Do It Again
Well, we finally have some of the answers we were waiting on. It appears Donald Trump was listening to some Steely Dan at some point and decided he wanted to go back, Jack, and do it again. Trump becomes just the second U.S. President to win non-consecutive terms in office. My favorite part of the week though was after the Fed decided to cut rates by 25 bps points, Jay Powell was asked if he'd step down if Trump asked, and he answered with a resounding no. Aside from the big office win, Republicans also took control of the Senate and likely the House too. So the Trump led Republicans will have control of all three lines of government. With those two big questions out of the way, most markets took off.
Equites were on fire with the large caps performing well, led the by US and mainly smallcaps. Developed Europe did have a rough week and sold off. Bitcoin and other cryptos had a spectacular week. The Dollar had a jump after the U.S. election results. Bonds also performed well last week. In the currency space, things were mixed Gold and Silver both trading lower by Energy and Ags traded higher.
I'm on the road today, so I'm sharing some content on the summaries via ChatGPT.
Best of the Week
Dr. Malmgren, who I've shared insight from before, joined MacroVoices last week and shared how deep-seated economic, social, and technological shifts are influencing both voter behaviors and candidate strategies. She emphasizes the role of economic concerns, noting that issues like inflation, wage stagnation, and the housing market are crucial in shaping public sentiment and trust in political leaders. She also points out that both domestic and international factors—like supply chain disruptions and geopolitical tensions—are playing into voters’ fears and aspirations. One of Malmgren's more unique perspectives is on the impact of technology on the election process itself. She suggests that artificial intelligence and surveillance capabilities are changing campaign tactics, allowing for highly targeted voter outreach and messaging, which can shape perceptions in unprecedented ways. Additionally, she discusses how shifting global power dynamics, particularly the rivalry between the U.S. and China, are becoming focal points in political narratives, with both parties framing the U.S. role on the global stage as central to their platforms. Malmgren also reflects on the divisive political landscape and its potential to spark greater polarization, especially when amplified by social media. She warns that such polarization could lead to political instability, urging a focus on unifying themes to address underlying economic and social grievances among the electorate. Her analysis presents the election as a complex interplay of economic realities, technological change, and strategic narratives that will likely shape the race in unexpected ways. Listening time: 91 minutes
Best of the Rest
Forward Guidance provided a nice roundup of the of election results. One key theme is the potential for increased fiscal spending, especially in sectors like green energy and infrastructure, as post-election policies often emphasize stimulus to boost economic growth. Analysts discuss how this might benefit specific sectors, while possibly leading to higher inflation, which would, in turn, influence interest rates and bond yields. They suggest that investors might need to adjust portfolios to prepare for more volatility and potential shifts in interest rates. Additionally, there is an emphasis on the geopolitical landscape, with analysts noting that U.S. relations with other major economies could play a significant role in market direction. Trade policies and alliances could impact supply chains and growth prospects for multinational corporations, influencing market expectations. Finally, the episode addresses the importance of risk management in an evolving market regime. The guys recommend that investors stay flexible, diversify holdings, and consider alternative assets, as election outcomes and policy changes could lead to new, unexpected market conditions. Listening time: 56 minutes
Another one that's sort of related to the election, but more so the shadow government that many have suspected is running the U.S. government and might have been behind the attempted Trump assassination attempts. Former CIA officer Kevin Shipp provides an inside look at the role of intelligence agencies and what he describes as a “shadow government” operating behind the scenes of American democracy. Shipp argues that there is a hidden network within the U.S. government, consisting of the CIA, NSA, and other intelligence agencies, which wields significant power over policy and decision-making, often without public oversight. This network, he contends, operates beyond the reach of elected officials, influencing domestic and international policies through covert activities. Shipp highlights how intelligence agencies, under the banner of national security, often bypass constitutional checks and balances. He also delves into the concept of the "Deep State," which he defines as a coalition of unelected officials, private sector actors, and intelligence agencies that shape policy behind closed doors. Shipp calls for greater transparency and accountability within intelligence agencies, warning that without these reforms, this unchecked power could erode democratic principles. Listening time: 68 minutes
Via the Acquirer's Multiple, this is a Chris Bloomstran post on X that walks through some of the reporting around Berkshire's cash holdings. I'm sharing this post for two reasons. One is an education on properly looking at one of the most important U.S. company's numbers, and the second is to hopefully help you realize reporting the numbers is fine, but remind you that it takes some analysis to really understand what they're telling you.
Davidson Heath, Assistant Professor of Finance at the University of Utah's David Eccles School of Business, joined the Rational Reminder podcast to discuss the impact of index funds on financial markets and corporate governance. He shed light on how these investment vehicles are reshaping the economic landscape. One major effect of index funds is on market dynamics. Since index funds automatically invest in all companies within a given index, they contribute to an upward pull on the valuations of large companies, regardless of individual performance. This “passive” investment approach can create inflated stock prices and reduce the sensitivity of stock values to company-specific actions or fundamentals. As index fund holdings grow, this trend might lead to a more homogenized market, where the usual mechanisms of price discovery are less effective, potentially introducing risks if stock values become disconnected from actual corporate performance. Another area of impact is corporate governance. With large asset managers (like BlackRock, Vanguard, and State Street) controlling substantial shares of most major companies through index funds, they now wield significant influence over board decisions, executive compensation, and long-term strategies. This concentration of power among a few large fund managers raises questions about accountability, as these institutions can influence corporate priorities across vast sections of the economy without the typical pressures to produce immediate returns. The discussion concluded with a mixed perspective on index funds: while they provide investors with low-cost, diversified exposure to the market, their rise could lead to unintended consequences in financial stability and corporate governance if unchecked. Listening time: 45 minutes
Good chart from Jeff Weniger, CFA here. His post shows the P/E discount in Small Caps versus Large Caps using the S&P 600 vs. the S&P 500. The Small cap index is trading 25.4% cheaper than the large cap. He notes that a similar relationship was found in 1976, 1998, 2001 and 2020.
Allocations from pensions to Bitcoin would be an incredible tailwind. While with a small allocation, this week's performance isn't likely to have moved the portfolio as a whole much, it is a timely decision. The article mentions a few American pensions that allocated small amounts, but it shows a willingness to consider it a serious asset. This is the benefit the ETF bulls were hoping for.
One for the Road - Literally
I'm wrapping up this post sitting at Newark Airport waiting to board for London. In Episode 8 of Kaos Theory, Barry Strauss, a renowned historian, explores historical leadership, strategy, and decision-making, focusing on lessons from ancient history that remain relevant today. Strauss delves into the lives of iconic figures such as Julius Caesar, Alexander the Great, and Cleopatra, examining how their leadership styles, strategic choices, and sometimes ruthless tactics influenced the course of history. Strauss emphasizes the importance of adaptability and resilience in leadership, noting how these figures navigated unpredictable political landscapes and military challenges. He discusses how Caesar’s bold risks helped him gain power but also led to his downfall, and he explores Alexander’s visionary but relentless pursuit of empire, highlighting both his military genius and the eventual overextension that weakened his legacy. Throughout the episode, Strauss draws parallels between ancient leaders and modern leadership, suggesting that the timeless qualities of vision, decisiveness, and adaptability are critical for success. He also underscores the importance of understanding the broader context and long-term impacts of decisions, a lesson applicable to both historical and contemporary leaders. The episode provides insights into how leaders can learn from history to better navigate today’s complex world. Listen time: 80 minutes
Thanks for reading. Next week I'm not sure if I'll post or not, it will depend on how much content I can take in while on the road.