Weekly PROPHET NOTES 8/12/24
Global Outlook: Trump in trouble, the culmination of the honeymoon and rising global tensions
Another week and another global outlook. Time flies so fast when there is so much happening around the world. And this time we were up to a lot of surprises, from US elections to Ukraine war. In this outlook we will look a bit deeper into Kamala and Trump, Ukraine war and Great Britain and do a brief on the Middle East as the awaited deep dive on the region is coming soon.
Weekly Recap
Surprising every moderate and Republican, Kamala Harris has chosen Tim Walz to be her running mate. This is something that goes against conventional wisdom, political theory, strategic outlook, you name it. As mentioned in my deep dive, we already see him being torched on:
BLM riots
Leftist platform
COVID handling
Stolen valor (something I did not even try to look for as the above three were enough reasons for me not to pick him)
Besides the above, the guy has some benefits: visual appeal and good public speaking, but this is not something that will tip the scales. I believe that this choice shows us a lot about Kamala that we did not have a chance the see before.
We can all agree that Shapiro was a strategically better pick. But he also has strong personality, apparently too strong for Kamala to handle. She caved to the anti-Jewish pressure and showed us that she is risk averse. Definitely a weak spot to be exploited, both her character and Tim Walz himself.
Switching to Trump, he had another bad week for himself. He managed to regain some media attention through criticism of Democratic VP pick and he did a press conference that shed some light on his current thinking. But at the same time the press conference was rather grim. He essentially admitted that his strategy did not change with Kamala on top of the ticket. He presented a grim platform, essentially betting on global situation deteriorating to win presidency. I know Trump is a gambling man, but this is a big gamble. He needs a better strategy and current Polymarket odds show it.
Leaving US politics behind, we had a war focus this week with both Ukraine and Middle East in headlines. Ukrainians entered into Russia while we still have the old drama in the Middle East. My piece this week will focus deeply on the Middle East and I will present my views on Ukraine advancements below.
I am still due the last week’s article on Middle East so I will not promise you a new piece this week, but I will not deny it will not happen. Depending on my timing I will try to indulge you this week with another deep dive.
Focusing on the wider world, the UK went beyond itself, treating 1984 as instruction manual rather than a warning. Now if you post a stingy meme and live in the UK you can face prison time. But jokes aside, I am against inciting violence, but at the same time I believe that you can say whatever you want. This is a bad development for the UK and another step forward for Europe in pursuit of denial of freedom. Bearish on the region.
Before we move to the global outlook, a brief on financial world. After the panic on Monday the markets seemed to regain their strength, but if we are to believe bond market as well as some of the analysis, we are far from done yet. 50 bps cut is still priced in, which indicates some sort of panic.
Global Outlook this week
With both wars back in the spotlight as well as the upcoming DNC we have an interesting week ahead. Previous week was not kind form me in terms of prediction markets (Dem VP pick), but the underlying analysis was good as shown by main attack angels on Tim Waltz. Proper validation that humans may make erratic decisions, but the mental model is spot on.
US Elections
I have already shown Polymarket odds for presidency, but let’s just have them here head to head for the argument’s sake.
Kamala is ripping. Straight and simple, the widespread marketing campaign, MSM support and concerts on the rallies are working. For now. Trump did not adjust his campaign and he reaps what he saw. For now she does not need a platform.
I expect the current situation to stabilize and continue up until the DNC. Only a week left till the big event so considering Trump’s latest comments we will see the usual low importance drama from our favorite political influencers on X. Nothing more to report here, maybe this time we will have a peaceful week election-wise.
Ending on the US Elections, I remained stable on any other trades. With relative silence market-wise up until the next debate, I am looking to rotate towards Middle Eastern markets in the near future, where I expect more action.
And that’s a wrap on US Elections this week.
Middle East
Iran is teasing Israel like they are back in high school doing cheap pick-up routine. I still have my position on the attack by August 12 (today) and I see a small chance of that happening. As I said last time, these timing predictions are more of an art than science and I will not hit them all.
I still expect the attack to happen. All the reports we see about ceasefire, etc. are all aiming to show us, the unaware public, the massive diplomatic effort by the US to stop the escalation. But as you will see in my long awaited Middle East deep dive, I kind of think that the US is the only country that actually wants it.
All I see in the region points to further escalation. You can expect to see more surface-level drama around the awaited attack and continued strikes by Hezbollah. More to come soon.
Ukraine-Russia war
We are still awaiting the first F-16 down, but Ukrainians surprised us with an unexpected attack into Russia, specifically Kursk oblast. Western media touted it as a massive victory and I agree on a surface. Russians kind of humiliated themselves, we are witnessing Prigozhin situation all over again.
But I thought about it long and I fail to see the strategic advantage it gives. Ukrainians lack the personnel, logistics and supplies to sustain this line of front. Sooner or later they will back down and return to usual positions, or worse, die in the process. Simple fact is, if the situation in Russia would turn sour for Russians, they will force Belarus to launch an attack on Kiev and Ukrainian army would need to redirect its forces there.
Seems like the whole operation is more of a marketing stunt than a real strategic victory.
On other fronts situation in Ukraine is quite stable. As we are nearing middle of August one should start to think what will happen to Ukraine in the winter with majority of energy infrastructure in shambles. I will do an article on this in the near future. Overall as we are nearing both winter and US elections we may start to see more developments in the region as both situations have major impact on further strategy and possible peace talks.
For now though we can expect to see more of the same - touting Ukraine for penetrating into the Kursk oblast without much thought on further strategic impact of this decision.
Europe
First time I have something interesting to write about Europe. The small island at the north west of the continent is now putting people in prison for social media posts. Sounds absurd, especially for Americans, but this is where we are. While I do not condone inciting violence, this is a bit to much and opens doors to further crackdown on speech.
Especially concerning is the fact that the UK got the current situation entirely out of its own fault. Importing uneducated migrants en masse induces discontent in the society. Who would have thought…
Anyway, I am not following the situation that closely as I am not really a fan of watching violent videos of riots. No short term outlook here, but the long term outlook looks gloomy for the UK and Europe as a whole. We can expect more regulations, more censorship and more taxes. Unless we have a big shift in social sentiment, Europe will drive itself into irrelevance, making room for rising Asian countries.
Asia
Due to lack of sufficient time, I don’t really cover Asia in depth now as there are no markets to take position on besides North Korean nuke (doubtful) and Taiwan invasion in 2024 (doubtful as well).
Let me know if you are interested in Asia to cover it in the future in more detail.
LatAm
Similarly to the above, the region isn’t really interesting from global events perspective. We have some Venezuelan mess right now, but it seems that Maduro’s grip on power is strong
As above, let me know if you would like to see LatAm coverage in more detail.
Finance
After last week’s Monday bloodbath markets remained quite stable. Some say that the reverse carry trade is mostly unwound (JP Morgan) wile others are still expecting that more will happen (Chamath Palihapitiya) and that we will see a credit event (Michael Gayed).
I do not watch markets that closely, but if I were to scrutinize something, I would look at:
Junk bonds (suspect a lot of carry trade may have been put there)
Private credit (I have done a few deals with such funds recently and while they often have deep understanding of the industry they invest in, the risk profile of these transactions is high, very high)
Consumer: especially credit card debt, auto debt and buy now pay later outstanding debt. While markets can rip on liquidity injections form central banks, consumer is getting more and more squeezed. I would not be surprised if we start to see cracks in the near future.
In crypto markets we have some relative stability after last Monday with Bitcoin swinging around 60k USD and other crypto mostly slightly down.
Overall situation remains uncertain. Traders still price in 50bps cut next Fed meeting, which is a bit curious. I will not LARP as a macro expert here, but all the above tells me that we may see some more volatility in the near future. At the same time Polymarket odds of cuts look like this:
Wrap up
That’s all for the coming week. Apologies for somewhat late posting and a bit shorter article - I am swamped since last week, but soon most of the stuff will resolve and I will have more time to focus on the newsletter. As always, your feedback on content is appreciated. Next on schedule is analysis on the Middle East so remember to subscribe.
This is not official investment or life advice. Do your own research. This are only my opinions and I encourage anyone to do their own research before putting any money anywhere.