Morning Note: I’m Relatively Constructive, However, The Irremediable Looms…

Asian equities traded in mixed fashion overnight, with half of the 16 markets we track closing higher, half lower. Europe, holding up against rising covid numbers and faltering Brexit trade talks, is seeing 12 of its 19 bourses we follow in the green so far this morning. U.S. major averages are holding up against the same in terms of covid, and appear unconcerned over the domestic political backdrop: Dow up 198 (0.68%), S&P 500 up 0.69%, Nasdaq up 0.39%, Russell 2000 up 1.78%.

The VIX (SP500 implied volatility) is down 7.14%. VXN (Nasdaq vol) is down 2.52%.

Oil futures are down 1.78%, gold’s up 0.75%, silver’s up 1.60%, copper futures are up 0.88% and the ag complex is up 0.13%.

The 10-year treasury is flat (yields too) and the dollar is off 0.14%.

Led by energy, banks, silver, industrials and financials, or core portfolio is up 0.81% so far this morning. The only drag is Verizon, but just barely.

Below I’ve copied and pasted from my yesterday note in our firm’s research thread. I’ll offer up a more comprehensive narrative in the near future: 

“FYI TEAM: As we’ve discussed, given the fact that flows and liquidity are driving equities, I’m relatively constructive on stocks going into next year, as there’s little doubt that both will be sufficiently there as the next administration gets going…

Also, however, as we’ve discussed, the fact that we can identify the whys of the latest trend in no way mitigates the literally irremediable insolvency risk in the economy. I.e., it is highly likely that when we see the slightest letup in Fed accommodation and/or the willingness of government to stimulate abates, all hell breaks loose… Which will in all likelihood be met — at notably lower levels from here — with the Fed literally, via a treasury SPV, buying equity ETFs; their foray into junk bonds is merely one step away.

Now, in the meantime, another serious threat looms amid a short-term fiscal policy setup hamstrung by what’s presently going on in Washington. Add in the latest in terms of covid cases and suddenly anyone constructive on stocks in the very near-term needs to take a step back and reassess…

Therefore, first thing tomorrow morning Nick is going to extend that small/cheap additional hedge (3,000-strike spx put, or, depending on the portfolio, 300-strike xsp put) out another 4 weeks in every hedgeable client portfolio.”

Have a great day!


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