The Wolf Den #103 - Will A Biden Victory Crash The Stock Market?
thewolfden.substack.com
This newsletter is sponsored by PHEMEX, the only exchange that I use to trade crypto with leverage. Sign up with the link above and get some free Bitcoin. I really encourage you to check them out - you know that I never endorse a product that I do not use!Note: I have moved the charts back to the top of the newsletter. I have had a number of complaints about them being at the bottom and gmail truncating the emails. You can always click the link gmail provides to read the entire email.You have probably heard by now that “a Biden victory in the election will crash the stock market.”But is this a substantiated claim or just a fear tactic?The best way to answer this is to start with history to determine the potential of a historical trend.Barrack Obama (D) was elected after George W. Bush’s (R) two-term presidency. Prior to Obama’s election, the market began a recession and did not return to a new ATH for 5 years.The market was already in a recession for over a year before Obama was elected as president. Regardless of whether the market forecasted a party change and began to price in an expected new party, the S&P had been in an uptrend for almost 5 years before that.The final years of Obama’s second term saw strong market strength with the S&P gaining over 50% from when Obama first took his presidency. Going further back, on the flip side, as George W. Bush (R) was taking office in January 2001, the S&P saw an almost 50% recession. This was an opposite party reversal meaning now a Republican was taking over after 8 years of a Democrat President, Bill Clinton. There are countless examples of both political parties retaking office and the market reacting with strength, but is it correlation or causation?Neither Bush, nor Obama are perfect examples of the market reacting solely to an election because the timing isn't perfect - there are other factors that make the election's effect unclear. However, it is a strong example of party changes coinciding with a downturn over the last 30 years. It is also worth noting that at these times, Obama was inheriting 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 really was a market secret that a Democrat being elected after a Republican “crashes the market,” everyone would know and we would all be rich or it wouldn't work anymore. The truth is, with a party change comes both political and economic uncertainty, and during these times investors/traders are more likely to move money based on the present narrative. These heightened emotions lead to strength in selling or buying at particular levels, causing timed market swings.Markets hate uncertainty.In this election, a couple of factors are at play that investors and traders should observe. First of all, the market has seen staggering highs. What goes up, must come down, although timing the top is a fool's errand. A party change could lead to a negative reaction in the markets, but we have yet to see evidence of this. The margin of victory could also impact how the market reacts. A landslide Biden win would probably be met with faith in the markets and a lack of panic selling. On the other hand, a close Biden win with Trump citing fraud in the election could lead to bearish price movement in the short term.On top of these factors, we have a number of narratives- COVID, excessive money printing, and a housing bubble that continues to grow. Investors and traders should look to these narratives and gauge the strength/weakness they display moving into the election and immediately post-election. It isn't yet clear if any of today's narratives together or separately hold equivalent weight to the '08 recession or the Iraq Invasion.One final point is that looking back, 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 strong years of market growth. I lean towards viewing the March drop as a bull market correction, and not as a full blown recession.With all of this in mind, NOBODY REALLY KNOWS. What we do know is that the market has strong momentum. Turning the trend around may take a number of catalysts, including political turmoil, a contentious transition, a housing crisis, and widespread economic fear. A new party in charge may be the perfect tipping point to prove the fragility of our current state or it may be something that does not matter at all.IMPORTANT UPDATE, PLEASE READ!To add value for you guys, I have decided to try livestreaming your chart requests! As you know, I accept requests on Wednesdays from 8 AM to 1 PM EST - you can reply to this email with requests. I take one request per person, per week. We did this last week and it was very well received! I think this offers far more insight into how I view a chart and the market.HERE IS THE YOUTUBE LINK FOR TOMORROW!https://youtu.be/IyYG9iPVNOYIn This Issue:Bitcoin Thoughts And AnalysisIntoTheBlock: Current State of BitcoinAltcoin ChartsTrade Management Case Study - YFIIGold Standard 101Facebook’s Libra Token Faces More Red TapeReal Vision CEO’s Bold Bitcoin PredictionGoldman Says "Short The Dollar"Podcast With KoroushAKThe Wolf Of All Streets Podcast Ft. John WuMy Recommended Platforms And Tools
The Wolf Den #103 - Will A Biden Victory Crash The Stock Market?
The Wolf Den #103 - Will A Biden Victory…
The Wolf Den #103 - Will A Biden Victory Crash The Stock Market?
This newsletter is sponsored by PHEMEX, the only exchange that I use to trade crypto with leverage. Sign up with the link above and get some free Bitcoin. I really encourage you to check them out - you know that I never endorse a product that I do not use!Note: I have moved the charts back to the top of the newsletter. I have had a number of complaints about them being at the bottom and gmail truncating the emails. You can always click the link gmail provides to read the entire email.You have probably heard by now that “a Biden victory in the election will crash the stock market.”But is this a substantiated claim or just a fear tactic?The best way to answer this is to start with history to determine the potential of a historical trend.Barrack Obama (D) was elected after George W. Bush’s (R) two-term presidency. Prior to Obama’s election, the market began a recession and did not return to a new ATH for 5 years.The market was already in a recession for over a year before Obama was elected as president. Regardless of whether the market forecasted a party change and began to price in an expected new party, the S&P had been in an uptrend for almost 5 years before that.The final years of Obama’s second term saw strong market strength with the S&P gaining over 50% from when Obama first took his presidency. Going further back, on the flip side, as George W. Bush (R) was taking office in January 2001, the S&P saw an almost 50% recession. This was an opposite party reversal meaning now a Republican was taking over after 8 years of a Democrat President, Bill Clinton. There are countless examples of both political parties retaking office and the market reacting with strength, but is it correlation or causation?Neither Bush, nor Obama are perfect examples of the market reacting solely to an election because the timing isn't perfect - there are other factors that make the election's effect unclear. However, it is a strong example of party changes coinciding with a downturn over the last 30 years. It is also worth noting that at these times, Obama was inheriting 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 really was a market secret that a Democrat being elected after a Republican “crashes the market,” everyone would know and we would all be rich or it wouldn't work anymore. The truth is, with a party change comes both political and economic uncertainty, and during these times investors/traders are more likely to move money based on the present narrative. These heightened emotions lead to strength in selling or buying at particular levels, causing timed market swings.Markets hate uncertainty.In this election, a couple of factors are at play that investors and traders should observe. First of all, the market has seen staggering highs. What goes up, must come down, although timing the top is a fool's errand. A party change could lead to a negative reaction in the markets, but we have yet to see evidence of this. The margin of victory could also impact how the market reacts. A landslide Biden win would probably be met with faith in the markets and a lack of panic selling. On the other hand, a close Biden win with Trump citing fraud in the election could lead to bearish price movement in the short term.On top of these factors, we have a number of narratives- COVID, excessive money printing, and a housing bubble that continues to grow. Investors and traders should look to these narratives and gauge the strength/weakness they display moving into the election and immediately post-election. It isn't yet clear if any of today's narratives together or separately hold equivalent weight to the '08 recession or the Iraq Invasion.One final point is that looking back, 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 strong years of market growth. I lean towards viewing the March drop as a bull market correction, and not as a full blown recession.With all of this in mind, NOBODY REALLY KNOWS. What we do know is that the market has strong momentum. Turning the trend around may take a number of catalysts, including political turmoil, a contentious transition, a housing crisis, and widespread economic fear. A new party in charge may be the perfect tipping point to prove the fragility of our current state or it may be something that does not matter at all.IMPORTANT UPDATE, PLEASE READ!To add value for you guys, I have decided to try livestreaming your chart requests! As you know, I accept requests on Wednesdays from 8 AM to 1 PM EST - you can reply to this email with requests. I take one request per person, per week. We did this last week and it was very well received! I think this offers far more insight into how I view a chart and the market.HERE IS THE YOUTUBE LINK FOR TOMORROW!https://youtu.be/IyYG9iPVNOYIn This Issue:Bitcoin Thoughts And AnalysisIntoTheBlock: Current State of BitcoinAltcoin ChartsTrade Management Case Study - YFIIGold Standard 101Facebook’s Libra Token Faces More Red TapeReal Vision CEO’s Bold Bitcoin PredictionGoldman Says "Short The Dollar"Podcast With KoroushAKThe Wolf Of All Streets Podcast Ft. John WuMy Recommended Platforms And Tools