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The Wolf Den #615 - Elections And Markets

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November 7 · Issue #615 · View online
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In This Issue:
  1. Elections And Markets
  2. Bitcoin Thoughts And Analysis
  3. Legacy Markets
  4. Google Steps Up Crypto Commitment
  5. FTX Vs. Binance
  6. Lebanese People Turn To Crypto
  7. My Recommended Platforms And Tools
Elections And Markets
We assume that elections play a significant role in market cycles, but is there actually a method to the madness or is it random? 
Midterm elections in the U.S. are tomorrow. This is being viewed as one of the most important elections ever (always seemingly the case) and should offer a glimpse into the direction that our country is headed.
Will a party flip mean anything for markets? Or is falsely attributing politics to markets an age-old mistake that we just keep making? 
Let’s dig in.
You have probably heard by now that “a Democratic win will crash the market.”
Is this a substantiated claim or simply a false assumption or fear tactic?
Let’s take a look at history.
First of all, the notion that markets perform better or worse under any specific party is simply false. As you can see in the picture above and the article below, it’s completely mixed in the first 1000 days. The best performing markets since the 80s were during the 2 Democratic Presidencies. I am not saying you attribute those markets to the Presidents, but you certainly cannot draw the opposing conclusion.
From Reagan to Trump: Here's how stocks performed under each president
The market was already a year into a recession when Obama (Democrat) took office, after 8 years of George W. Bush (Republican). The S&P had been in an uptrend for almost 5 years before the scales tipped a year ahead of Obama. It is hard to attribute this to party change, considering Obama inherited a downtrend.
The final years of Obama’s second term saw strong market strength with the S&P gaining over 50% from when he first took office. Solid performance coming out the recession.
George W. Bush took office in January 2001, and the S&P saw a quick drop of roughly 50%. This was an opposite party reversal. A Republican was taking over after 8 years of a Democrat President, Bill Clinton, a time when markets performed generally well. There are countless examples of both political parties retaking office and the market reacting violently, but is it correlation or causation?
Neither Bush or Obama are clear examples of the market’s reaction to an election. The timing makes it too difficult to tell - there are other factors that make the election’s effect unclear. However, both are strong examples of party change coinciding with a market downturn over the last 30 years.
It is also worth noting that Obama inherited an extremely inflated housing market and Bush was gearing up for war, both strong forces on the market.
What the past 30 years have shown us is that, when the market is either oversold or overbought, a party change is often a catalyst to steer the market back to equilibrium. 
Mean reversion.
If there was truth to the assumption that a Democrat elected after a Republican “crashes the market,” everyone would know and we would all be rich. And Clinton and Obama would have had a far rougher 1000 first days.
It’s probably far more simple. With party change comes both political and economic uncertainty, and during these times investors and traders are more likely to move money based on the prevailing narratives. These heightened emotions lead to strength in selling or buying at particular levels, causing major market swings.
Markets hate uncertainty
It is important to note that Biden will remain president. This is a midterm election, so we are looking at a potential swing in the House and Senate. We have plenty of data as to what happens after midterm elections, even in tightening cycles and I have referenced the below article countless times.
Spoiler - markets usually go up.
U.S. Stocks Historically Deliver Strong Gains in Fed Hike Cycles
But all situations are not the same. In this election, a couple of factors are at play that investors and traders should observe.
The market has seen staggering highs, and what went up had to come down. It is hard to attribute much to the election when the bear market is already in full swing.
The margin of victory could also impact how the market reacts. A landslide Republican win would probably be met with market confidence and a lack of panic selling. On the other hand, a close Democrat win with inevitable widespread accusations of election fraud could lead to bearish price movement in the short term.
There are countless outcomes.
We have other, more impactful, narratives - rumors of WW3, supply chain issues, inflation, Fed tightening and more. It isn’t yet clear if any of today’s narratives hold equivalent weight to the ‘08 recession or Iraq Invasion, but we may find out soon enough.
An additional data point: recessions are becoming more and more spaced out. If this is a real trend, and COVID just caused our last recession, we may have another 5 years of strong markets to come and this could be a simple correction.
With all of this in mind, NOBODY REALLY KNOWS what will happen.
It will be interesting to observe, but I doubt that we will be able to draw meaningful conclusions from the election over the long term.
Bitcoin Thoughts And Analysis
DAILY CHART
I know everyone wants a mind blowing update but… Bitcoin remains sideways. Nothing has changed here.
Legacy Markets
Stock Market Today: Dow, S&P Live Updates for Nov. 7, 2022 - Bloomberg
“U.S. equity-index futures rose and most Treasuries advanced as some investors bet a period of disinflation has already begun and the midterm election results will be favorable to markets.
Contracts on the S&P 500 and Nasdaq 100 indexes added at least 0.4% each. The 10-year Treasury yield slid for the first time in four days, while the two-year rate rose. The dollar traded lower. Facebook parent Meta Platforms Inc. advanced in New York premarket trading on plans for job cuts.
Monday’s appetite for risk may signal a temporary win for bulls even as sentiment remains fragile ahead of US midterm elections and inflation report. JPMorgan Chase & Co. strategists said a potential peak in bond yields and “very downbeat” sentiment may support stocks. Investors can look forward to positive catalysts from the elections, Morgan Stanley said.
The bout of optimism outweighs, for the moment, the Federal Reserve’s resolute campaign against price surges, signs of stress in US corporate performance and China’s announcement it will “unswervingly” adhere to current Covid Zero policy. 
Markets will watch the latest US inflation reading on Thursday after the core consumer price index rose more than forecast to a 40-year high in September. Even if prices begin to moderate, the CPI is far above the Fed’s comfort zone.
Key events this week:
  • Fed officials Susan Collins, Loretta Mester and Tom Barkin speak at events, Monday
  • Euro zone retail sales, Tuesday
  • US midterm elections, Tuesday
  • EIA oil inventory report, Wednesday
  • China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday
  • US wholesale inventories, MBA mortgage applications, Wednesday
  • Fed officials John Williams, Tom Barkin speak at events, Wednesday
  • US CPI, US initial jobless claims, Thursday
  • Fed officials Lorie Logan, Esther George, Loretta Mester speak at events, Thursday
  • US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
  • Futures on the S&P 500 rose 0.5% as of 7:28 a.m. New York time
  • Futures on the Nasdaq 100 rose 0.4%
  • Futures on the Dow Jones Industrial Average rose 0.5%
  • The Stoxx Europe 600 rose 0.6%
  • The MSCI World index rose 0.5%
Currencies
  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.1% to $0.9969
  • The British pound rose 0.5% to $1.1431
  • The Japanese yen was little changed at 146.70 per dollar
Cryptocurrencies
  • Bitcoin fell 2% to $20,713.24
  • Ether fell 1.6% to $1,577.89
Bonds
  • The yield on 10-year Treasuries declined four basis points to 4.12%
  • Germany’s 10-year yield declined two basis points to 2.27%
  • Britain’s 10-year yield was little changed at 3.53%
Commodities
  • West Texas Intermediate crude fell 0.9% to $91.74 a barrel
  • Gold futures rose 0.1% to $1,678.30 an ounce”
Google Steps Up Crypto Commitment
Google Signals Major Crypto Push With Ethereum, Solana Support
Google Cloud is making serious moves to support Web3 infrastructure, most notably on Ethereum and Solana.
“Web3 companies who require dedicated nodes can relay transactions, deploy smart contracts, and read or write blockchain data with the reliability, performance, and security they expect from Google Cloud compute and network infrastructure,” Google Cloud executives Amit Zavery and James Tromans said in a statement.
The biggest tech companies in the world are slowly adopting blockchain and showing a commitment to the technology into the distant future.
Price may not be up, but adoption certainly is.
FTX Vs. Binance
Binance to liquidate its entire FTX Token holdings after ‘recent revelations’
There’s a clash of crypto titans playing out in real time, which benefits practically nobody.
Here’s the quick TLDR. CZ and SBF have had a contentious relationship for months, taking jabs at one another on twitter and likely behind closed doors.
A recent article implied that there were blurred lines between Alameda Research and FTX, SBF’s two companies. Basically Alameda’s core holding is FTT token, the native token of FTX exchange. After questions about the balance sheet arose, a huge tranche of FTT was moved to Binance - over half of a billion dollars worth. This set speculators on fire, looking for reasons. CZ confirmed that these tokens belonged to Binance and that they intend to sell them all over the next few months.
Here is CZ’s tweet thread.
CZ 🔶 Binance
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
SBF took about a day to respond, and did so in a mature and even manner.
SBF
1) A competitor is trying to go after us with false rumors.

FTX is fine. Assets are fine.

Details:
The summary: Alameda and FTX are seemingly fine, with plenty of assets on the balance sheet. FTX apparently lobbied against Binance’s interests with the US government, CZ does not want to support a company that did that and is exiting his position.
It could be deeper, but that’s what we have on the surface.
I am sure this will develop further.
What a soap opera.
Lebanese People Turn To Crypto
Financial Crisis: Lebanese Economy Forces Residents Toward Crypto – Future of Money?
This story is a humble reminder of why we are really here. It’s hard for citizens of the United States and Eurozone to imagine a world where you have no access to your own money or where hyperinflation is making your cash trash.
But in places like Lebanon, crypto is literally saving lives.
Kevin O'Leary & Ben Samaroo: How To Bring A Billion People Into Crypto
Podcast - The Wolf of All Streets
Panel: How To Bring A Billion People Into Crypto
Kevin O'Leary aka Mr. Wonderful and Ben Samaroo, founder and CEO of WonderFi, discuss what will drive the mass adoption of crypto and when grandmothers will be gifting Bitcoins instead of socks for Christmas. The panel was recorded at the W3BX conference in Las Vegas.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to “Buy,” “Sell,” or “Hold” an investment.
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