Bending Bents

So, let’s put today in perspective.

As for markets, suffice to say that today’s rally across global equities (but not all sectors) and precious metals to no small degree represented a panicky unwind of crowded hedges heading into the much-anticipated mid-term election.

Of course we can get into chapter and verse on how outcomes such as yesterday’s have historically been nothing but bullish on a 6-12 month horizon, but we’ll leave that to others, or to your own queries with the likes of ChatGPT.

As for the potentially consequential matters at hand, yes, the political calculus will be different going forward. 

Although, that said, and please take this to heart, when we’re talking politics, forget about platforms, forget about promises made, yada yada, and focus on a given politician’s or party’s constraints and incentives.

I.e., regardless of the bent of the party in power, as presented on the campaign trail, make no mistake, there’s not a politician anywhere who aims to bring down his/her constituent economy, despite what the opposing side may proclaim.

My personal experience over the years has borne this out over and over again… When we’re talking cyclically, markets will do what they do based on where we are in the business and the capital cycles… When we’re talking structurally, we need to know where we are in terms of structural regimes, be they capital friendly or labor friendly… Another name for the latter is populism… My point being that the party in power will absolutely bend to the constraints and the incentives the reigning structural dynamic dictates.

I.e., in a populist regime, which is where we live today, globally, the constraints and incentives lend themselves to policies that on-balance favor the real economy over the financial economy, that lean on fiscal policy over monetary policy, and that promote structural inflation over disinflation.

Bottom line, a smartly allocated long-term portfolio today will express that structural view, while tactically accommodating the shorter-term cyclical trends and counter trends along the way.

As for the time being, like I said yesterday, the near-term setup looks plenty bumpy heading into 2027, today’s breathtaking rally notwithstanding.

Stay tuned...