All posts by NY Times Bestselling author Lawrence McDonald

Larry McDonald; founder of THE BEAR TRAPS REPORT investment letter, is a political policy risk consultant to hedge funds, family offices, asset managers and high net worth investors. As former Managing Director, Head US Macro Strategy at Societe Generale, he's a frequent guest contributor on Bloomberg TV, CNBC, Fox Business, and the BBC. Larry is a NY Times bestselling author, his book "Colossal Failure of Common Sense" is now translated into 12 languages. He ran a $500 million proprietary trading book at Lehman Brothers, made over $75 million betting against the subprime mortgage crisis and was consistently one of the most profitable traders in the firm. His "Bear Traps" letter is one of the most highly regarded on Wall St. He's participated in 3 major financial crisis documentaries: Sony Pictures, Academy Award winning documentary the "Inside Job," BBC‘s "The Love of Money" and CBC‘s "House of Cards." He's delivered over 72 keynote speeches in 17 different countries, at Banks, Investment Firms, Conferences, Law Firms, Insurance Companies and Universities.

Equity Markets Post the Election

Going into the big event, we took a look at how market responds to past presidential election cycles going back to the 1950’s.

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Click here for our latest report.

U.S. equity markets have been consistent around elections, tending to sell off. U.S. equities have risen only about one out of every three times since 1928.

spx-elections-2

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The Market is Still Nervous

Despite the broader market telling you Hillary has it in the bag, there are things under the surface which suggest the market is still fearing a Brexit 2.0

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cww1gvtwiaauu8lInvestors are still buying puts at a much higher rate than calls, this suggests market participants are putting on hedges going into tonights uncertainty. The market is more fearful than you think. 

If Brexit taught us one thing, it is to be more diligent in terms of reading what the market is telling us. On the day of the referendum in the UK, the FTSE (stock index in the UK) rose 1.2%. Today, the S&P 500 is up almost half a percent at 10 points. Risk management is key in election and political risk events such as this one.

Join us to see what else we are watching.

 

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Counties you need to Watch

Here are a few counties to keep an eye on. Differentials in important counties vs. historical norms will be the key to finding out who will win the White House.

In 2012, they called North Carolina at 10:53pm and Goldman has estimate “call time” after midnight now, it will be a LONG night.

As we have stressed in Our Bear Traps notes, independents are crucial. They are a much larger percentage of the voting population than people think.

What was the 2012 Share of the 125.9m Votes Cast?

Independents: 44%

Democrats: 31%

Republicans: 25%

 

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Colorado

1) Arapahoe County, Colorado. Was GOP for most of recent history but in past two elections Obama took it.

 

2) Jefferson County, Colorado. This state has picked the President in the last 4 elections for Colorado.

 

Florida

1) Duval County, Florida. Has to be a stronghold for Trump, but in last election cycle a high African American turnout almost flipped it to Obama. Either way, the damage was done. Trump needs to win big here.

 

2) Hillsborough County, Florida. Since 1960 no candidate has won Florida without winning this county.

 

Michigan

1) Macomb County, Michigan. Third most populated county in the state. Macomb is a stronghold for Reagan democrats. It will be Important to see how much Hillary wins this county by. If by less than Obama’s win of 4% in 2012, will be a big Trump boost.

 

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Listen to Cuyahoga County, Election 2016 Bellwether

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Listen to Cuyahoga County, Ohio

This is a bellwether county for the Dems, the Cleveland suburb will have all eyes on her tonight.  With 1.3 million strong, this county has gone for the Democrats every year since 1972.  Since 1996, she’s been 60% + for the Democratic party.  In 2012, the county voted 69% for President Obama over Mitt Romney’s 29%.

We will be watching Cuyahoga County closely, any signs of a weak Clinton showing will speak volumes as to her evening’s fortunes.

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Poor Early Showing for Dems

Early voting was down across the board in Cuyahoga County. Early in-person voting was down about 16 percent countywide compared to 2012 and about 14 percent fewer ballots were mailed in. In total, 218,711 early votes were cast, down from 253,512 at the same point in 2012.

GOP Strong Early Data

Butler county in Ohio is the Republican stronghold. Romney won 62% of vote there and Bush won 65% in ’04. Early votes cast +23% vs 2012.

Thus far, Trump is ahead of Hillary Clinton in Pinellas Ct by 13K votes. This is a big county in Florida (460K votes in 2012) and Obama won it by 26K votes (6ppt margin).

Peso Vol Still Elevated

1musdmxnThe Peso has become tied more to the U.S. election than any other asset class. Domestic factors in Mexico such as inflation, industrial
production and GDP have become side points to the fear of a Donald Trump presidency. Following the Comey announcement, the Peso rocketed higher against the Dollar and is currently up over 2%. As we displayed in previous notes, investors were hedging Trump risk through the Peso, which is why we saw 1 month volatility in USD/MXN at its highest level since Lehman. Monday’s Mexican Peso strength in spot (the currency itself) is telling the market not to worry, but 1m vol is still singing a “risk-off” tune, we still believe Trump risk is real.

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Healthcare Sector Pointing to a GOP Senate

Is Healthcare Pricing in the GOP Keeping the U.S. Senate?

Sure, every sector is higher today but healthcare and biotech are dramatically outperforming the broader market.

Find out the rest of our election predictions, and which stocks will benefit. 

With Hillary Clinton leading in polls ahead of Election Day, for weeks investors have widely expected biotech stocks to trend lower, but the iShares Nasdaq Biotech ETF (IBB) rallied nearly 4 percent Monday.

An NBC News/Survey Monkey poll released Monday morning found Clinton 6 points ahead of Donald Trump.

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Since the Lows from Last Week:

  • Biotechnologies ETF is up 6.1%
  • S&P Healthcare ETF is up 3.6%
  • The S&P 500 is only 2.2%

ibb-and-sp-health

The recent rise in healthcare is indicative of the senate staying red.

Should Trump win on Tuesday, the biotech sector would rally, according to Larry McDonald, head of global macro strategy of ACG Analytics and editor of the Bear Traps Report investment newsletter.  However, if Clinton were to win, and Democrats gain control of the Senate, “that’s a big problem for the IBB,”  McDonald told CNBC on Monday.

“If the GOP keeps the U.S. Senate (our call), IBB is a winner in our view. As Trump election odds surge, we believe this will help as well,” McDonald wrote, adding that if Clinton wins, and if Republicans maintain control of the Senate, biotech could experience a “profitable” relief rally.

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Tepper on CNBC, Election 2016 Recap

One of he smartest asset managers we’ve ever met.  When Tepper speaks, take notice:

For our Election recap, click here

 

*TEPPER: THINKS HILLARY CLINTON IS TO THE RIGHT OF OBAMA
*TEPPER: WANTS HOUSE AND SENATE TO HAVE REPUBLICAN MAJORITY
*TEPPER: CLINTON WILL PROBABLY BE TO THE RIGHT OF THAT PLATFORM
*TEPPER: DOESN’T LIKE THE DEMOCRATIC PLATFORM ON ECONOMICS
*TEPPER: LONGER MARKET THAN TWO OR THREE WEEKS AGO
*TEPPER: IF TRUMP WINS, MARKET GOES TO 2040
*TEPPER: TRUMP IS ‘HIGH VOLATILITY’ CANDIDATE ON ECONOMIC POLICY
*TEPPER SAYS HE MOVED TO FLORIDA FOR FAMILY, WEATHER
*TEPPER: TRUMP DIDN’T GIVE TO ONE MAJOR FOOD BANK AFTER SANDY
*TEPPER: TRUMP GAVE “NOT ONE DIME” TO NJ AFTER HURRICANE SANDY
*TEPPER: LATIN VOTE VS. WHITE WORKING CLASS HARD TO MEASURE
*TEPPER: HARD ELECTION FOR FUNDS TO DO POLLING AND MODELING ON

David Alan Tepper (born September 11, 1957) is an American hedge fund manager and the founder of Appaloosa Management. His investment specialty is distressed companies. In recent years he has become known as a philanthropist, and in 2013 he donated his largest gift of $67 million to Carnegie Mellon University, whose Tepper School of Business is named after him. He earned his BA in Economics from the University of Pittsburgh in 1978 and his MS in Industrial Administration from the Tepper School of Business (then known as GSIA) of Carnegie Mellon University in 1982. For the 2012 tax year, Institutional Investor’s Alpha ranked Tepper No. 1 for earning a $2.2 billion paycheck.[3] He topped the list again in 2013, earning $3.5 billion.

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Election 2016: Dollar Yen Ripping on the FBI / Comey News

“The spread between the 2 month VIX future and the 8 month is converging, just as it did Pre-Brexit.  This is a classic stock market volatility spike early indicator. Get long and stay long volatility over the next two weeks.”

The Bear Traps Report, October 28, 2016

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Dollar Yen has become a classic risk off and on indicator.  As the news broke moments ago, she turned “Risk-On” in a big way.

*FBI’S COMEY SAYS CONCLUSIONS ON CLINTON REVIEW UNCHANGED
*USD/JPY EXTENDS GAIN TO 1% AS FBI LETTER SEEN BOOSTING CLINTON

The FBI is sticking to its conclusion that Hillary Clinton’s handling of her e-mails as secretary of state wasn’t a crime, the bureau’s director James Comey said two days before voters decide whether she should become the country’s first woman president.

comey-yen

Weaker yen vs the dollar speaks to “risk-on” tomorrow across global markets.

*USD/MXN DECLINE CONTINUES TO 2.3%; 200-DMA SUPPORT AT 18.4103

fbi-comey-new

The Mexican Peso is surging against the U.S. Dollar.  Strength in the peso have been a positive Hillary Clinton political risk indicator in recent months.

FBI Comey Letter to Congress

comey-letter-new

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