That the environment is whatever it is. While individuals can not change the big picture, said individuals are far from helpless. So... be pragmatic. If anticipation is impossible, trend recognition is not.
See both threats and opportunities for what they are in real time. No "if only", no "shoulda", no "woulda", no coulda". You must defend you and those reliant upon you. You must see all avenues of approach, and determine on what ground and how you will mount your defense. Not to mention how aggressive to be on offense. Know your ability. Know your weakness. Know your tolerance.
Set up incorrectly? Set up for a different outcome? Think it's easier to change the world, or easier to change how you (and I) fit in this world? Be amphibious. Remember the words that I told you that my staff sergeant told me when I was a kid... "Adapt or die." Says it all.
Homo Sapiens is not the last hominid standing because he/she was the strongest nor the fastest. Heck, there is evidence that Homo Neanderthalensis was stronger, faster, and maybe even just as or close to as intelligent. Sapiens and Neanderthalensis share a common ancestor... Homo Heidelbergensis. Sapiens lived in larger groups than Neanderthalensis. Neanderthals did not necessarily die off from the cold weather in prehistoric Europe. The volume of shared knowledge expanded faster among the larger groups of hominids as more brains were exposed to more ideas. This building of blocks accelerated the expansion of cognitive ability, which in turn became the ability to solve problems... to invent. It is that simple. Evolve.
Once flexible enough to see a path through personal interpretation of any and all probabilities, set goals. We call them target prices. We call them panic points. Seek to improve upon self-discipline. Do push-ups everyday if you have to. Never lie, cheat or steal. Create and live by code. This is how consistent victories are won. Failure here is how defeat becomes habit. A path without a plan is just a path. See the beauty in the forest. Nothing wrong with that. Be fully cognizant that you share that forest with creatures greater than you and I.
Keep a level head. We are not as smart as we think in victory, nor are we as foolish as we feel in defeat. We just have more or less information than others. Always act for a reason that you could explain to a novice. Speculation is fine as long as understood as part investment, part gambling. Speculation can never be part of a core strategy. Regardless of short-term outcome, we carry on with the mission. Ever vigilant.
The Worm Turns
There is only one constant in this world. Change. A month ago, Americans still had no idea who had won the November 3rd presidential election, and it had been assumed that the legislature would be split between a blue (although by a slimmer margin) House, and a red (also by a slimmer margin) Senate. Markets were satisfied with this outcome, and reacted in kind (with a boost from positive news regarding both the Pfizer (PFE) and Moderna (MRNA) vaccines targeting the Covid-19 pandemic. It mattered less who would take Executive leadership as long as one chamber could block the other from successfully pursuing potentially extreme political endpoints.
Today is Wednesday, December 6th. The state of Georgia went to the polls on Tuesday, with control over the U.S. Senate hanging in the balance. Today is also the day that the votes cast by the electoral college will be officially counted. By the current President of the Senate, Vice President Mike Pence. Presidency of the U.S. Senate becomes important in about one minute. Read on.
The electoral college results will be contested. The media will make like this never happens. The media makes money when we watch their TV shows, and when we click on their stories. They must by virtue of the realities of how that business has evolved, be over-sensational. The fact is that three of the last five U.S. presidential elections have been contested in this way. It does not change the outcome. Democrat Joe Biden will very likely become President-Elect Biden (officially) later today. This will not surprise.
What is rattling financial markets overnight, is the apparent likelihood of a Democratic party sweep of the two U.S. Senate races in Georgia. As I work my way through the wee hours, the Associated Press has already called victory for Rev. Raphael Warnock over incumbent Republican Kelly Loeffler. The other race has not been called, but it does appear that a second victory for the Democratic party, by Jon Ossoff over Republican incumbent David Perdue, is close to becoming reality.
This will in effect hand majority leadership of the U.S. Senate from Kentucky Republican Mitch McConnell to New York Democrat Chuck Schumer as the upper chamber of the U.S. legislative branch will contain 50 Republicans and 50 Democrats and Independents allied with that party. As mentioned above, the Vice President of the United States is also the President of the U.S. Senate, and in the event of 50/50 ties will cast the tie breaking vote. In other words, Vice President-Elect Kamala Harris may have just become the most impactful vice president in recent U.S. history.
What This Means
Well, Ossoff has not yet beaten Perdue. Once that becomes reality, some may think it still difficult to pass legislation further out on the agenda driven spectrum, and that may be true to a degree, but also consider this. Committee leadership will change hands across the U.S. Senate. This does matter more than readers might think. This does matter in getting any legislative balls rolling in any given direction.
Why are futures markets reacting so wildly overnight? Let me explain. Larger fiscal stimulus/support becomes almost certain. This weakens the U.S. dollar and pushes out the long end of the U.S. Treasury yield curve. There will simply be increased supply in supplies of U.S. sovereign debt. The U.S. 10 year note yields 1.03% this morning. The most heavily focused upon spread, the space in between what U.S. 90 day T-bills and that 10 year note yield spans more than 94 basis points this morning after closing up against resistance (at 87 bps) which has stood for two months.
This will be a home run for the banks, at least for now, as the willingness to lend may increase to meet more of what will likely also be an increase in demand for credit. This is also likely a positive for a future national infrastructure rebuild. This should be reflected in the more industrial type names.
Why are Nasdaq futures getting roasted? Well, the Nasdaq is considered the home of large tech. The home of large corporate profits. The home of large capital gains for investors. I think it safe to assume that corporate, income and capital gains taxes will all soon be on the rise. I think it is also safe to assume that much of the regulation that had been removed during the Trump years will not only be reapplied, but perhaps at increased levels from what was the standard in 2016. Big tech could see a big drop in both net income, as well as investor demand for equity.
What I Think
I think I better get myself more exposed to the financials, and the industries. I already have some decent exposure to JP Morgan (JPM) , and US Bancorp (USB) , I probably want to add a third bank, one more reliant upon net interest margin than financial engineering. I will probably initiate either Bank of America (BAC) or Wells Fargo (WFC) at some point this week.
I also already have some nice exposure to several industrials, but not those that would see direct benefit from a sizable infrastructure package. Suddenly, old friends like Caterpillar (CAT) , Deere & Co (DE) , United Rentals (URI) , US Concrete (USCR) , and Vulcan Materials (VMC) seem so much more attractive than they did yesterday.
I also think that I will have to give some of my favorite tech names a haircut in the name of balance. Hopefully everyone already took heed and gained some exposure to gold. Oh, and one last thought. Is it not ironic that on the day that the Democrats (known for a more green agenda, environmentally) likely took complete control of the federal government for at least two years, that a production cut announced by the Saudis also made fossil fuel commodities and big oil stocks so much more desirable? Everyone has a plan. Until they get punched in the face. What happens next is the result of discipline and training.
Economics (All Times Eastern)
08:15 - ADP Employment Report (Dec): Expecting 133K, Last 307K.
09:45 - Markit Services PMI (Dec-F): Flashed 55.3.
10:00 - Factory Orders (Nov): Expecting 0.6% m/m, Last 1.0% m/m.
10:30 - Oil Inventories (Weekly): Last -6.065M.
10:30 - Gasoline Stocks (Weekly): Last -1.192M.
The Fed (All Times Eastern)
14:00 - FOMC Minutes.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (JEF) (.49)