Making Sense of the Election PA
Santa Claus came early this year for risk enjoyoooors
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Wow. That was a hell of a week.
The election resolved itself more smoothly than anyone imagined, with the odds moving Trump’s way largely in a straight line throughout the night.
I wrote previously that I thought this election would resolve quickly and easily, but I didn’t think it would resolve this quickly and easily.
Markets loved it, with BTC up 12%, RTY up 9%, NDX up 6%, and the S&P500 up 5% on the week.
If that wasn’t enough sign that we have entered an “animal spirits” phase in markets, look no farther than DXYZ.
DXYZ is a closed-end fund that holds a number of private tech companies that investors cannot access elsewhere.
While the names are exciting and ones I (and many investors) have always wanted to own, the fund now trades at over 400% NAV! This means you’re paying $4 for every $1 in underlying assets in these companies.
I bought a small bag from pure FOMO towards the end of last week. Stocks like DXYZ will be a good bellwether for the level of animal spirits in the markets. So long as DXYZ holds onto this NAV, let alone keeps going up, we are likely in for some more insanity.
The 10-year Yield finished slightly lower, a sign that the market really did front-run the entire treasury move going into the election. If you’d been listening to the pundits on CNBC you’d be shocked by this move but we weren’t.
The MOVE index also moved down in a big way.
In fact, Michael A. Gayed, CFA published a piece titled “Disturbing Behavior In Yields.”
Michael is the contra of all contras. If that’s not an all-clear to stop worrying about bonds and the long end, then I don’t know what is.
Somehow, with all of this, stock positioning is still non-euphoric, even as we reach euphoric P/E levels and price action.
Euphoria
We’re entering a very challenging phase of the market—everything you might consider buying has run up so much that it’s easy to feel sidelined. That’s why I had written so extensively on positioning for the hedge unwind post-election.
I even wrote this note in the chat the morning after the election.
My idol Stan Druckenmiller talks about fat pitches, and this was a fat pitch. Unfortunately, I’m not allowed to write and say to you guys, “FUCKING BUY IT ALL NOW!” because of the SEC. The first draft of that chat message was much closer to that sentiment, but I had to tone it down because, at the end of the day, I can only tell you guys what I’m thinking.
The question now is going to be:
How Long Can This Last?
If history is any guide, things in crypto are about to get really stupid.
I’m less sure about the broader markets. After last week's insanity, we are likely to enter a period of some consolidation.
However, there are reasons to believe that this next Trump administration will be phenomenal for financial markets and the real economy.
Marc Andreessen tweeted this last week, and while I think you need to be careful about taking too much insight from billionaires firing off tweets on a whim between meetings, I think there’s something real here.
Trump surrounds himself with brilliant businessmen this time. The Steve Bannons of the world are long gone, replaced by Elon Musk, JD Vance, and the network of brilliant capitalists behind them both.
At the same time, America has mustered a forceful cultural rejection of Democratic policies that were:
Inflationary
Anti-Law and order
Anti-business
Anti-social unity
If you were to search for an analog period in American history, you’d have to agree with Citrini. The Reagan years look like a good approximation.
Here are the Reagan years for your consideration.
I think this is a very likely playbook, although the time scales will be different. Maybe we will get the complete Reagan cycle condensed into Trump’s next 4 years. Markets have been front-running cycles/events earlier and earlier this year. I think we will see:
Strong economic growth and fundamentals
A blow-off top that leads to a crash of some kind as valuations way outpace any semblance of reality
A solid decade for investors who can keep their heads and not blow up
The Omega Factor
The final factor I haven’t considered in this outline is the rise of AI.
To think about the future, you need to understand that artificial general intelligence is coming, and it’s coming sooner than you can imagine.
What if the economy hits an uptrend under Trump that culminates in the rise of AI?
The timeline makes sense.
Like I always say in this newsletter, be optimistic. The perma-bears who think about the worst-case scenarios don’t get rich in the markets. Be a perma-bull who is smart enough to know when to get out of the pool.
That’s the goal for this next cycle. I’ll be here to watch it with you guys.
Provided you’re subscribed, of course!
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Disclaimer: The information provided here is for general informational purposes only. It is not intended as financial advice. I am not a financial advisor, nor am I qualified to provide financial guidance. Please consult with a professional financial advisor before making any investment decisions. This content is shared from my personal perspective and experience only, and should not be considered professional financial investment advice. Make your own informed decisions and do not rely solely on the information presented here. The information is presented for educational reasons only. Investment positions listed in the newsletter may be exited or adjusted without notice.