Whitney Tilson’s email to investors discussing the odds on our next president; investors start to ask: what if Biden becomes president?; the hottest hedge-fund strategy faces an existential crisis; testing delays.
Odds On Our Next President
1) With the presidential election less than four months away, I'm going to start covering its investment implications – while remaining non-political!
Seth Klarman: Investors Can No Longer Rely On Mean Reversion
"For most of the last century," Seth Klarman noted in his second-quarter letter to Baupost's investors, "a reasonable approach to assessing a company's future prospects was to expect mean reversion." He went on to explain that fluctuations in business performance were largely cyclical, and investors could profit from this buying low and selling high. Also Read More
I've found betting site PredictIt to be a useful – and accurate – tool. It allows anyone to bet up to $800 each on hundreds of possibilities. They're mostly political... but also include things like, "Will 2020 be the hottest year on record per NASA?"
Here's what PredictIt says today about the upcoming election:
- Joe Biden is 93% likely to be the Democratic nominee and 61% likely to be our next President
- Donald Trump is 91% likely to be the Republican nominee and 41% likely to be our next President
- Democrats are 62% likely to retain control of the House and win control of the Senate
(If you disagree with any of these numbers, don't e-mail me to argue – just set up an account at PredictIt and do what I've done: put your money where your mouth is. In the past few months, I've made 13 bets totaling $6,250 and am up nearly $2,000...)
Here's the latest summary of the polling data from FiveThirtyEight: Biden's Polling Lead Is Big – And Steady.
Investors Start To Ask: What If Biden Becomes President?
2) In light of these odds, investors are starting to think about the implications of a Biden presidency, as this article in yesterday's New York Times notes: Investors Start to Ask: What if Biden Becomes President? As you might expect, there's no consensus... Excerpt:
After months of fixating on the pandemic, Wall Street has something new to worry about: a possible Biden presidency.
With the latest polls suggesting that former Vice President Joseph R. Biden Jr. has built a commanding lead over President Trump in the 2020 race, investors have begun to take into account that the not-too-distant future could look very different from the business-friendly thrust of the current administration. And it's making some nervous.
"A Biden presidency would result in less trade tension with China, which would be a welcome relief for equity investors," economists at BCA Research wrote. They also noted that corporate tax increases could finance government spending that would stimulate the economy, a potential plus when the post-pandemic recovery looks slow and long.
The Finance 202
3) Historically, stocks have done well after a Democratic sweep of the presidency and Congress, as the Washington Post notes: The Finance 202: Liberals wonder what Joe Biden's new deal really is.
The Hottest Hedge-Fund Strategy Faces an Existential Crisis
4) Since the generational market bottom in March 2009, it's been a brutal decade for short-sellers. (I can show you the scars on my back!)
The handful of brave (stubborn?) souls who remained made a lot of money when the markets crashed from late February and late March... but then, just as quickly, the market rallied and the pain resumed.
Not surprisingly, therefore, long-short hedge funds are doing poorly this year and continue to suffer significant redemptions, as this Bloomberg article highlights: The Hottest Hedge-Fund Strategy Faces an Existential Crisis. Excerpt:
The world's most popular hedge-fund strategy is no longer working.
Lansdowne Partners this week shuttered the long-short equity fund that made it famous, raising fears about the future of peers who make money by betting on winning stocks and shorting losers. Sloane Robinson also called it a day after more than 25 years of buying and selling equities.
Needless to say, I couldn't be happier that I'm out of that business!
COVID-19 Testing Delays
I have the same issue on testing. Went to CityMD last Tuesday and they said 3-5 days to get results. Then they changed that to 5-7 days and now it's 7+ days. So 8 days later I'm still waiting. Kind of makes the whole point of getting tests meaningless with delays like that...