Thanks for reading my diary today. I end the day between medium- and large-net long in exposure.
Enjoy the evening.
Stay safe.

No trades since my (SPY) cover this morning.

An oldie but a goodie - and one of my all-time favorites: 

23johnthegreek23

I last posted this November 2, 2016

Some of you appreciated it. Here goes:

"Tomorrow is the big day! It's election day. Election day has always been special and emotional for me. Filled with memories. My Grandfather, Papou Konidis was a Greek immigrant. He would remind me many times that the proudest moment of his life was when he became an American citizen. Papou would put on his suit, shine his shoes and carefully put in his teeth. I was a young child, he was in his 70's. We would walk proudly hand in hand 6 blocks to the voting booth. I was also in a suit. I remember so vividly him flashing his toothy smile at the ladies working there and the hint of glistening in his eyes as he left the booth and voted. My friends, though the focus isn't really on us, and the media certainly doesn't care about us, we are the 4th and most important branch of government. Please vote! Help others vote."

"Nobody will ever deprive the American people of the right to vote except the American people themselves and the only way they could do this is by not voting."
- Franklin D. Roosevelt

"I can't wait for tomorrow, I may even wear a suit."
God Bless America.

A reminder: I will be out for most of the afternoon.

* Vote your conscience. 

* From Reagan to Trump. How the markets have done. 

* China's inexorable rise. 

* Why is the economy worse in the Blue States?

* In defense of politics. 

* Don't sweat the polls. 

* The need for a Marshall Plan. 

badgolfer22

I think Bockvar is spot on up there. I have absolutely no clue as to how any of these mkts will react to any scenario.

What I'm confident on is that no matter who wins the prez and senate...or whatever combination there of, I can assure you all that fiat money, conjured up out of thin air and printed by Jerome and his central banker buddies, will continue to be spent and squandered. No matter what, every central banker in the world will continue to try and destroy their own fiat confetti and that tomorrow or next week or next year or 10 years from now, precious metals and hard assets will be multiples higher than what they are now.

That's the only certainty I know. The rest is a crap shoot.

Robbo badgolfer22

agree 100%

dougie kass badgolfer22

I write in the upcoming opener, Mikey:
"I have agued that Mr. Market often does its best to confound the most investors.
Most of the things that rock the markets are unseen and become only known after the fact.
Of course I might be wrong... but based on the betting shop odds and forecasts I currently don't expect something unforeseen that would upset the markets this week. "

It is always important to understand the possible plethora of outcomes.
Peter spells out the varied outcomes in the form of multiple questions.
But making the greatest money in the markets often occurs when you take a stance under uncertainties - in a stock or in the averages.
Where I have disagreed with those that are defensive into the Election because of these bonafide uncertainties - I believe in the reliability of the betting poll and election forecasts and predicted outcomes.
I took a long net exposure on that basis, just as I did (for the reasons outlined in my Diary) take a long net exposure back in March.
Taking positions, often contrary, in the face of uncertainty, is what differentiates one's investment performance. (If wrong it negatively impacts returns!)
I anticipate based on my calculus of "fair market value" in individual stocks and in the Indices.
Or in the case of the Election, the betting shops and polls.
Dougie

I am now out of my (SPY) long rental at $337.97.

Zoom (ZM) is down - $140/share from its all-time high and -$120/share from its inclusion in my Best Ideas List (short) on October 20, 2020 - two weeks ago! - at $568.31.

Here is my short investment thesis.

I have reduced my (SPY) long rental from medium-sized to small-sized just now at $335.53.

I am pressing the following value based longs: (GS) , (MS) , (XLF) , (VTV) , (VBR) , (THS) , (SJM) , (WMT) and (DIS) .

Please note - regarding the pivot from growth to value - that the following growth stocks are lower in a sea of green: (AAPL) , (SQ) , (ZM) , (GOOGL) , (AMZN) .

__________ 

Long GOOGL, AMZN (large), VTV (large), VBR (large), SJM (large), WMT (large), XLF (large), GS (large), MS, DIS.

Short AAPL (small), SQ (small), ZM (small).

* Investors are unprepared for a bullish market move

* "The Biden Bump," defensive (and offsides) positioning and other factors are leading to a continuation of yesterday's robust rally in stock futures this morning

* At 8 am S&P futures were +40 handles

* I enter the day net long (large) in exposure - with a big emphasis of value over growth.

I have agued that Mr. Market often does its best to confound the most investors. 

Most of the things that rock the markets are unseen and become only known after the fact. 

Of course I might be wrong... but based on the betting shop odds and forecasts I currently don't expect something unforeseen that would upset the markets this week. 

Based on my analysis, the CNN Fear and Greed Index, etc., investors have been defensively or negatively positioned into the election, mostly citing the multiple uncertainties associated with the election (see Peter Boockvar's commentary this morning). 

In keeping with this and the other considerations discussed below, I have been consistently, and some might say uncharacteristically, bullish on every dip over the last few weeks/months - despite the view by many that the election uncertainty would worry the markets.

Arguing that market participants' positioning has been defensive and possibly "offsides", I have suggested that The Biden Bump and other variables could contribute to a much better than consensus market price action prior to and after the November election. 

My arguments expressed early yesterday morning stand: 

In terms of a thin reed indicator - over the last week, my Tweeter thread has been composed, in the main, of tweeps who are either pessimistic, very cautious and unwilling to take risk going into tomorrow's election, and in the face of a further spread of Covid-19 in the U.S. and Europe.

I am of the view that the most pessimistic market development would have been an uncontested election and, in all likelihood, no new stimulus package. By contrast, I believe that the recent firming of Biden's and the Democratic party's position in the polls and betting odds could contribute further to a another, or second "Biden Bump." I still believe that this is the case, which, in turn, would raise optimism towards a larger than expected early February stimulus package.

As to the global health crisis it is a "first level" concern, my interpretation is "second level." The Covid-19 crisis is something that I, and others, believe could have been prevented by earlier precautionary moves. But, it seems to me, that the newly announced lockdowns in England, Portugal and elsewhere in Europe, as well as tightening up of restrictions in the U.S., will serve to flatten the curve over the next 1-2 months.

Finally, remember the other conditions of "The Biden Bump" in "Will We See a 'Biden Bump' Which May Levitate Stocks Throughout the Balance of the Year?":

But there are other factors that argue in favor of a "Biden Bump" and continued market advance. Specifically:

* We are ever closer to a vaccine and therapeutics than we have been at any point in 2020. I said in March (one of the reasons I grew very optimistic on stocks) was that I have a strong belief in our health and scientific communities. (See the Regeneron (REGN) news from last evening.) I still do.

* We are also approaching normal seasonal strength in equities.

* The Federal Reserve will not change course. Our central bank has been committed, like never before, to fuel domestic economic growth.

* If the market gets moving (higher) in the month or two ahead, a changed and embedded market structure (passive investors that chase strength) could exacerbate the short term recovery in stock prices.

Bottom Line

I continue to transact more and pontificate less because opportunities are born out of uncertainty.

Not surprisingly, many are frozen into inaction because of election and Covid concerns - that is only a decision you can make based on your risk appetite and profile.

Last week the S&P Index fell within 10% of its "fair market value." This means that many stocks were likely undervalued - hopefully my portfolio is filled with some of them!

Bond yields rose to their highest level since June (see below) - a signal that "flight to safety" concerns may be evaporating:

I added to my long exposure into last week's weakness.

While I have no concession on the truth, I believe that, based on the growing evidence delivered by the election polls and forecasts, which now clearly favor a Biden victory, there is a growing chance of a "Blue Wave."

Like the Trump victory in 2016, a "Blue Wave" could be viewed as a near term market friendly development.

I summarized yesterday's price action late in the day (for those that missed the column) in "Value Trumps Growth Again": 

The most distinguishing feature of today's market action (nearly three-to-one advancers over decliners) was the excellent pin action of value over growth.

I am hopeful that the pivot continues.

Nasdaq was up by less than one half of 1% and the S&P rose by +1.3% -- but value stocks stood out.

The Vanguard Value Index fund (VTV) rose by 1.9% while Vanguard Small-Cap Value Index fund (VBR) was +2.4%.

Financials were up about 1.8% to 2.0% -- with the Financial Select Sector SPDR fund (XLF) ("Trade of the Week") +1.9%. Caterpillar (CAT) , Smucker (SJM) and the energy space (with most stocks +3%) were upside standouts.

On the other side of the coin was absolute and relative weakness in growthy names -- Amazon (AMZN) , Square (SQ) , Zoom (ZM) , Carvana (CVNA) , Twitter (TWTR) (discussed today in my Diary) and Apple (AAPL) .

Bond prices firmed (I am short), as did gold (I am long).

This morning, I added to my net long exposure, which is now large-sized.

In Thursday's "Be Fearful and Fearless, but Trade and Invest Dispassionately" I made the case that while we should never be overly confident in view and that it is incumbent to maintain flexibility as an opportunistic trader/investor in a heightened period of volatility in which machines and algos dominate the investment landscape.

I continue to see a Biden Bump.

Today Biden gained some ground against Trump on the betting site Predictit and in Nate Silver's "538" election forecast.

Unlike some, I see the European lockdowns and more health restrictions domestically as a positive -- the virus will be more likely contained.

If the election is uncontested (as I assume in my base-case expectation) and assuming normal seasonal strength, rising investor pessimism (you just have to read our comments section to see how cautious many are) and my confidence that the scientific and medical communities are ever closer to a bonafide vaccine and therapeutic remedy -- could all augur well for the markets over the near term.

Most importantly, a Biden win and "Blue Wave" would spell a substantial stimulus bill as early as mid-February.

I currently have the fewest gross exposure to shorts in quite a while.

Bottom Line

When we entered 2020 I promised that my Diary would be more proactive in the new regime of heightened volatility that I expected. 

I promised more trading and investing ideas - and less pontification - was my writing mantra. 

I have long said that there are many ways to deliver excess trading and investor returns - through technical and fundamental analysis and by anticipating/reacting to price. 

I chose fundamentals. 

Unlike some who wait for price confirmation and react, I am more willing to be anticipatory in my trading and investing - sometimes it works, other times it fails. 

Armed with a calculator (measuring the distance between current stock prices and my calculus of "fair market value" and a willingness to be contrarian, I have tried to unemotionally capitalize upon the shenanigans of quant products and strategies and ETFs, who rebalance daily, and use their prominence and dominance to my own advantage. 

For the reasons mentioned above, I remain near term bullish and large long in exposure. I am, however, concerned about the intermediate term - as I will discuss over the next few weeks. 

So far, so good.
__________ 

Long SPY, AMZN (large), XLF (large), VBR (large), VTV (large), SJM (large).

Short SQ (small), CVNA (small), ZM (small), CVNA (small).

For emphasis.

While value is in the eyes of the beholder, I want to emphasize how sizeable my value bet is today. 

While I own and expect to continue to own Alphabet (GOOGL) and Amazon (AMZN) "forever" - I am over my skiis in my portfolio's value skew. 

Over my skiis, I said.

As noted in "Unusual Call Activity Is Very Usual",I am a skeptic of buying directional call or put options with a regular appetite, regardless of reason. 

Another casualty of "unusual call activity" this morning is (BABA) .

Peter asks questions:

If you told me the election results right now I'd still not have any idea of how the markets would respond. If Biden wins with the Senate, do we rally in anticipation of a massive spending bill in Q1 or do we selloff for the next two months as people lock in 2020 capital gains tax rates and earnings numbers get cut ahead of a possible corporate tax rate increase in 2021? Or does the market think those tax rates don't go up until 2022 and thus there is no pressure to sell imminently? Or if Biden wins but Republicans keep control of the Senate does the market like divided government or get upset that the fiscal spending package will be much smaller than hoped for? If Trump wins along with the Senate, is there a lame duck spending package or will Pelosi make them wait until next year, if it happens at all? And will it be smaller than markets want if it does eventually happen?

On the other hand, there will be no tax changes of substance for the next four years but is the status quo enough to lift markets further from here? Does it mean the Chinese tariffs on more than $300b worth of goods that US companies are paying for are sticking with us for another four years? If Trump wins and the Dems take the Senate, what spending plan happens then but at least tax rates won't change? What if we don't know the winner for days or weeks? It's aggravating yes but the uncertainty shouldn't last more than a week or two but do we selloff anyway? Lastly, what do interest rates do under all these circumstances in response? I don't know but that 10 yr note yield is now above its 200 day moving average for the 1st time since November 2018. The 30 yr yield is just a few bps from the highest since March.

10 yr Note Yield (200 day MA in yellow)

30 yr Bond Yield

The Reserve Bank of Australia expectedly cut interest rates by 15 bps to .10% and increased their QE by A$100b in 5-10 yr maturities. They somehow think this will matter but admitted it was in part to juice asset prices. "The combination of the RBA's bond purchases and lower interest rates across the yield curve will assist the recovery by: lowering financing costs for borrowers; contributing to a lower exchange rate than otherwise; and supporting asset prices and balance sheets."

All this will do is make it even harder for banks to make money and thus will LIMIT bank lending to small and medium sized businesses that don't have access to the capital markets and thus will keep growth slow. You want to talk about Group Think, it is no more apparent than in the world of central banking. Just all keep doing the same exact thing and hoping for a different result. While Aussie stocks and bonds rose, the Aussie dollar did too. 

Citigroup has raised their price target for Amazon (AMZN) to $3,600, citing the strength of 3Q2020 EPS results and better guidance. 

I have been adding to Amazon over the last few days. I have also been adding Citigroup (C) !

* The difference between election betting odds and election forecasts have widened recently

Throughout the last few weeks I have highlighted the Presidential betting odds and election forecasts - using Predictit (betting odds) and Nate Silver's "538" (forecast). 

I wanted to summarize the difference between Predictit and "538" which has grown (the gap) from 16.4 points to 19.9 points. Interestingly, the Biden win and Democratic Senate win are stable - as the move has been in the dozen battleground states:

So, who should we believe, the real money bettors of the pollsters/modelers? 

Some believe in the "wisdom of crowds", and highly recommend James Surowiecki's book of that name. In this case bettors may be wrong - just like investors in stock markets are sometimes very wrong - and for the same reason... of human emotions. 

We all have the same data (the polls), which is what "538" and other models rely on. 

Ah, but then we humans layer in stories - especially vivid ones: how polls were wrong in 2016, the big crowds at Trump rallies firing up his base, the possible existence of shy Trump voters, etc. 

Amidst these stories, it's easy to forget the facts: 

* Trump won the last election by the skin of his teeth (less than 80k votes across three states) despite a huge assist from Comey and the Russians - nothing is comparable this time - and an opponent with very high negatives which Biden doesn't have.

* A mere 1% shift in the vote means Biden wins - and he's polling five percentage points above Clinton and every poll shows that Trump's lost support among independents, women, whites and suburban residents.

* Pollsters have fixed their mistakes from 2016 and nailed the 2018 midterms. Read this: What Trump Needs to Win: A Polling Error Much Bigger than 2016's.

My Conclusion

This doesn't mean that President Trump can't win - but his odds are likely much closer to 10% (538) than 43% (PredictIt).

* Please note that a lot of thought goes into the generation of "The Trade of the Week" 

On the weekends before the trading week commences I often spend a lot of time determining Monday's "Trade of the Week."

I usually start with three to five ideas and trim it down to my favorite at around 5-6 a.m. on Monday morning.

Of all the ideas I generate, I consider short-term timing most in this selection.

So, when you see Monday's choice remember that much thought goes into the "Trade of the Week."

Fortunately the selections over the last two weeks have been successful:

* Long General Motors (GM) (twice!) 

* Short Apple (AAPL)

This week's "Trade of the Week" -- long Financial Select Sector SPDR Fund (XLF)   -- is off to a good start and holds the promise of performing as well as the last two picks!

"It's not the battles we lose that bother me, it's the ones we don't suit up for."

-- Toby Ziegler, West Wing

Today I have chosen not to vent about the election in our Comments Section, on Twitter or any other social media platform.

Nor will I be discussing and even arguing with friends and relatives about the election today.

Rather, I will be spending much of the day as an Election Day volunteer.

As a result, my Diary columns will be less frequent and shorter!

Danielle DiMartino Booth on a weakening dollar coming to the aid of domestic economic activity (got gold?):

• ISM Mfg New Orders rose to a 16-year high of 67.9 in October while Customers' Inventories remained at their lowest level in a decade; the National Association of Credit Managers' Mfg Sales Index also hit a record 75.3 in October on the back of accelerated industrial demand
• Per z-scores, both demand gauges of ISM's Mfg New Orders and NACM Mfg Sales outpaced IHS Markit's Future Output; business expectations rose off Sept's lows in Markit's October survey, but confidence remains muted flagging risks tied to COVID & the election
• The trade-weighted Dollar Index and ISM's New Export Orders have an inverse correlation of 0.7 that has held over several business cycles; with 85% of the 33 countries reporting PMIs seeing an expansion in October, the Fed could weaken the dollar to help keep industrials hot

We know it as "Reynolds Wrap." It defines household staple. Who doesn't use it to warm up their pizza or extra biscuits from Sunday's big breakfast? Everything out of the oven is fresh all over again. Of course, there's a history that dates back to 1919! Richard. S. Reynolds founded the United States Foil Company, which later became Reynolds Metals Company, to manufacture tin foil for cigarette packaging. Reynolds then introduced aluminum - a cheaper, lighter, more durable metal - into the manufacturing of foil, replacing tin. By World War II, Reynolds Metals was the second producer of basic aluminum in the United States, an instrumental cog in the production of aircraft and other military supplies. When the war was over, the metals industry shifted its focus to household products. Once again, Reynolds was the pioneer. Grasping aluminum's strength and flexibility, Reynolds forever changed American kitchens with the introduction of its ubiquitous Wrap.

Holding in heat isn't just for leftovers. Fed Chair Powell probably would like to encase the U.S. housing market in aluminum foil if he thought he could to keep the right-tail fires burning. The world is facing a resurgence of COVID-19 in Europe and the U.S. Any sector firing on all cylinders will not be deigned as policymakers are hyper-aware of the risks of slipping back into recession.

But housing isn't the only hot property. Yesterday's Institute for Supply Management Manufacturing Report on Business revealed the coveted New Orders Index rising to a 16-year high of 67.9 in October, eclipsing August's upside surprise of 67.6. Even hotter was the drop in the Customers' Inventories index. For a third straight month, the index has been at its lowest levels in more than a decade. The lower the better for this short-run guide for new orders. It moved further into 'too low' territory in October (to 36.7), indicating a persistent tailwind for future production growth.

The acceleration in manufacturing demand has generated a six-month winning streak for the prices index. The 65.5 level registered was the highest since October 2018, when the supply chain was cooling down from the tariff and trade war grab-fest. In fact, aluminum, copper, steel, transportation costs, corrugate, food products and plastics all recorded price increases. Coincidentally, aluminum prices have risen for five straight months, and aluminum product prices were up in October and in short supply. R.S. would be so proud!

Context for ISM's new orders comes via the Credit Managers' Index from the National Association of Credit Management (NACM). The NACM manufacturing sales index - a proxy for activity in the industrial sector - vaulted to a record high 75.3 reading in October. NACM noted that the manufacturing sector has been somewhat immune to the economic gyrations generated by the lockdowns.

The virus has been remarkably short-lived through credit managers' collective prism. Of the four favorable factors in the NACM index, sales and new credit applications contracted from March to May; dollar collections and the amount of credit extended declined only in April and May.

We take nothing away from the intel derived from their crystal ball - credit managers are paid to look three-to-twelve months out to ensure their companies gets paid. No doubt, C-suite occupants are equally in tune to the state of their account receivables, hence the lack of coincidence that IHS Markit's manufacturing survey runs parallel to that of the ISM and NACM. It's firms' top executives being polled, not those further down the organizational food chain in the procurement or credit departments.

To wit, in October, Markit noted that manufacturing business expectations remained positive, improving on September's four-month low, as firms foresee a rise in output over the coming year. That said, the degree of confidence was historically muted as fears regarding the pandemic weighed on optimism. On today, the longest Tuesday of the year, election uncertainty can only add to the subdued nature of the mood.

When we filter the ISM, NACM and Markit metrics into our favorite normalized z-scores (deviations from the mean adjusted for volatility), it results in sales (orange line) outpacing new orders (purple line), and critically, future output (green line) underperforming both demand gauges. As good as things are in the heat of the moment for the key cyclical manufacturing sector, a slowing is brewing.

What's a central banker to do to keep industrials hot? Encase it in Reynolds Wrap? No. That impossibility removed, the right chart does offer a possible solution: Weaken the dollar, so the world can buy more. Over time, the year-over-year trend in the trade-weighted U.S. dollar and the ISM new export orders index has had an inverse correlation of about .7. This tried and true relationship has held over multiple business cycles.

The breadth of gains in global manufacturing purchasing managers' indices (PMIs) suggests the world is expanding at a quicker pace. Of the 33 countries that have reported PMIs for October, 85% of them were in expansion mode, the most widespread since September 2018. However, COVID is presenting a challenge to the factory sector, especially in Europe. Ergo, a consistent recovery is not assured in the near term. And prior gains in new orders and sales have reach unsustainable levels. Don't feign surprise if the Fed chirps dovish this week so the U.S. dollar can remain supportive of the industrial sector.