Macro Dragon: Iterations... Part One... MAGA
Global Macro Strategist, Saxo Bank Group
Summary: Macro Dragon = Cross-Asset Daily Views that could cover anything from tactical positioning, to long-term thematic investments, key events & inflection points in the markets, all with the objective of consistent wealth creation overtime.
Macro Dragon: Iterations... Part One... MAGA
Folks as a pin going forward during this turbulent times, let us please remember:
The Covid-19 crisis with all its challenges, stress, chaos & opportunities will also eventually pass. What defines humanity & ourselves as individuals is how we both individually & collectively act under adversity. Think of how you want to look back over this period, doing your part to keep your family healthy, society healthy & functioning. Keeping a cool head, when others are losing theirs, maintaining an objective list of positive aspects & negative aspects of the policy responses & economic shock the world is/could go through. And lastly gratitude, sympathy & empathy for one another. Asia got/is getting through this & RoW.
The one big positive from all this, is it reminds us we are all One & we are not at the top of the food chain. Covid-19 does not care if you are rich, poor, what your ethnicity & skin color are, what passport/s you hold, nor what you age or profession is. Our greatest achievements are almost always those that we collectively do with others & sometimes as in this case, as a species. Lastly keep your mind open to growth & opportunities.
Top of Mind…
- New month, new canvas, yet do we get a new painting?
- The next first 2-4wks of April will be critical in KVP’s current framework of being in a bear market regime in equities & whether or not we still have another big leg lower on equities (to retest the & potentially break through the 2192 cash lows in the SPX, c. 2174 on the futures. For RTY that’s c. 966 & for NDQ that c. 6772). Obviously if we continue to push further, especially with two weekly closes above the key c. 2800 50% fibo retracement lvl on the SPX, then the technicals just gain strength as the market consolidate above its recent gains.
Iterations... Part One
- Post a lot of great feedback, as well as constructive pushback on the Dragon’s High Probability pathways (some of which have played out), we thought we’d extend off of the scenario planning theme…
- Which brings KVP to one of his fav. games – the Empress for a day game – what would KVP do if he was the strategist / counsel to the movers & shakers of the global stage? Well after putting the valuable family assets in a ‘blind’ trust…
Trump… MAGA… MAGA… MAGA…
- Time to take the presidential acting to another level, wake up & go to bed everyday with the MAGA MAGA MAGA Mantra. Your approval ratings are the highest lvls ever & we are about to take them to stratospheric heights.
- Declare the country is at war, because it is & the enemy is Covid-19 & a lack of coordination across the states. With fully instated war time executive powers, it’s time to get schwifty & into MAGA MAN MODE [MMM].
- Enough of the segregated shut-down, we are locking this puppy down across the board, along with a coordinated global shut down of the capital markets – at the end of the day, how can the markets expect to price the magnitude & length of the economic slowdown, if that is a function of the Covid-19 dynamic & developing storm. Check out the Hammer & Nail…
- We will re-open the markets after at least 4-8wks when we have this Virus kicked in the butt & we’ll get to watch the market go limit up, in back to back days.
- SPX +20% first day open, +20% second day open... now those are some MAGA numbers!!!
- Make a temporary truce with China, put the phase one deal on freeze for 6m to a year. The lift up in tariffs will take away structural headwinds at time that the US, CH & RoW just cannot take – at this point in time, we need to work together. As part of the deal, China’s SWF, Pension systems & AM will also non-strategic US equities. When we are back on our feet, we can go back to again making ourselves number one across the board.
- Put a floor under oil – either by forming an American cartel with the likes of Russia. Or asking them to lower production with a reversal of sanctions. Or telling Saudi Arabia that you will with immediate effect withdraw all military support for them in the ME (remember those missile strikes at the Saudi refineries in early Jan?), plus tomorrow you will be lifting sanctions on Iran - naturally fostering a Trump deal that will be better than Obi’s.
- No bailouts for the cruise lines (“unless they are American owned, with American employees & pay their taxes…oh & guess what they are not – they are lucky we don’t sue… just a sec… Hey Giuliani can we sue these cruise lines?” ). Airlines can get zero for their equity (end of the day, they have feasted on their surplus at the current expense of the shareholder they have left, so their executives could collect over +$400m in just stock compensation across Delta, United, Southwest & American over the last 6yrs… and that’s without mention the biggest [..……] taker of them all Boeing & its former CEO…. Check out the brilliant Ben Hunt piece from Epsilon Theory entitled Do The Right Thing. Yes we will claw back big time – drain the swamp. Energy bailouts? Case by case…
- It all goes without saying that for some of these corporates – which serve a utility function for the country – these bailouts will be investments for America’s tax payers. During the GFC the treasury made like a bandit on its backing of the banks & General Motors. Oh and no more buybacks, not just for companies bailed out but for US equities. Instead, dividends will be tax free because we want Americans spending that mula – not financial engineering that leads to a small minority of management & CEOs gaming the system. All the investments/bail outs we make, we’ll make sure the proceeds go directly back to taxpayers rather than back into “the swamp”.
- Also all the CEO & board member on those companies are subject to review & most will never be allowed to hold any executive seat on American soil - time to send a message. In the case of gross negligence being found, i.e. spending over 100% of free cashflow on buybacks that solely enrich management, with no cushion for the long term viability of your employees, customers, shareholders & debt holders, the US government is coming for you. And we will also name & shame them, time to change the game - no lessons have been learnt since the GFC.
- We’ll also tie our investments/bailouts to supply chains coming back to the US. For those that say US is too expensive, well how did Japan do it? Oh & going fwd, any excess cash help by US companies outside of the US needs to either be brought back home to be partially reinvested or taxed at excessive rates. Enough of the free loading techies…
- Don’t be afraid of the debt, you wanted a weaker USD right? If Japan (one fifth our size) can get to well over 250% debt to GDP & with other measures well over +300%. If the BoJ can have over +100% of their GDP on their balance sheet & own over 60% of their government bonds…
- …then imagine what the US of A, can do being the reserve currency of the world, trillions of assets priced in USD & having the biggest economy & deepest financial markets in the world? Just imagine…
- Yes, we can go ’uge! Definitely a magnitude more than Japan. Also this debt thing is going to be the continuing meta trend & in some trends, you want to set the bell curve & be the first through the door bit time. Also don’t forget your boy Powell (& Mnuchin) are going to likely go on yield curve control, which will mean that the interest rates are going to be super digestible especially on the front end of the curve (short duration bonds)
- Push for a separate +$2-4trn infrastructure bill, that will come alongside legislation that streamlines a fast track build out & multi-decade long overdue, enhancement & improvement of the current system. “We can likely get Japan & China (all of whom need dollars) to fund a good portion of this, it will be a great investment for them to own. “
- And on renewables? “Time to blow the heads right off the climate crisis camp, that’s right Trump is going Nuclear. We are going to reopen a multi-year Next-Gen Nuclear program in the US (some of these plants are on +40-60yr technology), which statistically is the most inexpensive & safest form of power generation that we have. I am rich, I have Netflix… (not just fox…) check out Bill Gates on Netflix, who highlight this Next-Gen Nuclear program… it’s the future”
- Lastly wait for those pesky Dems to bring out universal income for those lower income Americans (let’s be honest some of these jobs are just not coming back). Say yes, so long as it comes with a flat individual tax rate across the board – Boom! Simplifying our complicated bureaucratic tax system & cutting out a massive part of government with one move. Arrrrhhh the art of the deal… this is easy.
- To those folks screaming inflation, look at Japan what inflation? Remember post GFC, all those pesky armchair academics &no skin-in-the-game economists screaming hyperinflation. And if you are worried about inflation buy equities & real estate – simple.
US Congress, Fiscal Policy Makers & Corporate CEO + Board Members
- Fed/Treasury – kudos on the epic, one of a kind, historical, colossal shock & awe. The back stopping of the bond market (up to IG) was bold move & done in a manner much quicker & in a magnitude than most people envisaged (KVP was still 1-2wks out on you guys playing these cards). Now stand down, we need more fiscal & we need more structural changes to the incentives & mechanisms in the system of business & government in the US. The more you do from here, the less pressure & accountability the other side of policy makers have.
- Go bigger on the Fiscal stimulus (& they will thinks KVP, the first $2trn was just the start) – its literally going to be the time to go big or go home. And with that, use this as an opportunity to proactively to build a better model & framework for not just the US’s economy but more importantly its society – rather than reactively just support the status quo of things, as we did in the GFC.
- Call up Andrew Yang, because there needs to be a template for universal healthcare in the US, as well as a sizable freedom dividend for those under a certain income threshold (say $2K & $1K month if you household income is under $50K & in the 50-$100k range, which would get us to c. 70% of household incomes in 2018).
- Undocumented migrants who can prove that they have been working in the US for +5yr without any serious crime (i.e. parking ticket, speeding ticket), should get one off amnesty to being US citizens – they are an integral part of the system. And one cannot truly have a universal country wide healthcare system if a sizable chunk of the population falls out of it. Think of it like this, what’s the point of being successful & well off in America if you can catch the next iteration of a pandemic from your driver, waitress, doctor, dentist, baker, cleaner or butler? Not to mention the added taxes that would come from them coming out of the black economy.
- Incentivize digital tracking through biometric devices – bands, watches, rings – be they Garmins (that KVP rocks, yes, yes… the Ms. will not yet, let KVP lift the Patek Phillipe), Fitbits, Apple Watch, Oura, etc
- Check this out Oura partners with UCSF to determine if its smart ring can help detect COVID-19 early – again thematically, this is not where we should go, this is where the future is… whether the US wants to set the bell-curve on it or not, is a whole different issue.
- Incentives should be huge insurance premium discounts, both directly from the insurers & also as tax rebates – a healthier population works longer, is more productive, as well as spends, consumes & invests more. We move the US from a healthcare & pharmaceutical system that is built on surviving conditions (so you can be sold more drugs & treatment) to one that is built on preventing conditions. So in this case, citizen can already start to get warning signs of health issues, way in advance of them becoming costly or irrevocable.
- Restructure the whole US healthcare system & its bloated incentivized that has too many people with absolute zero skin in the game & is the most expensive in the developed world by a margin – its long overdue for disruption both privately (which is taking too long) & regulatory wise (which can happen now).
We’ll have Part Two of Iterations on tmr’s Macro Dragon…
We could continue to be in a gang buster period of volatility both to the up & down side until at least mid-Apr to back-end of May. Some, time decay is needed in the system, both from a Covid-19 spread (past peak velocity upwards), even bigger & even better government / fiscal / monetary policy response, to overall heads of governments giving this the 2nd & 3rd order consequences thinking that it needs. This too shall pass. Keep you minds & hearts open.
Good luck to everyone out there, be nimble & position accordingly.
@SaxoStrats | @KVP_Macro
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