Macro and Flows Update: September 2024 -e32

Summary

In this macroeconomic update, the speaker forecasts a market upswing of 20-25% amid a significant fiscal push, driven by wealth redistribution and populism. They predict structural inflationary pressures, masked by cyclical economic slowdowns, will become evident post-election, with potential policy changes and global conflicts exacerbating inflation. The speaker advises a cautious approach by late 2021, with a focus on long-dated call options and fiscal policy as key market influencers.

Takeaways

• 📈 The speaker anticipates a market upswing of 20 to 25%, based on a previous forecast from late February, with the market currently up 7-8%.
• 💹 There is a massive fiscal push happening, which is expected to generate optimism about stimulus and its potential to lift the economy.
• 🌐 The current economic optimism masks significant structural inflationary pressures, driven by wealth redistribution through fiscal spending and protectionism.
• 🇺🇸 The speaker believes that the 'soft landing' of the economy is temporary and that structural forces will lead to increased inflation, particularly post-election.
• 💼 Fiscal policy is expected to be dramatic under a Harris Administration, with discussions about wealth redistribution through capital gains taxes and spending on social programs.
• 🌍 Global conflict is expected to increase under both potential administrations, with different strategies and implications for international relations.
• 📉 The speaker suggests that immigration policy could be a significant inflationary pressure, especially if there are changes that increase labor inflation.
• 🛑 The speaker advises to be cautious around January or February, as new structural inflationary pressures may cause the market to lose control.
• 📊 The end-of-year seasonality is expected to be constructive for the market due to structural reinvestment flows and leverage.
• 📈 The speaker recommends a trading strategy of long-dated calls, hedging with stock, and focusing on long deltas for a market uptrend, especially post-election.

Q & A

What is the expected market performance according to the speaker?

The speaker expects the market to be up 20 to 25%, which is based on their analysis since February of the same year.

What does the speaker attribute the market optimism to?

The speaker attributes the market optimism to a massive fiscal push, which includes stimulus and the belief in a soft landing for the economy.

What does the speaker believe is masking the structural inflationary pressure?

The speaker believes that the cyclical slowing generated by monetary policy is masking significant structural inflationary pressure.

How does the speaker describe the fiscal policy's impact on wealth redistribution?

The speaker describes the fiscal policy as driving wealth redistribution through populism, which involves fiscal spending and protectionism, leading to a demand-push economy.

What are the speaker's thoughts on the Federal Reserve's control over inflation expectations?

The speaker believes that the Federal Reserve has managed to keep longer-end inflation expectations down, but this control is unlikely to continue as structural inflationary pressures increase.

What are the potential fiscal policy changes the speaker anticipates under a Harris Administration?

The speaker anticipates dramatic fiscal policy changes under a Harris Administration, including wealth redistribution in the form of capital gains taxes, spending on first-time home buyer tax credits, and child credits for families.

How does the speaker foresee global conflict evolving under different administrations?

Under a Trump Administration, the speaker expects a quicker move by China and increased aggressiveness in various regions. Under a Harris Administration, the speaker expects a slower push but a renewed strategy.

What is the speaker's view on the impact of immigration policy on inflation?

The speaker believes that immigration policy, if it includes measures to capitalize on xenophobia, could have a dramatic effect on labor inflation and heat up the economy.

What is the speaker's outlook on commodities, particularly oil?

The speaker believes that commodities, including oil, will continue to be underpinned by global pressures, supporting their prices, and potentially leading to more conflict in the Middle East.

What trading strategy does the speaker recommend for the upcoming period?

The speaker recommends a trading strategy that involves buying long-dated calls, hedging with stock when appropriate, and focusing on long delta long calls, taking profits with stock along the way.

What is the speaker's target for the S&P by the end of the year or early January?

The speaker targets 6,000 plus on the S&P by the end of the year or by early January.