and in a big way — 55 Blue Senate seats on January 1st is our prediction.

Political Bets

Granted 204 days to election day is an eternity in politics but we layout our analysis in the following.  Our best trades, in terms of returns, over the past two years, were bets on the 2018 Blue Wave and on impeachment,  which returned over 200 percent (we were in and out of it last year).  Unfortunately, it is difficult to do size in these contracts.

By the way, we also won a nice chunk betting that Donald Trump would beat Hillary in the electoral college and lose the popular vote just to let you know we are not 100 percent partisan in our analysis.  Lucky for us on that trade, unlucky for the country and world, however.

Individual Races

We look at the individual Senate races and can’t understand why PredictIt is still pricing the Republicans to remain in control of the Senate with a 61 percent probability.  The following is the latest Cook Report analysis of the 23 Republican and 12 Democratic seats up in November.

Sen_2

Most analysts are not traders and are more emotionally invested in their work.  That is, they are afraid of being wrong as to are many academics, in our experience.  Traders understand they will be wrong almost 50 percent of the time, and even some that get it wrong 60 percent of the time can still be multi-millionaires if they have good money management discipline.

Nevertheless, it was clear the pollsters were gun-shy after the 2016 debacle and afraid to call the Blue Wave in 2018 even when it was so obvious,

U.S. Midterms

Have you been listening to the American political pundits recently?   We have never seen so many waffles since our last visit to the IHOP.

Even Nate Silver at 538, who has the Dems at an 87 percent probability of taking the House back is hedging.   We’ll take a trade with an 87 percent probability any day, anytime. Of course, nothing is ever certain.

Fat tails?  Yes.

Life is a game of odds.  — GMM, Nov 5, 2018

I am not going to hedge here.  If the November election is legit, a big if, it will be a freaking blow-out.

We have our money where our analysis is, betting on a Blue Senate, and if we are right, we are looking at a 439.11 percent compounded annual return (CAAG) by election day.  Beat that in the stonk market, folks.

We could also lose 100 percent of our investment, of course, as it is a binary trade but we like the odds and think they are grossly mispriced.  Wonder if the Fed will bail us out if we are wrong?

Again, no wishful thinking, no partisan bias — though it fits our political values – just based on our analysis.   We find it easier to win in the political markets because most people, we have discovered, make their bets based on emotion rather than analysis, and have difficulty reading cross-tabs in the polling data, which was the subject of our undergraduate senior thesis.

We took a candidate who at the time was running sixth in a crowded Republican Senate primary and picked him to win it all by analyzing the cross-tabs in the polls and how he was developing his campaign strategy.  He did win the Senate seat and we graduated with honors.

Hint, don’t look at the headline number but put more weight on the strongly approve/disapprove or definitely will/won’t vote numbers as there is very little wiggle room for a major surprise unless the poll is constructed in a flawed manner or a major political earthquake takes place.

It also goes without saying closely monitor the indies, such as in the following recent Reuters/Ipsos poll.

Polls

We made some decent money in 2008 betting on Obama against the meme, “no black man can ever become president” and betting on Trump to win the electoral college and Hillary to win the popular vote.

Not all are winners, however. We did bet Romney in 2012 and lost our ass and recently took a longshot bid on Amy K to win the nomination after her New Hampshire surprise at 20:1 or the potential for a 1,900 percent return.  That didn’t work out.

Interesting story about the 2004 presidential election.  John Kerry was trading at about $.30 earlier in the campaign so we took a flier, not really believing he would win but the price too low and hew was about to move higher.  On election day, it looked like Kerry was going to win Ohio and the contract was trading at $.90 plus when we went to the gym, believing John Kerry was about to become the 43rd POTUS.  We got out of the shower and the networks were protecting W.’s reelection.  Apparently, someone got a hold of some bad exit polls and leaked it.   Needless to say, the contract went straight to zero.

Not to worry, Democrats, our bets this year are mostly matched with donations.

Many believed Trump had so alienated the Latino community he had no chance in 2016.  We looked at how the Latino vote was dispersed throughout the country, mainly with big populations in Texas and California, making their vote a bit less relevant in the electoral college as those states are on political autopilot.  Maybe not so much for Texas going forward.

We found the Latino vote could also have a significant impact in New Mexico and Nevada.  We made our bet, had some luck and outside intervention (not a hoax) with the Trump win but the country and world lost big-time,  in our opinion.  There you go some partisanship or maybe just reality?

The Senate 

That brings us back to the 35 upcoming Senate races in November.

The following illustrates what the prediction markets are expecting in some selected close and toss-up races   We also think Lindsey Graham, now polling in a statistical tie with Jamie Harrison, is in much bigger trouble than most believe and also think Mitch McConnell is more vulnerable than markets anticipate.

The Majority Leader’s opponent will be the very attractive, tougher than nails candidate, Amy McGrath, a retired USMC pilot, who has outraised McConnell, $12.8 million in the first three months of 2020 to $7.5 million, and mostly from small donations.

Even Sen Joni Ernst in Iowa is also not safe, in our opinion, as her numbers have been falling like a stone, though PreditIt puts her at 69 percent probability to retain her seat.

Though, the PredictIt market is only making Governor Steve Bullock of Montana a 44 percent probability to win the Senate seat, he is a very strong candidate and we do think he will win.  He is a moderate and just entered the race after Biden became a sure bet at the top of the Democratic ticket.   Another attractive potential return.

Presidential Race

We suspect a Blue 1980-ish outcome in the popular vote where Trump wins around 41 percent of the popular vote (close to where he is currently polling), which is about the same percentage as President Carter won, but wins a bit more than the six states than Carter did in the electoral college.

For example, if Trump loses Michigan (65% prob), Pennsylvania (61% prob), Arizona (54% prob), and Florida (47% prob) and manages to hold all the other 26 states he took in 2016, that puts him at 228 electoral votes, well short of the 270 needed for reelection.

It’s interesting Trump leads Biden in the head-to-head contract on PreditIt but the Dems are sightly favored to take the White House.   The market pretty much is making the election outcome a toss-up.

Why is Biden trailing?  He could get ill, for example,  or step down and allow a brokered convention may to nominate Andrew Cuomo, which is now a 10 percent probability, for example.

Florida

Governor DeSantis’ gross failure of leadership and botching of the COVID crisis is going drag the Republican ticket down in Florida, in our analysis.  His numbers are pretty much tracking those of President Trump, who should be closer to an 80-90 percent approval rating during such a crisis rather than 45 percent. Most of the other governors who took decisive action and showed strong leadership are seeing their poll numbers skyrocket.

Gov

Senate Races 

Senate

Doug Jones will need a miracle, as in a repeat of the 99 percent margin of victory with African-American women who turned out in droves for him during the special election.

Nevertheless,  these data alone show a probability of a net pick-up of four seats for the Democrats, which would put them in the majority with the two independents, Bernie Sanders and Angus King voting in with the Democratic caucus.

Coattails? 

If Trump is swept from office, as we feel he will be, expect an even bigger coattail effect.  As in large coattails.  Bid adieu to Mitch, Lindsey, and Joni.

As always, we reserve the right to be wrong as we often are.

Please no screaming emails or comments but we do welcome your debate and analysis to instruct how we may be wrong.

Whatever the case, prepare for some massive gaslighting. folks.   If you didn’t see today’s White House COVID presser campaign rally, it’s clear: it begins.

Gaslighting

*Gaslighting, if you don’t know the word, is defined as manipulation into doubting your own sanity; as in, Carl made Mary think she was crazy, even though she clearly caught him cheating. He gaslit her.

…What the crisis has given us is a once-in-a-lifetime chance to see ourselves and our country in the plainest of views. At no other time, ever in our lives, have we gotten the opportunity to see what would happen if the world simply stopped. Here it is. We’re in it. Stores are closed. Restaurants are empty. Streets and six-lane highways are barren. Even the planet itself is rattling less (true story). And because it is rarer than rare, it has brought to light all of the beautiful and painful truths of how we live. And that feels weird. Really weird. Because it has… never… happened… before. If we want to create a better country and a better world for our kids, and if we want to make sure we are even sustainable as a nation and as a democracy, we have to pay attention to how we feel right now. I cannot speak for you, but I imagine you feel like I do: devastated, depressed, and heartbroken.

….Until then, get ready, my friends. What is about to be unleashed on American society will be the greatest campaign ever created to get you to feel normal again. It will come from brands, it will come from government, it will even come from each other, and it will come from the left and from the right. We will do anything, spend anything, believe anything, just so we can take away how horribly uncomfortable all of this feels. And on top of that, just to turn the screw that much more, will be the one effort that’s even greater: the all-out blitz to make you believe you never saw what you saw. The air wasn’t really cleaner; those images were fake. The hospitals weren’t really a war zone; those stories were hyperbole. The numbers were not that high; the press is lying. You didn’t see people in masks standing in the rain risking their lives to vote. Not in America. You didn’t see the leader of the free world push an unproven miracle drug like a late-night infomercial salesman. That was a crisis update. You didn’t see homeless people dead on the street. You didn’t see inequality. You didn’t see indifference. You didn’t see utter failure of leadership and systems.

But you did. You are not crazy, my friends. And so we are about to be gaslit in a truly unprecedented way. It starts with a check for $1,200 (Don’t say I never gave you anything) and then it will be so big that it will be bigly.  – Forge

 

Posted in Politics, Uncategorized | Tagged | 15 Comments

Long Pitchforks And Water Cannons

Posted on April 11, 2020 by macromon

The juxtaposition of the following two tweets is absolutely stunning and just freaking… WOW!

Potential Major Political Blowback 

Can you imagine the political blowback that is coming if the economy doesn’t snap back soon as the levered bad actor oil companies (just to name one sector)  have been bailed out while the Administration is still trying to kill Obamacare and even tried to cut food stamps to the poor earlier this year?

Nothing partisan here, we are just extrapolating the consequences and political analysis of the GFC to the current crisis.  Think about it, last week Main Street registered another 6 million-plus hit in lost jobs and junk bond investors got bailed out of their risky and dumb-ass bets.

Op-Ed: Get ready for the recovery of the 1%

There were two important economic events on Thursday. The government reported that 6.6 million Americans filed for unemployment, an all-time record. And the Federal Reserve announced a new program to flood the economy and financial markets with $2.3 trillion in liquidity — including buying up junk bonds from debt-laden companies.

Which one moved the market? The Fed move, driving the Dow Jones Industrial Average up 500 points by midday.

The market jump, unemployment surge and Fed rescue efforts all converged to form a new split in the economy, between the asset-rich and the rest of America.  — CNBC

Also, seeing a lot of the privileged Bailout Queens on Twitterati taking victory laps thinking they’re geniuses — and some even grotesquely posting pictures of their steak and lobster dinners like anybody gives a shit — after the Fed has saved their bacon for the umpteenth time.  Yet they have no clue of the consequences of what may be about to come. Must be the ultimate contrarian signal.

For some reason, the Bailout Queens are now mocking the bears saying they are angry about the bailouts and calling them “liquidationists,” probably as a vague reference to Andrew Mellon, President Hoover’s Secretary of Treasury when the Great Depression first broke out,

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” That, according to Herbert Hoover, was the advice he received from Andrew Mellon, the Treasury secretary, as America plunged into depression. — NY Times 

They have no clue of the anger that is about to besiege the political system.  Heads are gonna roll and we doubt it will be the W.H.O. or the Chinese as some are trying to deflect to and scapegoat.

Moi?

We are bearish, angry and would  like to see the pain more evenly shared this time with many more economic and Chapter 11 restructurings, which are not liquidations x/ shareholders, by the way.  Otherwise, we risk losing an entire generation to stagflation and a highly indebted zombie economy, and that is if we are lucky.

If this is the case, what will really irk us, beside seeing the poor getting poorer, is to watch the Bail Out Queens continue to take their victory laps, still thinking they’re geniuses surfing the Fed liquidity, and still posting their god damn steak and lobster dinners on Instagram.  Yuck, gonna hurl just thinking about it.

Why do think there was such a ginormous political shock in 2016?  Much of it was because none of the banksters, who were a big portion of the nefarious group of actors that caused the Great Financial Crisis (GFC),  were never criminally prosecuted.  No, Virginia, it wasn’t just Lehman Brothers.

Cash And Gold

Even Arnold would love our gold and cash barbell position as we wait patiently on the virtual Venice Beach.  We have zero desire to own the stock market at these astronomical valuations, 130-140 percent of GDP, which probably puts it in the 90th percentile valuation rank (back to you with confirmation) even during talk of another potential Great Depression.

With the unemployment trajectory approaching that of the Great Depression at 25 percent, albeit temporary,  should stocks be trading at such valuations?  Have we slipped into some alternative universe or did we miss something?

Back To The Thirties

It is interesting stocks are experiencing daily moves not seen since 1933, when FDR came to power and the Dow returned its best year ever.  It was a big bounce after an approximately 80 percent flop from the September 1929 high.  President Roosevelt had a lot of runway to work with back then as the national debt was low, the federal government and financial regulations, for that matter, including deposit insurance were virtually nonexistent.

The monetary authorities were also learning some very painful lesson by not providing liquidity to financial institutions during the runs and panics allowing banks, even the strong ones to fail.  Milton Friedman estimated the money supply shrank 25 percent due to the bank failures and was the main cause of the Great Depression (again, we need to confirm the data as we are writing on an iPad and away from the desk).

FDR’s policies were able to bring unemployment down to about 15 percent.  It didn’t eliminate the Depression but moving from 25 percent to 15 percent alleviated a hell of a lot pain and suffering.   Next time you hear an ideologue call FDR a “socialist,” do us a favor and tell them to stick it where the sun don’t shine.   Roosevelt saved capitalism.

Get Shorty?

Not yet.  The temptation to short now is very high but don’t count out a ghoulish rally as the idjits count it a victory if the final death count comes in at, say 70K instead of the 100-240k estimate, which was very likely fake in order to manipulate and lower the bar.

The experts said they don’t challenge the numbers’ validity but that they don’t know how the White House arrived at them.

White House officials have refused to explain how they generated the figure — a death toll bigger than the United States suffered in the Vietnam War or the 9/11 terrorist attacks. They have not provided the underlying data so others can assess its reliability or provided long-term strategies to lower that death count. – WashPost

Think as in “a final China trade deal is within days.”  Pretty frickin’ sick.

Nevertheless, we hope and pray for not one more COVID casualty.

The flattening of the curve or whatever the market deems as turning the corner on the first order existential threat, i.e, death,  is just the end of the beginning of the crisis.

We do give the the Fed credit for not letting the Titanic sink, at least not yet,  but there are so many other dimensions to this crisis, 2nd, 3rd, even 7th order and more effects.  It’s  just mind boggling.  The Fed and Congress is going to have to rethink the central bank’s mandate.

Ex Ante Structural Weakness 

Contrary to the delusions of some,  we would be in a much stronger position to snap back if the economy was structurally sound before the virus took it out.  Take a look at those bread lines if you disagree and think it was the best economy in history pre-COVID.

That’s a red state, folks.

https://twitter.com/michaeljburry/status/1249011128979480576?s=21

How many people sitting in those cars do you think own stonks?

Hint: Our last analysis estimated 88 percent of public equites are owned by the wealthiest 10 percent of households.

Our bet is they could give a rat’s ass where the Dow closed on Thursday and care about one thing:  how they are going to feed their kids, last night, today, and tomorrow.

‘We just can’t feed this many’

Vehicles start lining up before dawn as locals hit hard by economic effects of coronavirus seek aid from the San Antonio Food Bank.

April 9, 2020

In perhaps the most sobering reminder yet of the economic fallout caused by the coronavirus pandemic, the San Antonio Food Bank aided about 10,000 households Thursday in a record-setting giveaway at a South Side flea market.

“It was a rough one today,” said Food Bank president and CEO Eric Cooper after the largest single-day distribution in the nonprofit’s 40-year history. “We have never executed on as large of a demand as we are now. — San Antonio Express-News

As always, we reserve the right to be wrong.

Happy Easter, folks!

Posted in Coronavirus, Uncategorized | Tagged , | 17 Comments

Chapter 11 Restructuring v. Chapter 13 Liquidation

Posted on April 9, 2020 by macromon

Know thy difference folks, lest the semantic tyrants trick you into bailing out the bad actors.  GM went through a Chapter 11 restructuring or failure but was deemed to be bailed out.  My kind of bailouts.

What Is Chapter 11?

Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor’s business affairs, debts, and assets. Named after the U.S. bankruptcy code 11, corporations generally file Chapter 11 if they require time to restructure their debts. This version of bankruptcy gives the debtor a fresh start. However, the terms are subject to the debtor’s fulfillment of his obligations under the plan of reorganization. – Investopedia

What is Chapter 13

Chapter 13 refers to a U.S. bankruptcy proceeding in which the debtor undertakes a reorganization of his or her finances under the supervision and approval of the courts. When an individual, married couple or business is laden by debt, they can file for Chapter 13 bankruptcy. As part of the financial reorganization of Chapter 13, the debtor must submit and follow through with a plan to repay outstanding creditors within three to five years. In most circumstances, the repayment plan must provide a substantial payback to creditors – at least equal to what they would receive under other forms of bankruptcy – and it must, if needed, use 100% of the debtor’s income for repayment.  – Investopedia

 

Posted in Uncategorized | 4 Comments

Wall Street Has Now Morphed Into A Full Blown Soviet Sausage Factory

Posted on April 9, 2020 by macromon

To paraphrase the police officer who told me my old neighborhood had burned down during the 2017 NorCal fires,  “the markets are no more.”

After the Fed announced it is bailing out junk bonds today,  Wall Street has now morphed into a full-blown  “Soviet Sausage Factory.”

Jay Powell probably had no choice and needed to blunt the blow of another 6 million-plus print of new unemployment claims but isn’t Socialism and state intervention dandy?

We can understand providing support to local and state municipalities,  now strapped with severe cash flow problems as their tax revenues have gone to near zero,  but junk?

Employment

You know, like many of the same companies that levered up to buy back shares while shitting all over their employees or, say, the wildcat and shale-oil drillers?   Even Jed Clampett and Ellie May understood Texas Tea is risky business.  Come on, man.

Chapter 11 and debt restructurings are not only the right thing to do but the only thing to do lest we lose an entire generation to stagflation and a zombie economy.  That’s probably the best case unless the economy miraculously snaps back, which assumes the economy was structurally sound before the virus took it out.   We seriously doubt that.

Here’s to hoping the bailouts are just a bridge to a major economic restructuring with the long-needed structural reforms.

Waste Of Time

There’s no sense in wasting time analyzing the markets anymore.

We will sit on cash and gold, hope and pray the virus soon passes, and try and tune out this shit show until the major political dislocation that is surely coming on the other side.

“No One Will Fail”

Just heard a trader on CNBC say, “no one will be allowed to fail…earnings don’t matter…nothing matters.”  Oh. My. God!

Wasn’t it just a few months ago the government was going after the young who were falling behind in their student loan payments?

Example: Judy has weekly disposable pay of $300. Based on the minimum wage calculation, she definitely gets to keep $217.50. The government can then take the lesser of the amount his income exceeds $217.50 ($300 – $217.50 = $82.50) or 15% of his income (15% of $300= $45.00). Since $45.00 is less than $82.50, this is the amount the government can take each week from Judy’s wages. – SLBA

Gosplan Setting Prices Now

Most asset prices are no longer determined by market forces — which has been the case for many for some time — but now set by our new Gosplan along with the local Commissar of Free Money, just like the price of eggs way back in the USSR.

I never ever wanna hear from the self-righteous, ignorant ideologues parading as economists again,

“Free market capitalism is the best path to prosperity to Socialism….blah, fucking blah.”

How twisted and sick is our society that the grocery clerks making $12-15 per hour working on the frontline, risking their lives and getting sick to feed us and the 10 percent now profiting from these government bailouts (88 percent of stocks are owned by the Top 10 percent)?

But, wait for it…their thousand dollar check is in the mail.

Come on, folks, give these people a big, as in Bengie big or a large fraction thereof, tip the next time you’re out.  I have no doubt many of you already do and will continue until this plague passes.

Wall Street_USSR

A note from a Bernie Bro,

“In 2016, they told me if I voted for Bernie, the nation would move closer to authoratarianism,  managed trade, MMT, and socialism.  I voted for Bernie and man were they right.”  – Bernie Bro

Happy Maundy Thursday and Pesach.  Stay safe, folks.

Posted in Socialism, Uncategorized | Tagged | 69 Comments

Global Patent Race

Posted on April 7, 2020 by macromon

Posted in Uncategorized | Leave a comment

Classic Bear Market Bounce

Posted on April 6, 2020 by macromon

Big move today in stocks with the S&P500 closing up 7.03 percent.  We are so glad we are out of the market.

We believe stocks are now in phase two of a vicious bear market, where after the initial sharp sell-off, the major indices retrace close to 50 percent of their initial down move.  See the chart below, which illustrates how the Nikkei recovered almost 50 percent of its first big move lower before rolling over again.

The market appears to be reacting to better news on the case and death curves but it is much too early to sound the all-clear.   Italy and Spain have been turning down over the past week (see chart below) so we are a bit perplexed by those touting the market move was a reflection of the green shoots coming out of Europe.

The New York numbers also a little better than expected, thank God.

Hopium is a difficult addiction for markets to kick and it very is clear there is still a ton of it out there.

Four Stages

In early March we wrote about the stages of a pandemic in our post,  Stages Of A Pandemic: Denial, Panic, Fear, and Rationality, moving from denial, fear, and then rationality.   Though we remain in the fear stage, there are signs rationality is starting to take hold but strictly with respect to the existential phase of the pandemic.

Now The Economics

We are still a long way off in restarting the economy and to a full economic and financial recovery.  There is still an awful lot of denial in this respect.

The table lists some key near-term levels, which we will let you ponder.

 

S&P500_2

S&P500

S&P500_3

 

S&P500_4

Posted in Equities, Equity, Uncategorized | Tagged , | 2 Comments

Is This The Newest & Hottest Leading Economic Indicator?

Posted on April 5, 2020 by macromon

Is this a sign of spiking consumer confidence or just a signal of a less shitty week to come?

The futures markets seem to like it butt you decide.   You think the Masters of the Universe and the Algos are going to use toilet paper returns as a source of alternative data to signal a economic inflection point and get all lathered up in spooz only to get wiped out?  Just ask in.’

Posted in Uncategorized | 13 Comments

It’s Truly Going To Be Different This Time

Posted on April 5, 2020 by macromon

97DA6509-8E1F-4D44-9923-8B385D0DB6EA
Can’t you just feel the political winds blowing as exemplified in this bloke’s timeless rant and with my grandmother’s brogue (Flynn of County Cork, btw)?

Trump was has been just a Trojan Horse for the 0.1 percenters as a check to this kind of populism but don’t mention that to his base. 

Wealth taxes they are a comin’ 

Trying to get long some Bellota for the coming new political reality.

Irish wasn’t real happy the King of The Riverdance and Celtic Tiger Live was from Chicago’s South Side — a White Sox fan? — was he?

You think Dictionary.com is going to add “Wankin’-fuckin’-bankers’ to its lexicon anytime soon?

Well, maybe Urban Dictionary.

 

Posted in Economics, Uncategorized | Tagged | Leave a comment

The Necessary Condition For Economic & Financial Recovery

Posted on April 5, 2020 by macromon

Futures up 700 points on a lot happy talk out POTUS presser this afternoon even though the Surgeon General stated earlier on the Sunday talk shows we are heading into Pearl Harbor.  The futures spike is the gift that keeps on giving to sell and get out of trapped positions.  Spank you!

Absolutely no recovery until the following questions are answered.

https://twitter.com/andylassner/status/1246866966905675776?s=21

 

Posted in Coronavirus, Uncategorized | Tagged , | Leave a comment

QOTD: Will Rogers

Posted on April 3, 2020 by macromon

QOTD = Quote of the Day

In this country people don’t vote for, they vote against. – Will Rodgers

Posted in Quote of the Day, Uncategorized | Tagged | Leave a comment