Good Wednesday evening, MacroEdge Readers & Community,
We’re still finishing a very extensive update on the election results, covering the most important takeaways, the macro and market impacts, and much more. It will be published tomorrow as the Election Recap and Thoughts. In the meantime, Six has plenty of thoughts below on broader markets, the election results, and how they will impact our portfolio strategy going forward, including the new opportunities created, the hidden risks, and more.
As you’re likely already aware, last night was a near-extinction event for the GOP in a lot of states. The results in Texas, the trifecta lockdown in Arizona, and the losses just about everywhere else mean the GOP will once again have to shift leftward to appeal to voters in the future, which is part of our ‘Project South Africa’ framework. Dramatic changes and shifts like these will be built into our future over the next several decades here in the United States, and I pride us on being hyper-aware of what’s going on, because it does matter, more so in the long term than the short term. The results themselves won’t change a whole lot in anyone’s day-to-day life. In Texas, for example, I expect the results to oscillate for the next 8-10 years, as we saw in Colorado starting in the early 2010s. This was a valuable wake-up call, and hopefully people are paying attention.
Today’s market reaction off the 200 was more technical than anything, across the board. Now we wait to see what happens in the Middle East. I don’t suspect the US is simply going to abandon the Strait of Hormuz, since that would signal to countries around the world that they can start dictating terms more aggressively on a regional basis. The election will get almost all of the attention for the next week or so, until the ‘high’ fades and reality sets back in, but it does little to change the broader macro landscape or the direction we’re headed. In real terms, markets have by and large been dead money this year, even though some are still celebrating hitting a single number at the roulette table. Now it’s all eyes on the 200 across many indices and names around the globe, and as we head into December, we wait for the next likely Fed hike.
- Don
Strategy Note: The Electorate Caps the Capex Trade - Six, Head of Research
The blue tsunami seen last night has meaningful implications for positioning moving forward.
● All datacenter bans on the ballot were passed. The marginal driver of economic growth (datacenter capex) is set to materially decelerate.
● Democrats are already promising to end the Iran war and Trump’s tariffs. ● Republicans are already distancing themselves from the Executive, suggesting an even more left-aligned congress than official party lines suggest.
● With new compute supply throttled, existing supply becomes more valuable. Hyperscalers rallied on this today.
● The trade war will be rolled back as the new congress assumes power. The counterparty countries most affected by it will become the biggest beneficiaries, chief amongst them, China.
● Shorting the hole on capex beneficiaries is ill advised in many names that have already taken huge drawdowns, but the new regime will make it difficult for many of these names to make a new high this cycle.
