Weekly PROPHET NOTES 8/5/24
Global outlook: Kamala pushing forward, Middle East on the edge and turmoils in the financial world
Welcome to the second edition of the PROPHET NOTES. I have genuine fun writing these pieces and summing up our messed up world to you - with all the noise around us, especially on X, I believe some concise clarity is needed. Also thanks for some encouraging messages I received after the first piece - it’s really validating and motivates me to share my thoughts with you.
Weekly Recap
As expected, we had a busy week with focus mostly on US elections (this is expected with gradually increased intensity up until November) and the Middle East.
Kamala Harris is now a certain nominee, just waiting for the official approval with enough delegates already having voted for her in the virtual roll call. Focus is now on the VP pick and all signs there point for Shapiro. I hold Yes position on him and I am looking forward to the validation of my first deep dive.
Besides messy US politics, this week’s focus was put back into the Middle East. After Israeli killing spree across the region, including killing of the Head of Hamas Political Bureau in Teheran. Obviously Iran got really mad about this and whole world is now awaiting its retaliation, expecting similar show of force as in April. I hold Yes on retaliation by August 12 and by the end of weekend, which should resolve before publication of this outlook. Additionally, there are some reports that Russia is arming Iran, helping it prepare for the retaliation.
Looking at the increasing wider escalation risks in the Middle East, the next deep dive will be on the regional developments there. Focus will be on Israel-US relations, the next target of the Israeli war machine and Iran as both enabler and escalatory force. A tough piece, but in my opinion especially important in current times as any conflict in the Middle East will have global implications. Remember to subscribe to get the analysis as soon as it is published.
Focusing on the wider world, we have a wave of violent protest in the UK after Rwandan-British man stabbed to death three young girls and wounded 10 other people. Several crashes between anti-immigration and pro-immigration groups happened across whole country.
Before we move to the global outlook, a brief on financial world. Panic appeared on Friday with all US indices and crypto in red after disappointing jobs report and increasing pressure on the JPY - to understand wider risks I encourage you to watch
analysis on the topic.Global Outlook this week
We are not slowing down this summer. We have a lot of ground to cover today, so let’s jump straight into it.
US Elections
We have now all, but official confirmation for Kamala’s nomination so let’s start with most recent Polymarket odds to set the tone for the outlook.
Kamala’s honeymoon continues, thanks to party unity, creative marketing campaign and continued interest in her VP pick. This week we can expect her choice to become known - smart money is on Shapiro / Walz with Shapiro in clear lead (expected). I hold some Yes on Shapiro with hedged downside.
Despite the noise on her VP pick, my baseline for Kamala remains unchanged. We are starting to see her speak more and more and this is not her strong side. Even some old videos that resurfaced were able to make some waves on social media. My take is that the honeymoon phase is coming to an end and the 43-45 odds range we are seeing for Kamala are her short-term top.
With that we should be seeing more comms around the debate that should conclude with both candidates agreeing to some kind of compromise in terms of networks that should host them. Do not mistake the current drama with chance that debate won’t happen. Trump needs it to change momentum and Kamala needs it to silence the critics that (as me) see her as subpar public speaker and debater. Markets moved a bit on current discussion presenting a nice buying opportunity for anyone who shares my thinking:
Coming around to Trump, after 2 weeks of relative silence, I expect him to start engaging again and work on rebuilding his momentum. With current news cycle (hot swap, VP pick, etc.) coming to an end and Olympics drama nearing the finish line, there is a need for new event to fire up respective voter bases - we should expect some new talking points from team Trump right after Democratic VP announcement. Side note on Monday morning: bloodbath on the financial markets is certainly a good thing for Trump and he already started to push market crash narrative.
Last addition - JD Vance drama is expectedly dying out. As you saw on the previous deep dive, VP picks are mostly inconsequential. You can still buy dollars for 91c on Polymarket.
Ending on the US Elections, besides adding on VP picks, 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. One more addition - RFK Jr. is looking to capitalize on debate drama, trying to enter Fox News debate. I would actually really like to see him debate both candidates and see if it can impact elections in any way.
Middle East
Here we are up to some heat. I want to cover Middle East in the upcoming deep dive so I will brief here with more details incoming Wednesday / Thursday. Anyway, I do not think I need to present the situation to anyone, but to set the tone here are a couple of bullet points:
Israel went on an international killing spree in Beirut, Damascus and Teheran (sic!) killing some high profile persons,
Iran got obviously mad and is seeking revenge.
A story in two sentences, but how dramatic. The whole world is awaiting missile barrage on Israel that could come any minute. At the time of writing there is no attack yet, but I hold some Yes on attack by Sunday as well as more Yes on attack by 12th of August. The waiting game here is mostly related to backdoor conversations between Iran and US as US wants to avoid major escalation before the elections.
Pinpointing the exact timing of the attacks is more art than science. Some of you may go to numerology type of exercise (after all October 7th and April 13th are numerological 8), others prefer stock market approach - no attack happens during trading week to prevent large moves. I personally concede this game - I may try to get some outliers being quasi-hedged by long term date, but I am not going with size into any of these markets. Main takeaway here is that they will not wait for long, last time it took 12 days and this time I expect nothing more.
Two cents on the outcome of this - I expect the attack to be more massive than the previous one, maybe with some minor infrastructure damage, but with minimal to none life loss.
Ukraine-Russia war
This week once again I do not expect much to happen on the Ukrainian front. When writing that sentence I got reminded of the few F-16s that Ukraine has received. I suppose now that the next big news will be downing of the first F-16. It must happen - planes are just planes and sooner or later they will be hit.
Probably it will be touted as major Russian victory, but remember - it is just a plane. So for now, no news on the Ukrainian front, at least nothing worth reporting.
Europe
Oh boy, Europe can really make a mess sometimes. First with the Olympics and now with protests in the UK. Largely inconsequential though. Bureaucracy and regulations are making Europe uncompetitive and thus, besides Ukraine war, nothing is happening there. Global news cycle is dominated by wars and US politics. And Europe is becoming irrelevant…
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).
Financial markets are bleeding though, more on that in Finance section…
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
OMG I needed to rewrite this whole part this AM. We have a bloodbath in Asian stocks with Nikkei 225 down almost 13%, European stocks down 3-5% at the time of writing and crypto down really bad. At the time of writing NASDAQ futures are down 5.5% with major bleeding in big tech. What started last week turns out to be major. I will not put here whole financial analysis as there are finance focused accounts on here and X that can show you much more detailed insight.
Anyway, looks like
may have been right and we are witnessing the yen reverse carry trade. To get full insight into what might happen I encourage you to watch his analysis.On prediction market front some new recession related markets popped up:
Yesterday I bought some Yes on emergency rate cut (which won’t solve fundamental problem if we really have now massive reverse carry trade) hoping to capitalize on the volatility. Also currently markets price in 60% chance of emergency rate cut, which makes this trade EV+.
Also we have a new recession market, currently sitting at 30%. Not trading it, but definitely we are abandoning the soft landing narrative that was so common even 2 weeks ago.
Crypto got a big hit today with all major tokens down at lest 10%. We are in for a wild week.
So this week we are awaiting PMI report, which shouldn’t change a lot in current environment. Look closely at USDJPY and watch your bags this week - we are in a wild territory right now.
Wrap up
That’s all for the coming week. As always, your feedback on content is appreciated. Next on schedule is analysis on the Middle East so remember to subscribe. And watch your bags this week, a lot might happen in the next 5 days.
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.