Fade the noise…

Fade this storm in a teacup and take advantage of the opportunities that arise.

As we have repeatedly said, the US debt limit issue is just noise and politicians will debate, haggle and horse-trade as long as they can to stay in the limelight while they can. However, eventually, they will do what they do best, which is kick the can down the road, and spend as much as they can to benefit the groups of voters that put them in power.

That’s just politics and it will never change. Fade this storm in a teacup and take advantage of the opportunities that arise.

Later today, the US job numbers will be released, and a strong number will likely increase fear of a sooner than expected taper. Soon or not, the taper will happen, and it will happen gradually and be very well-telegraphed.

You know the plan, so just stick with it.

MARKET OBSERVATION

Mainstream Adoption is Way Easier than you think

After a month of granting Bitcoin legal tender, there are more Salvadorans with bitcoin wallets than traditional bank accounts.

This just goes to show the ease of making Bitcoin mainstream once there is a legal framework and technological infrastructure to run and support it. In the US and many other developed economies, the only thing that is holding Bitcoin back is a legal framework around them. But once such frameworks are in place, we can expect another flood of money into Bitcoin as the later adopters finally wake up to the idea that it is not a scam but a possible store of money like how gold is.

DAY AHEAD

Employment Data for both the US and Canada will be out today. The Employment Data will possibly determine the US Federal Reserve’s and Bank of Canada’s tapering decision at their next policy meeting.

TRADING PLAN

1. Currencies:

Keep short USD and long NZD, & CNH. FX remains stuck in the range and likely to remain so. There may possibly be some fireworks should US Non-Farm Payrolls be wildly different from expectations.

2. Commodities: Uranium & Energy — Energy shortage, supply constraints. Stay invested.

Key risks: US Employment data, higher US bond yields, the Evergrande situation and Fedspeakers’ thoughts on the tapering process.

3. Equities:

Equity Index: Long Nasdaq futures. Again the market dips are bought. Keep to the plan.

Single Stocks: The TrackRecord Model Portfolio picks remain robust. As the market recovers, expect some FOMO to kick in as time progresses.

Key risks : US Employment data, higher US bond yields, Evergrande situation and Fedspeakers on the tapering process in the days ahead.

WHAT HAPPENED YESTERDAY

Market movement as of New York Close 7Oct 2021

There was a risk rally on Thursday following an agreement among Senate leaders that would raise the debt ceiling by $480 billion and give the Treasury enough funds through Dec. 3. After Senate Minority Leader McConnell offered Democrats this pathway yesterday, Senate Majority Leader Schumer confirmed in the morning that a deal was reached with a vote expected to be held soon. Essentially, the market breathed a sigh of relief that the worst-case scenario is likely to be averted, at least for now.
US Initial jobless claims for the week ending October 2 decreased by 38,000 to 326,000 (expected 340,000) while continuing claims for the week ending September 25 decreased by 97,000 to 2.714 million.
The U.S. Dollar Index decreased -0.09% to 94.18. Friday’s non-farm payrolls data is expected to show continued improvement in the labour market, with a forecast for 455,000 jobs added in September.
US 10-year Treasury Bond yield rose 5 basis points to 1.58%. 2-yr yield rose 2 basis points to 0.32%.
S&P 500 rose +0.83%, the Dow Jones Industrial Average (+0.98%), Nasdaq (+0.88%), and Russell 2000 (+1.6%) outperformed the benchmark index.
The Dow Jones Transportation Average (-0.3%) was an area of relative weakness amid concerns that rising fuel costs could eat into profits. WTI crude futures rose +1.1%, or $0.81, to $78.31/bbl following news that the Department of Energy doesn’t plan to tap into oil reserves, contrary to prior reporting.
Pfizer (PFE 42.74, +0.72, +1.7%) was another positive influence after announcing it submitted a request to the FDA for emergency use authorization for its COVID-19 vaccine in children 5–11.

HEADLINES & MARKET IMPACT

U.S. Senate approves temporary lift to debt ceiling, averting default

Notable Snippet: The U.S. Senate on Thursday approved legislation to temporarily raise the federal government’s $28.4 trillion debt limit and avoid the risk of a historic default later this month, but it put off until early December a decision on a longer-lasting remedy.

The Senate voted 50–48 to pass the bill following weeks of partisan fighting.

The $480 billion increase, which would lift the debt limit to $28.9 trillion debt limit, is expected to be exhausted by Dec. 3, the same day that funding for most federal programs expires under a stop-gap measure passed earlier this month following another partisan standoff.

THEMATIC CONTEXT: “ When push comes to shove, the Democrats and Biden will do what they must and see it through. From that vantage point, we are pretty certain the debt ceiling will be raised and don’t view this saga as a key risk event.” — 8th Oct 2021

COMMENTS/IMPACT: Like clockwork, the debt ceiling is lifted and “disaster” is averted. As mentioned, this is a non-event and focus will now shift back to Biden’s fiscal policy and inflation trajectory.

Dash for gas sparks oil switch, pushes more suppliers to brink

Notable Snippet: Natural gas prices, particularly in Europe, have rocketed this year due to lower-than-usual stocks, reduced supply from Russia, the onset of colder temperatures and infrastructure outages.

The inexorable rise prompted some analysts to forecast a boost to global crude demand of several hundred thousand barrels per day (bpd), squeezing already tight supply, as countries switch to oil to generate power over the winter.

Record high energy prices in Britain and in Spain have already caused some industrial companies, such as steelmakers and fertiliser plants, to curtail production and even led to warnings of food shortages this winter.

THEMATIC CONTEXT: “Each time an organization or a country makes claims such as “It will consign the internal combustion engine to history.”, the more bullish we get for traditional energy as it shows how tight the funding situation for new exploration will be (back-end oil futures curve is not registering this yet, hence the energy game is still early for energy equities). The transition to green energy is great, but no one talks about the “cost of transition” because it will first entail very high energy prices (due to lack of funding), this combined with massive requirements for new infrastructure and materials demand will cause inflation to remain high on an absolute basis for a good period of time. We remain well positioned for this outcome.” — 15th July 2021

COMMENTS/IMPACT: We have been heavily positioned in energy and warning about this acute problem since 2020, it seems that things are playing out as projected. Hold on to your hats as traditional energy will be back in vogue.

‘Containergeddon’: Supply crisis drives Walmart and rivals to hire their own ships

Notable Snippet: More than 60 container ships carrying clothing, furniture and electronics worth billions of dollars are stuck outside Los Angeles and Long Beach terminals, waiting to unload, according to the Marine Exchange of Southern California.

Pre-pandemic, it was unusual for more than one ship to be in the waiting lane at the №1 U.S. port complex, which handles more than half of all American imports.

Other big retail players, such as Target (TGT.N), Home Depot (HD.N), Costco (COST.O) and Dollar Tree (DLTR.O), have said they are chartering ships to deal with the pandemic-driven slowdown of sea networks that handle 90% of the world’s trade.

THEMATIC CONTEXT: “As we move into an increasingly multi-polar world, the reshoring of supply chains, logistics and manufacturing will be mega projects governments around the world will be working on and this will be funded by unlimited fiscal spending. In addition, domestic costs tend to be more expensive, feeding into our trajectory of high and sustained inflation in time to come.” — 3rd May 2021

COMMENTS/IMPACT: We suspect that companies with their own vertically integrated supply chains will have a strong moat in a world that is increasingly de-globalized. The value of Infrastructure and Supply Chains will carry a premium for valuations in time.