From: allin
The current market environment presents a complex and unusual divergence in assets, prompting analysts to determine its underlying causes [09:16:16]. This includes:
- Bonds falling: US Treasury yields have spiked, with the 10-year yield rising to over 4.25% after nearly dropping to 3.5% in September [09:38:40].
- Gold prices spiking: Gold, typically a safe asset, has seen an “incredible runup,” becoming one of the best-performing assets of the year, increasing from around 2,750 an ounce [10:04:46].
- Equities rising: Despite bond market pain, the S&P 500 has been on an “endless runup,” hitting all-time highs [10:22:15].
- Strong US dollar: The US dollar complex is thriving [11:01:41].
- Rising backend yields: Long-term bond yields are increasing [11:09:09].
- Put/Call Skew: In the bond market, there are significantly more puts than calls, indicating hedging against downside risk [11:15:00].
Market Repositioning for a Trump Win
One interpretation of these market movements is that the entire global financial infrastructure is repositioning itself from a toss-up election to a Trump win [11:31:01]. This is attributed to the belief that the Trump economic plan will drive better growth than the Harris plan [11:55:00]. Higher growth typically brings more inflation, requiring a higher risk premium for risky assets [12:05:00].
It is observed that financial actors are repositioning their risk, indicating an overwhelming tilt towards a Trump win in the economic distribution of outcomes [12:37:00]. If Trump wins, especially by a significant margin, these trends are expected to exacerbate [13:00:00]:
- Gold prices will likely increase further [13:10:00].
- Bitcoin prices will likely increase [13:12:00].
- Short-term economic upside will be reflected in higher equity prices [13:18:00].
- Long-term rates will be pushed out, and the inflation picture will become murkier [13:22:00].
Gold and Bitcoin are seen as hedges against short-term economic growth leading to medium-term inflation [13:40:00].
Expert Consensus on Inflation
Prominent financial figures support the view that inflation is a key concern:
- Paul Tudor Jones: Stated that “all roads lead to inflation,” confirming his long positions in gold, Bitcoin, and commodities [14:06:00]. He also suggested that young people often hedge inflation via the NASDAQ [14:22:00]. He advises owning “zero fixed income” or keeping it very short-term [14:35:00].
- Stan Druckenmiller: Holds a significant short position (20% of his holdings) in US treasuries, betting on long-term inflation pressures and rising rates [15:05:00].
Alternative Interpretation: Fed’s Actions and Fiscal Health
An alternative view suggests that market movements are less about the election and more about the markets’ disapproval of the Fed’s 50-basis-point rate cut on September 18th [15:38:00]. This cut was considered too large and contradictory to the Fed’s own rhetoric that the economy was doing well [15:46:00]. Previous 50-basis-point cuts in 2001 and 2008 occurred on the verge of major recessions, unlike the current economic climate [16:03:00].
Concerns also stem from the long-term fiscal picture of the US, with rapidly increasing debt service costs and a murky inflation outlook [16:58:00]. Interest on the national debt has gone “absolutely parabolic,” reaching a run rate of 3,500 per American [17:01:00]. This consumes 20-25% of federal revenue [17:21:00].
It was expected that rate cuts would lower this debt service, but it now appears “that may not happen” [17:30:00]. The bond markets are pricing in “higher interest rates for longer” [18:10:00].
US and Global Debt Crisis
Total US household, corporate, and government debt amounts to 4 trillion per year in debt service, or 15% of every dollar traded in the US economy [22:21:00].
This “global leverage problem” is also impacting other countries:
- UK: Facing a budget deficit of 4.4% of GDP with only 0.9% growth, leading to proposals for higher taxes [22:54:00].
- France: Struggling to reduce its deficit from 6% to 5% of GDP, with skyrocketing bankruptcies and new taxes on large firms and high earners [23:07:00].
- Brazil: States owe $130 billion to the federal government, and accelerating inflation (4.6%) implies higher, longer rates [23:44:00].
China, historically the largest buyer of US treasuries, has been selling them off at an accelerated pace since COVID, reverting to 15-year-old levels of holdings [24:29:00]. China has publicly declared it is selling US treasuries and buying gold instead [24:52:00]. This leaves the Federal Reserve as the “buyer of last resort,” potentially leading to debt monetization (printing money) and inflation [25:05:00].
This global leverage problem explains the “flight to safety” in assets like gold and Bitcoin [24:01:01].
Investment Strategies in This Environment
Most panelists believe that trying to actively trade based on these macro trends is a mistake, advocating for “time in market” over “timing the market” [27:07:00].
- Chamath Palihapitiya: Believes Bitcoin will be “the resounding inflation hedge asset for the next 50 or 100 years” [26:06:00]. He suggests that if Harris wins, many of the recent market trends would reverse [26:45:00].
- Jason Calacanis: Agrees that money will flow into assets like equities due to continued government spending and debt [19:01:00]. He emphasizes owning equities and property for the next 5-10 years [21:45:00].
- David Sacks: Advises avoiding treasuries due to low yields and looming inflation/debt crises [39:49:00]. He acknowledges that equities at all-time highs are a “hard one” because extended periods of higher interest rates could be detrimental, despite equities typically being an inflation hedge [40:08:00]. However, if central banks monetize the debt, both equities and gold could rise while fixed income falls [41:08:00].
- Commodity-linked businesses: Sacks personally favors businesses whose revenue or profit grows with underlying commodity prices (e.g., mining, agricultural commodities) as they tend to outperform in inflationary cycles [41:45:00].
- Buffett Indicator: The total value of the Wilshire 5000 divided by GDP is at an “absolute new high,” suggesting equities are likely to be cheaper in the future [43:05:00]. The PE ratio is also at the high end of normal (around 25) [44:01:00].
- Bonds vs. Stocks: Howard Marks’ letter highlights the fundamental difference: bonds offer fixed income, which can be debased by inflation, while stocks offer earnings that can keep pace with inflation by raising prices [44:26:00]. However, both are hurt by rising interest rates [45:46:00].
The US may be entering an “era of consequences” after 15 years of “consequence-free spending” and normalized emergency conditions [47:07:00]. This means tough choices:
- Allowing higher inflation (monetizing debt) will lead to higher interest rates, impacting equities and real estate [47:20:00].
- Tackling inflation (Fed tightening) requires the federal government to “get religion around spending,” potentially leading to austerity measures similar to those seen in Europe [47:47:00].
Election Outlook
All current data points towards a Trump victory [54:06:00]:
- Polling: Recent polls from The Wall Street Journal and CNBC show Trump up 2-3 points nationally in the popular vote [54:17:00]. If Trump wins the popular vote, it’s considered a “landslide” due to the Republican Electoral College advantage [54:32:00]. State-by-state polling shows Trump advancing in every Battleground State, with momentum towards him [54:57:00].
- Prediction Markets: Prediction markets (e.g., Polymarket, Kalshi) have shifted “very, very sharply” in Trump’s favor, with almost a 2/3 to 1/3 split [56:02:00]. A French trader reportedly bet $45 million on Trump on Polymarket [57:03:00].
- Early Voting: In states with early voting, Republicans are tracking well ahead of their 2020 numbers [55:14:00].
The Kamala Harris campaign is perceived to be in a “throwing spaghetti against the wall mode,” returning to “dark Brandon type messaging” that frames Trump as a fascist and a threat to democracy [01:02:52]. This contrasts with their earlier strategy emphasizing Harris as a “change agent” of “joy and positive vibes” [01:03:15]. The bounce from this initial repositioning has worn off as Harris struggles to articulate how she would differ from Joe Biden [01:03:29].
!> Campaign Advice (Hypothetical): Kamala Harris should have advocated for a “speedrun primary” to allow democracy to play out [01:04:36]. Alternatively, she needs to address critical questions in swing states, emphasizing border control (admitting it got out of control, pausing for two years), the record stock market and low employment, the overturning of Roe v. Wade, and the events of January 6th [01:13:58].
Post-Election Reconciliation and Media Impact
Concerns exist about the “reconciliation reconstruction phase” needed in America post-election, given the inflammatory rhetoric [00:59:01]. Half the country may hate the president, and half may believe democracy is over [01:00:28].
Some argue that mainstream media is responsible for “giving roughly half the country a psychosis about Trump” by constantly portraying him as a fascist and “threat to democracy” [01:00:50]. The comparison of Trump to Hitler is seen as an unacceptable level of rhetoric [01:06:06].
However, it is also noted that information has come out since January 6th, such as Twitter censoring Trump’s tweets telling people to go home [01:09:19]. The perspective on past events can shift with new information [01:05:40].
Ultimately, voters are now more focused on policy issues like immigration, inflation, and the economy [01:11:01], where Trump holds a decisive advantage [01:11:08].