Hey traders,
The politics stuff goes over my head, man.
I sit down and listen to everything Frank has to say and take my cues from that, because Washington gets complicated and I don’t love paying attention to it. My own ballot went all over the map.
But I treat this like any other event. I can’t predict what happens tonight. Nobody can, and the people who try get it wrong a lot. What I can do: figure out what the crowd has on. When everybody piles into the same position, that often turns into the last hurrah of the thing. If they got it wrong, they have to take it down, and fast moves come from false moves, like the old saying goes.
Watch the replay here or check out what I covered live below.
The two things you have to get right
The betting markets got Brazil wrong nine days ago, and they got it wrong twice. A challenger came in against Lula, the prediction markets said he’d win, and iShares MSCI Brazil (EWZ) repriced higher on the idea the newcomer would do good things for the economy. Everybody piled into that one trade. Then he lost.
And even if he’d won, EWZ might not have gone that much higher. You’ve got to predict the outcome, then you’ve got to predict what happens next. Too much room for error, you know what I mean? So I don’t spend a lot of time trying to predict. I spend it trying to figure out what the market predicts, and I watch what the headline forces people to do mechanically afterward.
The crowd handed us one of those already. Everybody agreed Trump goes after Iran the day after the election to take the spotlight off. So the market sat long crude. Then yesterday the two sides maybe start talking, and crude drops eight bucks before anybody voted. That never made my bingo card. I don’t know if it made yours. But it told me the market had the position on and the crowd had it wrong. I read that as a signal. Andrew got out of his energy trade for a reason. The market still holds a lot of energy, and that has room to come down if Trump decides to steal the spotlight anyway.
On JP Morgan’s bingo card
The big consensus trade right now: gridlock helps the market. It has, and it almost always does. We all agree. But the bigger theme going into this event came from the Mag Seven earnings and the worry around the CapEx cycle, and gridlock doesn’t solve that. You’ll get a relief bounce. The VIX comes off. I just don’t know how durable that looks relative to normal.
Short defense and short crypto make up the other crowded trades. And I think a better than 10% chance exists that Republicans hold both chambers, just because the polling could run wrong. If that happens, the drone stocks come back hard, because everybody has the opposite position on.
Then you’ve got the stuff that hasn’t started yet. The healthcare trade. Molina Healthcare (MOH) hasn’t even moved. Centene (CNC) has room. Universal Health Services (UHS) and the hospitals have room to the upside. JP Morgan and Goldman Sachs have this on their bingo card, they think it works, and they haven’t put it on. Same with renewables. Nobody touches solar right now, and solar has loads of room up.
The biggest moves tomorrow come from the consensus getting something wrong, or from a surprise nobody had. Those turn into the OMG moves.
So I’ll watch day three of Midterm Money Multiplier tomorrow closer than I watch the returns tonight. Garrett grades every call we made this week against the actual result, and I want to see which consensus trade cracks first.
Enjoy the journey,
Tim