Is Harris or Trump More Bearish?
Weekly Plan 8.18.24
Alright guys, let us get back to work. I want to kick off the post with a thought that has crossed my mind at times in last couple of weeks, that can Kamala Harris admin, if it happens, can this be bullish for stocks or will it be outright catastrophic?
Even though we like to think our Presidents are super human, in most cases they are not, and they rely on an army of consultants and lobbyists, advisors who help shape the administrative agenda.
This is not a political analysis or view in any form or shape. I am simply analyzing the current situation in terms of Global power structure, related markets and try to figure out which assets can do well- based on who is in Power in the US for next 4-8 years.
I think it is fair to say that most folks think a Trump Presidency is generally good for the stocks. Even if you do not agree with the guy at a personal level, the markets as measured by the S&P500 which returned about 65% under Trump Presidency, certainly think so. So in that sense, Trump has the track record. It is no guarantee that this will be the case again in future, but all things being equal, there is a probability of this happening again if Trump is in the White House in 2025.
Now what if Kamala Harris wins the Presidency? How will stocks fare?
Harris, as part of the Biden current admin, does have a track record of relatively solid market gains which at time of this post returned about 50% for the 4 years. So there are some knowns in this equation.
What the unknowns are sit in terms of which sectors or policies will Harris espouse and support more than the current Biden admin. If you go by the campaigning thus far, there are distinct feature of this campaign when it comes to the economic policy - Child care credits will be back, so you get 6000 dollars if you have a child in a given year. This could boost sagging population growth rate for sure as some folks may just have a kid to get that 6000 dollar check from Uncle Sam.
Then you have the proposed $25000 downpayment assistance relief for first time homebuyers. You probably have the mortgage interest rate deductions come back where you can deduct all or most of your home mortgage interest rates. There is also a talk of price caps on essentials like groceries and may be even gas prices.
I personally am for the chid tax credits and the mortgage deduction which I think are pro growth. I am skeptical of the downpayment assistance and the price caps on items such as groceries and gas. If you studied history of these price caps, they rarely ever work. You can look it up as well.
I think these price limits, if implemented are inherently going to increase the prices of homes and groceries, rather than lower them.
Why?
If you ever go to Costco or a Walmart, their markups on groceries are next to nothing.
There is not a 10% or a 20% markup on fruits and vegetables or meat. These margins tend to be like 2-3% at max. This is not like an iPhone business with 50-60% markups.
We are taking about bacon and apples here, not luxury cars. Let us say I put a price cap on an Apple at 3 dollars. The apple cannot cost more than 3 dollars under this diktat. What does this do to a grocery chain who may be procuring this apple at $2.9 to start with, to sell at a 3% margin at $2.99? What happens if the farmer raises the price to $3? Because these price caps will apply to the retailer not the supply chain as a whole, it presents a rather complicated problem not only to administer but also to follow.
Now the grocer is taking a loss on every apple it sells. So what do I do as a grocer? I stop selling apples because I don’t make any money on these. I do not even make 3% on my apples and on top of that I have to now comply with more paperwork from clerks sitting thousands of miles away, somewhere in DC.
This will impact the smaller grocers, the moms and pops the most. The larger ones like Sprouts or Whole Foods can just become more creative and come up with workarounds. They can call their apples slurpy extra ripe honey crispy and charge 8 bucks for one. This reduces competition and creates more monopolies in Apple market. The end result of this will be higher Apple prices for everyone. Same thing goes for home prices. The downpayment assistance increases the home prices for everyone- and this will hurt at the lower end the most. This is not a novel concept- California has tried this in some form or shape in past, and California has the most expensive real estate in nation. This is not a coincidence.
So I think this leads to a more uptick in inflation. I have already said that I do not think we ever go back to 2% inflation in this decade atleast. I see a floor on inflation here at around 2.5%. It can only go up from here.
Inflation, when the Dollar remains bid, is good for the stocks. You saw this in UK last year, you are seeing this in some of the failed economies like Argentina and Venezuela. The reason being the higher inflation on paper, leads to juicier yields on the US risk free treasuries. Now the 10 year yields are around 4%. Globally, countries like Brazil, China, India have to compete with this 4% yield to market and sell their debt. Their debt has to be higher than this 4%, else no one will buy their debt. Why would you buy Brazil debt or Turkey debt at 5% when you can get 4% on the US debt, the safest of all debts? So now Turkey has to raise its debt rates to 10%, thereby wreaking havoc on Turkish economy and citizenry.
This leads to a flow of money inside the US as long as inflation remains high, dollar remains bid and the rates remain stable. The problem happens when the Dollar collapses, deflation takes hold, eroding away the largest S&P500 companies’ pricing power.
A lot of folks think that Dollar demise is imminent. I do not agree at all. I think Dollar is actually headed much higher than here around 100 bucks. I think it’s going back to 110. May be even more.
So my playbook on this, if Harris Presidency becomes a reality, is to expect A) inflation to firm up again B) Dollar to remain bid (as there is no other choice right now) C) a shorter term sell off which is supported on dips. Lemme restate this a bit differently- I expect the above to play out regardless of who is the President. Harris, Trump, some guy named Dumbledore- it really does not matter.
Now don’t be fooled by the the prices of S&P500 or even a Dow Jones which has made new highs, when you look at it from the price of Dow in Dollars.
What is much more meaningful and interesting is if you look at the prices of Dow in Gold.
Dow is up more than 60% in last 5 years. In Dollars.
However, Dow has gone nowhere when you price it in Gold. See below.
What does this show? That most of these gains in stocks have been fueled by higher inflation and lowering of value of the US dollar. US dollar is less valuable, it is not that the stocks have become more valuable now. Well this has been the case for last 100 years though.
I do not think this is going to change any time soon. I expect Gold prices to continue to rise for this decade, may be hit a high of 3500 in next 5 years.
To summarize this section- I think whether it is Trump or Harris, as long as Dollar remains supported and the US does not fall into outright deflation, which is negative CPI year over year, Stocks can remain supported but I do not rule out initial knee jerk sell off that takes us into the 4000s again. For me, interim, these levels kick in near 4600-4700, and if tested, could lead to a 1000 dollar move at the minimum. This conclusion is solely based on where the global liquidity, where the global growth trends and the likelihood of Dollar remaining bid here is for next couple of years or so. The end goal here is to stay on right side of the tape. The goal is not to argue and fight over ideology- atleast not here in this type of setting. If you agree with the conclusion, share and subscribe to reach likeminded traders, like your self.
So the Democratic convention kicks off next week with it being a week or so long event. I think this should be supportive of the markets on the week and I think it remains to be seen if the convention is especially good for recent runners in aerospace and defense names, health care etc. I said this a few weeks ago at 5720, I think broadly speaking, the market weakness indicates higher odds of Trump win. In a way, Trump odds go higher as market gets weaker just in time for November. He does not want to go to elections with record high stock market, record low unemployment which tends to favor the incumbents. From a Harris perspective, she does not want to rock the boat too hard here now and will like to maintain the status quo with as little volatility as possible.
Gold
Folks, if you recall, I shared Gold when it was 1600, SLV when it was 17 here. These 2 have had massive runs here now. Gold, NEM (Shared at 28, its 50 now), GLD etc.
What we have is the Dollar dynamics at play here as well as lot of folks now only waking up to Gold. The CALL orderflow on GOLD could be quite heavy next few weeks.
If you know my style by now, my style is to make a move when the stock is in accumulation not in mark up phase. You can look at this from a variety of recent calls- my recent calls in NVDA at 96. TSLA at 190. AAPL at 105. AMZN at 160. You get the idea.
I do not like to chase in FOMO and sometimes it means I miss out on some moves. Do I get mad at missing the bus?
No. There is always another one coming right behind.
The second aspect of my style is that I need to give myself some room, some time for my thesis to play out.
You saw this with small plays which no one thought anything about. H&R Block shared back when in 2022 at 40 dollars! It is now almost 70 but it took 2 years to get here.
You look at CLOV. Shared at a dollar so many months ago! It is now 3 bucks almost! My point is that in the short term, I am good at emini levels intraday. At times I am also early at putting these thesis together which eventually work out in the direction I called, but it can take a while for them to play out. You know all about GEO, TEVA etc. These are but a handful of names out of dozens. Anyways, long term readers know all this so I do not have to beat around this bush. Bottomline is I take a long term view and so should you. To get most value out of this blog, make a list of these names, mark down these levels somewhere on the chart or back of your hand where it won’t be erased after you shower. And give it some time. Rome was not built in a day.
So back to Gold. With the Democratic convention next week, there could be a whole range of outcomes coming out of this, and I think it is better to wait and watch Gold action. If you did nothing at 1600, 1800, 2000, 2200, may be you think it is prudent to do something at 2550. I do not think so.
I like Gold on pullback into 2350s. If this means an NEM at 44/43, then so be it. It is 51 at the moment.
Kinross is another great example, KGC 0.00%↑
Long term readers know I made this call on January 1 at 6 dollars. It is now about 10 Dollars. I like it at 8.
This is in no way a bearish call on Gold. I am just saying I do not like crowded spaces.
Disney
Disney along with SBUX is another one of my so called value plays. I have been a bull on Disney since 85 area, it is now 89.
On Disney I like the 100 dollar calls.
These call are around 2.5 dollars at the moment. I think these are good, if turnaround indeed is around the corner. These are for January MOPEX.
Small Caps
You know I am a small cap bull also. I called for IWM dips into 210 to be supported but the dip turned out to be too dippy and we traded below it by a mile. It did recover and is now trading 212.
I think there is a lot of negativity around Small caps which I do not understand. I think Small caps look good but I do expect volatile action going into weeks and months ahead with my key LIS (Line in sand) right under 200. I expect Small caps to rally into 250 but we will not get there without a lot of drama in my view.
What do you think? Do you like small caps or mega caps more? Or may be both?
Speaking of small caps, look at this action in RBLX.
I think it looks interesting here but not necessarily at 40 where it sits now. My key LIS on RBLX is 32-33 which is an important area for me.
I think if it remains supported, then the 40 January MOPEX calls which are now about 5 are very expensive. However if this were to pull back into 35-36 and these calls become next to nothing, I like RBLX 40 calls for January.
Emini levels
With the DNC convention in fill swing next week, I do not necessarily hold a very negative view on the emini S&P500 index for week or so out. I think the market needs to make up its mind how it perceives this convention- whether it thinks the odds for Harris increase or decrease as the week goes by.
Longer term, about 3-4 months out, my view remains that for meaningful sell off, a proper bear market, I like to see deflationary winds take hold, not inflationary pressure in the US. We are now at 2.9% in the US CPI and I think this is about as low as we gonna get in the CPI before we push higher again. I do not think that with current set of data, we have enough reasons for this FED to cut by 50 BPS in September. At this rate we are looking at a 25 BPS, followed by another .25% by the year end.
The Dollar is strong still so this is ammunition for whoever is in the power to provide support for the populace if things turn south too much. This game will be played for as long as the powers that be can keep it up, which is to say as long as King Dollar is not dethroned. It will happen one day but it is not today or next week.
With this said, I like support come in at 5450-5460 if traded. We are now 5580.
Scenario 1: On the weekly time frames, I like support come in at or around 5440s for a move back into 5515-5520 area.
Scenario 2: Interim, the 5515-5520 area could be pivotal. If we do not see a Daily close below 5520, I think this level could be secondary support on the week.
These are weekly time frame levels and additional scenarios as always will be shared in chat for subs or via the Daily Plan.
META
With META, I do not understand the mechanism by which it has had a good rally to trade 527 and emerge as a top tech stock this week. But I am not going to fight it either.
May be it is the election season and with Elon buying X, a lot of ad dollars are flowing into META. Then a lot of these Silicon Valley companies have some sort of US government backing, so you do not wanna read too much into technicals alone. Who knows what the backdrop here is but what matters is that META is looking strong.
If there is any pullbacks into META into sub 510 area, I think it could see support come in for a move into 550 and beyond. 510 will be a very important Line in Sand for me on META. We do not fully understand the fundamental backdrop for this move, but if I were to take a wild and wide guess, I think it has something to do with November 2024.
As far as other ideas go, I may still like some setups, like even in TSLA but in the short term for an n number of reasons I may not pursue them, including my conviction levels for the general market as a whole.
PINS
This is an old orderflow stock I shared as low in 2022 at 18 before it rallied to over 40.
It has been cut by a quarter in recent days and it is now around 30.
I like it if this holds this 29-30 area. I think the stock is oversold and if 29 holds, I believe it can rally back to 36.
DJT
This has turned into a pretty tradeable name both on downside and upside. I have had bullish and bearish views on this in last couple of months, most recently at 35, I expected this to sell down into 26.
It did sell down and is now 23.
26 is a key level on DJT. Next week if this rallies back into 25-26, I am interested in 24 PUT for 9/20 which is 4 bucks now but I think its expensive and if this was 2 dollars or less, I think it may be fairly priced based on everything else.
On a side note, I do want to reiterate the importance of Line in Sand. All my thesis are well thought out, baked after mind numbing research, and include technicals as well. This is why these price levels I call LIS are so important. Ideally I like to see no closes below these LIS and I certainly never wanna see back to back consecutive closes below these LIS which invalidate my thesis. When I say I have no LIS, I am saying I am so sure this is gonna work that I am not going to accept any risk. I am 100 % sure of my thesis that it makes no sense for me to define my risk.
Now how silly does this sound? Do you really want to be the guy who accepts no risk? I don’t.
Have a great week ahead!
~ tic
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