A good trade hurts in the beginning

A good trade hurts in the beginning

04 November 2020Reading time: 4 minutes

All polls suggest Biden will win the US presidential election. Four years ago, however, most indicated that Clinton would win, but it was still Trump.

Biden's lead is larger than Hillary Clinton's was, and nearly 100 million postal votes (with presumed Biden predominance) have already been submitted. The few who counted on Trump's win last time, however, have the same forecast this time as well, so we can state that the outcome is highly uncertain. Trump will probably announce his victory tonight, only to later have the election result overturned and questioned when all the votes have been counted. After that, both sides will learn to complain about electoral fraud and mourn the death of democracy.

This is a highly predictable scenario - in fact, even if the election result is objectively crystal clear when all postal votes have arrived a few days after election night. If Trump eventually loses and has to move from the White House, which is what I think, I expect a more volatile market than if he wins. This is especially true if the Republicans dominate the Senate, which would pave the way for protracted political chaos where Biden's attempts at fiscal stimulus are constantly thwarted. A change of president is also often more negative than when the former is allowed to remain. Most important of all, of course, is how Trump's lap dog Jay Powell will act (chairman of the central bank), and he is unlikely to press the accelerator extra hard unless Trump has another four years. On the contrary, it is easy to imagine active sabotage from a losing Trump, and by extension the puppet Powell, during his last months in power.

I do not see a probable outcome where the stock market is higher at the turn of the year than today (November 3), but above all I believe in a few months with large movements in both directions and rapid shifts between different sectors and industries. In the end, I expect a very aggressive monetary policy that will give rise to another strong period for equities, at least for the 5-10 largest US companies with Internet-based business models. The choice also seems to coincide with a second pandemic wave, which reinforces my scenario of a repeat of the spring movement pattern.

This spring, Bitcoin fell by 64%, OMX by 30% and the gold price by 10% (all return figures in the same currency, SEK). As early as March 24, however, gold had recovered from the entire decline and thus set a new all-time high (again calculated in SEK for the sake of comparison). Bitcoin reached a new annual high in SEK at the end of July, but OMX has still (November 3) not set a new annual high after the peak on February 20th. US Nasdaq did all the better. After an initial decline of 33%, the index was back at its highest level as early as 5 June and then continued to rise another 22%. However, the biggest winners and volatility masters were gold mines (GDX) and FANG + (Facebook, Amazon, Apple, Netflix, Google, etc). GDX was first halved from 32 to 16, from which it almost tripled to 46, ie 44% higher than before the Covid breed. FANG + did even better and so far this year has been at most 48% higher than before the spring crash of 30%.

As I said, I think it is reasonable to expect some kind of repeat of the spring movements, but possibly the market movements will reflect some kind of adaptation to the spring experiences. In that case, gold mines, Nasdaq and the FANG companies should not go down as much when the rest of the market collapses, and can aim for new records all the faster. On the other hand, oil / energy, aviation & leisure, banks, real estate and workshops will go down even faster than last spring - and stay there. I am also looking among the large pharmaceutical companies J&J, Pfizer and Merck for good short selling candidates. The money can rotate into gold, gold mines and online companies in communications, entertainment, computer games, betting and social media.

Also, do not forget the cryptocurrencies with Bitcoin and Ether at the forefront. Bitcoin initially crashed under Covid, but rose from there by 264% to a level 33% higher than before the decline. Thus, Bitcoin seems increasingly clear to have defeated the crypto winter after the previous halving hype in 2017. Four years and a halving later, it is time again to take an exponential step up. At 14,000 USD / BTC, the cryptocurrency is stumbling close to breaking technically. There is good fundamental support for the development now that US banks allow custody, mining rewards have been halved and some companies have announced that they have placed their cash registers in Bitcoin. Developments for crypto are still at an early stage and Bitcoin could be the best asset class for the second decade in a row.

To the extent that the above scenario is not immediately crystallized, I see it primarily as an even better position to take a position. "A good trade is supposed to hurt initially", as one of my previous bosses used to say.

@Mikael Syding

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22/01/2021 05:22:33

 

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