Market Thinking

making sense of the narrative

Narrative Shift

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To a man with a hammer, everything looks like a nail

Old Soviet expression

If you are a Democrat supporting media organisation (ie almost all of them) then the only story that counts is Covid. This is front and centre of the anti-Trump campaign that they have been running and thus, armed with that particular hammer, yesterday’s sell-off in markets was ‘obviously’ due to markets losing their faith in Trump and expressing concern about the economy. Covid is the answer.

Most likely of course this is wrong. It is not a sudden ‘realisation about Covid’, but instead a sudden realisation that Trump might actually win next week and thus was simply an increase in the uncertainty premium and a good time to take profits. Vix spiked and the two ‘platforms’ most at risk of being redefined as publishers, Google and Facebook, both fell 3% – something we suggested would be a good measure of market sentiment on a Trump win.

This is not to say that Trump will win, only that the market has (modestly) reassessed the probability that he will and, unlike last time, is not as confident in the opinion polls as the Media appear to be. Nor is it a vote of confidence or otherwise in Trump. It is a shift of narrative that should in fact be expected when there is the prospect of a change in government. Like it or not, a Trump win would mean more of the same, but a Biden win carries a lot of uncertainty, simply because there has been no clear plan or strategy discussed. It’s one thing to vote Trump out, but sooner or later you have to work out who you have voted in to replace him.

Risk premia is rising. We ought to have known that a new administration actually contains more known unknowns than a re-elected one.

Not Donald Rumsfeld

By the end of next week we will have removed some of that uncertainty, but not all, in particular to do with US domestic issues and the narrative will shift from a red versus blue contest to what the new normal will be for the next four years. Even if the result is ‘clear’ there will be concern for example about the re-emergence of Antifa and BLM protests (which have gone happily but suspiciously quiet ahead of the Election) as well as the ongoing Covid response. The big issue for us, and we suspect many other investors, is how much of this has actually been political theatre? Would a Biden win mean that the protestors disappear because in fact it was really just an anti-Trump campaign? Equally would the Dems suddenly become less focused on Covid as it was no longer politically relevant? In this sense investors would probably ‘like’ this all to have been a manufactured ‘crisis’ – even if it was deeply cynical.

However, what if it wasn’t? What if a Biden administration had as much, if not a bigger, problem with Antifa and the left of the party forced it to concede to some of the more extreme demands? What of the power balance within the Democrats if the ‘laptop from hell stories’ are true and mean that even though the Democrat voters ignored it, a President Biden is swiftly impeached? Equally what if Biden – or Harris – moved to an even more aggressive ‘zero Covid’ economic suppression strategy, encouraged by the Global Reset proponents at the World Economic Forum and the proponents of the Green New Deal? In Rumsfeld speak, these are known unknowns. Or to become even more complex, “these are known unknowns that we knew about but haven’t been paying much attention to, but we now know that as of next week we will have to think more deeply about.”

On the other hand, while a Trump win would likely mean a push to ‘get back to normal’ on Covid, it would almost certainly re-ignite the protests – for a period at least. The bottom line is that the uncertainties have been woven into a narrative aimed at US voters, but starting at the end of next week, these uncertainties will become the new narrative for global investors.

Meanwhile, on foreign policy, as China went this week from passive to aggressive over the US defense companies selling weapons to Taiwan, some investors also had a ‘realisation’ that sanctions can work both ways and that the ongoing Cold War with China – a fairly ‘known known’ will have collateral damage for western companies as well. While, obviously, China does little business with US defense contractors, it will be interesting for example to watch what this means for Boeing, whose commercial arm would certainly be impacted, even without sanctions.

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