In a time of daily market chaos, former SAC PM and founder of DataTrek Research Nick Colas shares a review of his daily market-watching routine. The 3 key events are the open, the trading session itself, and the close. Each has its own dynamics, and collectively they are a conversation between markets and traders/investors. As Colas notes, “even the longest-term “buy and holder” can benefit from a bit of daily market awareness. The year, after all, is 220 trading days strung together. Even if most of them mean nothing to long-run returns, there is always a reason the critical days turn out the way they do.”

* * *

“Nicky … Let’s hold hands and watch the open.”

That odd invitation came from a veteran salesperson just after I started my first sell-side analyst job at the old First Boston in the fall of 1991. He was dead serious. I was, well, confused. Not wanting to offend one of the firm’s top producers, I acceded. Thankfully, the rest of his row on the trading desk joined hands as well. We all stood in line, watching the screens as US markets opened at 9:30am.

As each symbol came to life, the group cheered or groaned. I was still confused.

“What’s so important about the open?” I asked. The salesperson, seemingly happy to teach a rookie, responded “It’s the first tick of the day … We are watching our clients’ biggest positions. Once everything opens, we know if they will be in a good mood when we call them to pitch new ideas.”

I thought this was overly simplistic until, many years later, I started managing a trading book myself. Then I learned that, in fact, not only the open matters a lot. Every trader knows that three things happen every day: stocks open, they trade, and they close. The dynamics of each slice of the day are quite different, and there is money/knowledge to be made/gained in each of them.

Basically, I think of the trading day as a conversation between the market and investors/traders. There is a beginning, middle, and end of that interaction. It can be a happy interaction, or confusing, or just downright nasty. And every day brings a new conversation based on new information and refreshed market expectations.

Here are some of the key datapoints I look at every day going into the open, then through the session, and finally at the close:

8:00 am – 9:30 am

• The first thing I look at when I wake up is US equity index futures. I also glance at them before I go to bed, and the difference between the two can be instructive in terms of market sentiment when the cash market finally opens.

• Then I move on to overseas stock and non-equity markets: is anything really breaking down/up? The latter category includes currencies, gold, oil, and European sovereign bonds (mostly the German bund). I don’t really bother to track virtual currency prices, but plenty of smart traders I know do monitor them, especially on Sundays before equity index futures open at 6pm.

• If there is any pre-open economic news, I look to see how markets respond as those datapoints are released.

• Watching to see how US Big Tech is trading pre-open is also helpful, since these names make up almost a quarter of the S&P 500. For example, this morning I was very curious to see how Tesla was trading after its earnings call. Specifically, I wanted to see if it would break or hold its 1-year low of $205/share.

What I am looking for is consistency and, separately, any new 52-week highs and lows. For example, if US Treasury yields are making new highs and stock futures are up, that’s an internal inconsistency that makes me suspicious of any pop at the open. The same idea goes for non-US currencies just now given how relentlessly weak they have been all year.

9:30am – 4:00 pm

• Lately I have been watching how the VIX trades intraday. If stocks are selling off and the VIX gets to 32 – 33, I start looking for a reversal higher. If we are not at a +32 VIX, I tend to not trust any intraday rallies.

• I also look at the 5-day intraday S&P 500 chart throughout the session. This is especially important just now, as many traders are looking for a bounce in US equities. They will want to see a consistent uptrend to hold their courage.

• I also keep tabs on 2- and 10-year Treasuries and Fed Funds Futures via the CME FedWatch tool throughout the day, as well as intraday US equity sector performance.

• This may just be an old trader’s superstition, but I tend to discount any large moves between 11:00 am and 2:00 pm unless there is a clear catalyst that explains them.

• The last 40 minutes of the day matter a lot. This is when human and algorithmic traders start evaluating how much they have left of the day’s buy/sell orders and if/how to get them done by the close.

4:00pm and after

• My primary focus is on whether the close is higher or lower than the open as an indicator of how the day really went. If we opened up 2 percent but close only up 0.5 pct, that’s a bad day from a market psychology perspective. If we opened down 2 percent and ended the day up 0.1 pct, that is a very good day. We could use some of those days right now, but they have been thin on the ground.

• There is an old saying that “retail investors open the market, but institutions close it”. The data we look at suggests that is true, and it provides some context for the previous point. It is more important to overall market direction that institutions be net buyers at the close rather than retail bid up stocks at the open.

• I finish the day by looking at how any important stocks with market-moving news traded after hours.

If you are a buy and hold investor, you might rightly ask “why do I need to pay attention to daily moves?”. The short answer is that you don’t. The longer reply is that, in my view, it makes you a better steward of your and (if applicable) your clients’ capital. Over the years I have found that the ability to weather volatility is directly correlated to knowledge about the fundamental drivers of asset prices. A calendar year is 220 consecutive trading days. Even if daily volatility makes most of them irrelevant to annual returns it is still helpful to keep tabs on the issues moving asset prices.

I will close out with a somewhat related story, this time from my B-school days at the University of Chicago. On the very first day of Corporate Finance/Investments class, the professor announced a pop quiz by unveiling a chalkboard with 10 questions. Each was simple: where did the S&P, 10-year Treasury, yen/$, and other major markets close the prior day. When he collected all our answer sheets and looked at them, he let out a long sigh. They were mostly blank.

Then he said “Every answer to these questions is in the Wall Street Journal almost all of you have folded up on your desks. If you can’t be bothered to know them, I’m not sure it’s worth my time to teach you anything.” His point, in case it needs clarification, is that keeping close tabs on asset price movements across a wide range of markets is the prerequisite for being able to contextualize future returns.

I have never forgotten that lesson and, combined with all the years I have spent staring at screens, they all deeply inform everything we write for you each day. Both devils and angels are in the details.

While inflation and the economy are polling as the top concerns among American voters, House Speaker Nancy Pelosi says Democrats need to “change the subject.”

While appearing on CBS’ “Face the Nation” on Sunday, Pelosi said: “When I hear people talk about inflation… we have to change that subject. Inflation is a global phenomenon,” adding “Face the Nation” with Margaret Brennan. “The EU, the European Union, the UK, the British, have higher inflation rate than we do here… The fight is not about inflation. It’s about the cost of living.“

So – should we also ignore murders, rapes and home invasions because other countries have it worse?

NANCY PELOSI: “When I hear people talk about inflation…we have to change that subject!” pic.twitter.com/Ck1DaPVrCc

— RNC Research (@RNCResearch) October 23, 2022

“If you look at what we [Democrats] have done, to bring down the cost of prescription drugs, to bring down the cost of- of energy and the rest in our legislation, you will see that that has been opposed every step of the way by the Republicans, and they have no plan for lowering the cost of living or helping with inflation,” Pelosi continued.

Tell us more about how Democrats have brought down the cost of energy, Nancy.

Though it was once widely projected as a Democratic Party “hold,” the Arizona Senate seat occupied by Mark Kelly is now in serious jeopardy, as the latest polls show him in a virtual tie with GOP challenger Blake Masters.  

In early September, Kelly led the RealClearPolitics poll average by 6 points. Now, despite being outspent by Democrats– and abandoned by Mitch McConnell’s super PAC — Masters is within just 2.5 points. 

However, given pollsters’ well-established tendency to undercount GOP support, the race is likely even tighter than that. In the 2020 election, the RealClearPolitics average ended up overstating Biden’s support in Arizona by 3.7%.

Applying that adjustment puts Masters ahead by aggregate 1.2%. Note, however, that 2020 Arizona Senate polls were even farther off the mark, overstating Democratic strength by 6.5%. 

The polling trend has some Democratic political operatives sounding anonymous alarms:  

“We believe this is a race that’s within a point in either direction, and there’s still a good chance that we would lose,” a person close to the Kelly campaign tells Politico. “And it’s important people understand that.”

As observed in other tight Senate races — like Nevada’s, where another Democratic-held seat is in great danger of flipping — previously undecided Arizona voters are swinging toward the Republican down the stretch. That’s especially true of a particular demographic, reports Politico: 

One of the biggest shifts seen since this summer is older voters moving to Masters, said Chuck Coughlin, CEO of HighGround. Just after the Aug. 2 primary — a bitter Republican contest — voters 65 and older “were all over the map,” Coughlin said. In the firm’s most recent poll, many of those voters were committed to the GOP, which is consistent with historic precedent.

Over the same period, former NASA astronaut Kelly’s lead among women has been slashed in half, from 20 to 10 points. Men favor Masters by 10. 

“Are you ready for a United States Senator who will be fearless and bold and make Arizona great again, and send Mark Kelly back into outer space in search of his brain? Then you got to vote for Blake Masters!” @KariLake 🔥 pic.twitter.com/Qd3BN7yh4Y

— Blake Masters for U.S. Senate Press (@MastersPress) October 23, 2022

The strength of feisty Republican gubernatorial candidate Kari Lake may also provide a tailwind for Masters. “Between Lake’s rise in popularity and the woeful economic news lately, Blake is seeing his best chance to win just as voting is under way,” Arizona GOP strategist Barrett Marson tells The Wall Street Journal. 

Surging prices are weighing on Democratic candidates everywhere, and perhaps especially so in Arizona: Phoenix had the country’s highest inflation rate in September.  

The Masters comeback is happening despite his being outspent by a two-to-one factor since the start of October. As his chances of victory become more apparent, though, Republican spending is now rising sharply. Over the last week, the GOP bought $3.2 million in ads compared to $2.7 million for the Democrats. 

Back when his prospects looked dim, Senate Majority Leader Mitch McConnell’s Senate Leadership Fund super PAC cancelled $18 million of planned ads in Arizona. However, PACs associated with Donald Trump and with billionaire Peter Thiel have picked up some of the slack. Masters, a venture capitalist, was previously chief operating officer of Thiel’s investment firm and president of the Thiel Foundation.   

The difference in the candidates’ own campaign fundraising is jarring: Incumbent Kelly has a seven-fold lead, having raised more than $73 million, compared to under $10 million raised by Masters. 

Despite that, Democrats find themselves with a vulnerable new front in their defense of their 50-seat-plus-the-vice-president hold on the Senate. As Democratic consultant Roy Herrera tells Politico, “There’s a very narrow path to victory for Democrats in Arizona.” It’s getting narrower by the day. 

Authored by Porter Stansberry  via Porter & Company,

• THE BIGGEST BUBBLE IN HISTORY DEFLATES

• YOUR STANDARD OF LIVING IS GOING TO FALL IN HALF

Soon, you’ll wake up to hear reports on CNBC and Twitter about ATM machines not working across the country.

JPMorgan Chase CEO Jamie Dimon will appear on CNBC, to explain that for the good of the country, his bank and all the other banks in the country are buying long-dated Treasury bonds. And, to protect America, it’s important that we all take a pause and stop withdrawing cash from the system, which means a “temporary” shutdown of other banking operations for a week or two.

It will happen. It’s unavoidable.

A couple of interesting facts…

The price of U.S. Treasury bonds is collapsing. Since the end of July, the 10-year Treasury rate has risen sharply, from a yield of 2.65% to over 4.3% now. There haven’t been bigger losses in the U.S. Treasury bond market, EVER.

[ZH: The 1-year drawdown of US Equity and Treasury Market Cap is $14 Trillion, the largest draw that we have ever seen in absolute terms…]

Signs of inflation are fading, and the American economy is obviously heading into a severe recession.

But rather than stabilizing – which is what usually happens – the selloff in longer-dated U.S. Treasury securities is intensifying, and liquidity is at its lowest levels since March 2020.

That suggests that the market doesn’t trust the dollar anymore. And that means the entire system is at risk.

Payback’s A Witch

The sell-off in long-dated Treasuries isn’t because of last year’s inflation. It’s because the market knows that the U.S. Treasury cannot possibly afford a real rate of interest on its massive $31 trillion in debt.

Think about it: this year’s increase in Social Security benefits payments is 8.7%. At even half that rate of inflation, a 2% real yield on a 10-year U.S. Treasury bond would be well above 6%. If the U.S. government has to pay anything like that rate of interest to roll over its debts (average duration is 5 years) in the coming years, it is already bankrupt.

There are $24 trillion worth of publicly traded U.S. Treasury securities. At 6% interest, that’s $1.4 trillion a year in payments. That’s roughly 40% of total federal tax receipts.

This same kind of panic struck last month in the long-dated bonds of Great Britain. Now, along with big declines in long-dated U.S. sovereign bonds, the Japanese yen is falling apart, and the Swiss National Bank is suddenly accessing currency swap loan facilities from the Federal Reserve.

Most worryingly, liquidity is disappearing in the U.S. Treasury market, the most liquid financial market in the world. Analysts at Bank of America wrote yesterday that “the [U.S. Treasury] market is fragile and potentially one shock away from functioning challenges.” That’s broker-speak for “we’re in uncharted territory here.”

We are on the cusp of a complete panic in the world’s bond markets. Like we explained last week, a global “Minsky Moment” is looming.

We think this crisis will be the largest the world has seen since World War II. That brought the end of sterling’s role as the world’s reserve currency. This will end the U.S. dollar’s reign as the world’s reserve currency.

What’s next is going to be incredibly painful. Most of the developed world is going to see its standard of living decline 30% to 50% over the next 4-6 years. There’s going to be a lot of anger and a lot of violence.

It’s worth remembering how we got here.

Lies, Damned Lies, And Printing Presses

I’m talking about Ben Bernanke. As the Chairman of the Federal Reserve from 2006-2014, he decided in the aftermath of the Global Financial Crisis that the banking system had to be saved, by any means necessary. To finance the massive losses – which were over $10 trillion in the U.S. alone – the world’s central banks began printing money and buying government bonds to finance massive bailouts.

Like squirrels watching a bank robbery, the members of the Nobel Committee – which recently awarded Bernanke the prize in economics – saw everything that happened and knew nothing about what it meant.

Printing money doesn’t cure economic problems: it simply skews who pays for them.

Printing trillions to paper over the financial system’s losses moved the egregious errors of Bank of America, Bear Stearns, Lehman Brothers, Goldman Sachs, AIG, Fannie Mae and Freddie Mac, General Electric, General Motors and others from their balance sheets, onto the balance sheet of the U.S. Treasury and the Federal Reserve.

Morally these actions are repugnant – much like requiring that taxpayers finance hundreds of billions’ worth of second-rate college educations for 10 million lazy, underachieving students – but on a vastly bigger scale.

The real problem isn’t financial. Printing money changes societies by giving the government virtually unlimited amounts of power. That warps the ambitions of politicians and gives socialists unlimited budgets. People soon believe every problem can be solved by the government and the printing press. Trade-offs are no longer required. Costs are no longer relevant. In this kind of environment, no problem is too big to solve through politics and the central bank. And if there isn’t a crisis, then one will soon be invented.

And, sure enough, as soon as the U.S. central bank began to sell assets and return to “normal” policies in 2018 and 2019, a new, even bigger crisis was “found.”

A novel coronavirus. Never mind that coronaviruses appear all the time and that most people will get and survive the flu a half dozen times in their lives… this time the world went completely nuts.

Everything was shut down for two years – except politics. Trillions were spent on vaccines – vaccines that don’t prevent you from getting Covid or from transmitting Covid. It was definitely a government vaccine: it cost trillions, everyone was forced to use it, and it didn’t work.

Nothing else worked during the Covid lockdown either. Kids don’t learn at home. Employees don’t work at home. Flimsy surgical masks don’t prevent you from contracting or spreading Covid – they don’t work, but they were required too. Fauci wore two masks, everywhere. He received four different shots of the “vaccine.” Guess who got Covid anyway?

Worst of all, the government spent unlimited sums of money on things like the ridiculous “paycheck protection program,” which might as well have been called “Fraud on a Federal Scale For You.”

The lie that we could print over the mortgage losses led directly to the lie that wearing a paper mask can stop a virus. Or that a vaccine created in a few weeks and tested only on a handful of people could stop a coronavirus that constantly mutates. With a printing press, there’s no problem that appears too big for the government to handle.

But, much like the “vaccine” and the paper masks, the printing press is just a lie too.

Altogether, the world’s central banks have printed over $25 trillion over the last 12 years.

In the United States, the printing was equal to more than 30% of our GDP. In the Eurozone, the printing was twice as large – over 60% of GDP. In Japan, the printing has been equal to over 100% of GDP.

You can think of these figures as being the size of the mirage we’ve been living in.

Reality looms.

Time to Opt-Out of “Money” Entirely

Our advice? Do everything you can to avoid holding the currency or the bonds of bankrupt western nations that have been trying to print their way to prosperity. And most importantly, do not let the current rally in the U.S. dollar fool you.

Yes, it’s the basis of the current monetary standard and, as such, in a crisis it is where all the banks will hide. It could continue to strengthen for several more weeks or months. But it has no more legitimacy than the euro or the yen. And it is only a matter of time – maybe only hours – before it will begin printing again, trying to keep the system from coming apart at the seams. Maybe it will work – but only after the value of the dollar (and the rest of the paper money) has fallen by 50% or more.

What will survive this crisis? Energy. Bitcoin. Land. Timber. Critical metals, like copper. High-quality, capital efficient businesses that aren’t in debt.

What will fail? Anything that has to refinance debt in the next 5-7 years.

Former President Donald Trump told a packed crowd of supporters on Saturday night that he’ll ‘probably’ have to run again in 2024.

“In order to make our country successful, safe, and glorious again, I will probably have to do it again,” Trump told the crowd in Robson, Texas.

He then said “In 2024, most importantly, we are going to take back our magnificent White House…“

TRUMP: “In 2024, most importantly, we are going to take back out magnificent White House…” #SaveAmerica

MORE: https://t.co/0ncd1IUDYD pic.twitter.com/ANPgfEY84x

— Newsmax (@newsmax) October 23, 2022

Trump spent part of the evening comparing his record to the first two years of Joe Biden, suggesting multiple times that Democrats have no plan or competence, Just the News reports.

“We have people who don’t know what the hell they’re doing,” said the 45th president.

“They’re against oil, God, and guns, and they say they’re going to do well in Texas. I don’t think so.”

New York City announced two monkeypox-linked deaths on Friday, the first fatalities connected to the disease in the five boroughs, NBC New York reports. Aside from reporting that the individuals were ” immunocompromised” and had “underlying health conditions,” few details were made public, as officials instead offered condolences in a brief statement.

“We are deeply saddened by the two reported deaths and our hearts go out to the individuals’ loved ones and community. Every effort will be made to prevent additional suffering from this virus through continued community engagement, information-sharing, and vaccination,” officials said in the statement.

In total, there have now been four monkeypox-linked deaths in the US since the outbreak began, with the first fatality reported in California in September.

As of Oct. 17, the city has recorded at least 3,695 known cases of the virus. Since reaching its peak at the end of July, the outbreak of cases in New York City has dropped significantly, down to single-digit daily numbers by the beginning of this month.

To date, more than 143,000 first and second doses of the monkeypox vaccine have been administered. -NBC NY

Name change

NYC Health Department officials also debuted a new name for monkeypox this week, claiming that the term was ‘stigmatizing’ – though we would note that it only seems to be left-leaning politicians making this claim.

The new name? MPV

“The previous name is an inaccurate and stigmatizing label for a virus that is primarily affecting a community that has already suffered a long history of bigotry,” said the health department, providing no examples. “Stigma is a shadow affliction that can follow viruses and drive people away from care, even when the illness itself is treatable,” the city continued.

“The Department requested the World Health Organization change the name, and continues to urge global health authorities to make this modification universal.”

“However, the equity considerations are too great to wait any longer,” the health department added, Just the News reports.

Authored by Mike Shedlock via MishTalk.com,

Democrat’s odds in the November elections are plummeting fast. Energy, crime, and inflation are three reasons why…

White House Press Secretary tries to defend Biden’s energy policy. Image from Tweet below.

White House Press Secretary Karine Jean-Pierre says White House isn’t trying to put oil companies ‘out of business’

There’s a doctored YouTube video showing the Press Secretary walking out after a question by Peter Doocy, White House correspondent for Fox News.

There was no need to doctor it, the clip speaks for itself.

Too bad that video is doctored, here is what actually happened https://t.co/mjiMkGmqqj

— B (@TheChippityChop) October 21, 2022

Video Exchange

Peter Doocy: You’re asking oil companies to further lower gas prices. What makes you think that they are going to listen to an administration that is ultimately trying to put them out of business? 

Karine Jean-Pierre: How is the administration trying to put them out of business? 

Peter Doocy: Well, they produce fossil fuels and the president says he wants to end fossil fuels. 

Karine Jean-Pierre: So look. You kind of asked this question yesterday and here’s where we would say US oil production is up and on track to reach a record high next year. ….

Questions Abound

• If oil production is at a record high, why are high prices the oil industry’s fault? 

• If oil production is at a record high, what about Biden’s pledge to kill the industry? 

The answer to the first question has to do with refining capacity, regulations and Biden’s threat to kill fossil fuels.

Karine never addressed Doocy’s question. She made a disingenuous reply, never answering the question.

Here’s a third video that explains.

White House Press Secretary Karine Jean-Pierre says White House isn’t trying to put oil companies ‘out of business’ pic.twitter.com/5iNGmFDqiS

— ATR (@taxreformer) October 21, 2022

Biden’s Oil Price Machinations

Please consider the WSJ article Biden’s Oil Price Machinations.

Three weeks before Election Day, Mr. Biden is ordering 15 million more barrels released from the nation’s Strategic Petroleum Reserve (SPR) to reduce gasoline prices.

The new releases are a sign of political desperation. Crude price climbed after OPEC+ this month announced a two million barrels a day cut in production. 

The Administration said Wednesday it may continue releases as long as “conditions”—i.e., political conditions—require, but this is unsustainable. The SPR has fallen by about 210 million barrels since last fall. The Administration says the 400 million or so barrels that remain are “more than ready to respond to energy security needs today.” That’s also far from clear.

One reason is that the Administration is fast depleting the medium-sour grade crude in the reserve that is most useful to U.S. refineries. Much of what remains is a light-sweet crude produced from shale, much of which gets exported. Future releases could compete with U.S. shale in the tight global refining market and even discourage investment in shale production.

A true national emergency could also fast deplete the reserve. That’s why previous Presidents performed only three emergency releases: Operation Desert Storm in 1991 (17.3 million barrels), Hurricane Katrina in 2005 (20.8 million), and the Libya oil disruptions in 2011 (30.6 million). Though prices exceeded $90 a barrel from 2011 to 2014, Barack Obama didn’t resort to emergency drawdowns to reduce gas prices.

The Administration now says it plans to encourage “near-term production” by announcing its “intent” to repurchase oil for the reserve when the price of West Texas Intermediate (WTI) crude oil falls to $67 to $72 a barrel. Who knows when this will happen since the Saudis have indicated their intent to keep prices around $90 to $100 a barrel.

We’ve been writing for months that Mr. Biden could deflate oil prices by giving a simple speech declaring an end to his political war on fossil fuels. Instead he resorts to gimmicks like the SPR releases and cozies up to dictators. Hours after OPEC announced its production cut, news leaked that the White House plans to ease sanctions on Venezuela to liberate its oil production.

Markets are smarter than Administration officials think, and so are voters.

Hypocritical Message So Contorted Everyone Can See It 

It’s clear the SPR drawdown is for political purposes. 

It’s equally clear Biden wants to shut down the industry while blaming them for lack of production. Meanwhile, the White House press secretary is bragging about record production.  

The Journal accurately comments voters are smarter than the administration. Independent voters upset over abortion policy are now coming to grips with Democrat policies on energy, education, and inflation. 

Polls Surge to Republicans

538 Election Odds 2022-10-22

How the House Forecast Has Changed 

538 House Election Odds 2022-10-22

How the Senate Forecast Has Changed 

538 Senate Election Odds 2022-10-22

Senate Who’s Ahead 

538 Senate Election Odds by State 2022-10-22

Arizona is a lost cause. Control of the Senate will come down to Nevada, Georgia, and Pennsylvania. 

Republicans could easily have won all four but selected weak Trump-backed candidates in all four states instead. 

Despite Trump, the Republicans may pull this off. 

I had Nevada in the Republican column long ago. 538 just recently flipped.

Concern in Pennsylvania is well-founded. Even Republican pollster Trafalgar still has Pennsylvania in the Democrat Column.

Which Polls 538 Pennsylvania 

Momentum is shifting rapidly, but if you are a Trafalgar fan, odds still favor Fetterman IF the election were today. 

But the election is not today.

Which Polls 538 Georgia 

Once again, the Republican, Walker is closing the gap. But once again Trafalgar has the Democrat ahead.

Georgia is more complex because Libertarian Chase Oliver is also on the ballot. He is pulling about 3%. That’s tiny but large enough to tip the scales. 

In Georgia, the winner has to get more than 50% otherwise the top two will square off in a special election. 

As it stands, neither Walker nor Warnock is likely to win a majority. That means there would be a runoff.

PredictIt Senate Odds  

PredictIt does not reflect what betters think would happen now but what will happen on election day, Tuesday, November 8, 2022.

Momentum is clearly in Republican’s favor. The backlash over abortions has shifted to inflation, energy, crime, and education policies.

But even assuming a Nevada Senate flip for Republicans, they still need retain Pennsylvania or flip Georgia to win control. 

Georgia is somewhat of a wildcard. There’s highly likely to be a runoff. Can Walker top 50 percent in a runoff? 

Right now, my guess is yes, if for no other reason than Democrats are increasingly likely to be demoralized after losing control of the House.  

Regardless, Biden will be a lame duck for the next two years other than damage by decree, which could still be substantial as budget-busting student debt cancellation proves.

*  *  *

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At a moment Ukraine says that Russian forces are starting to withdraw from the key port city of Kherson, and as Ukrainian cities suffer under increased aerial attacks, the US Army is flexing its muscle with elite training exercises just a few miles from Ukraine’s border.

Near the Ukraine-Romania border, an elite airborne division is “practicing for war” – as a CBS film crew detailed days ago – and is ready to be called up at a moment’s notice: 

The U.S. Army’s 101st Airborne Division has been deployed to Europe for the first time in almost 80 years amid soaring tension between Russia and the American-led NATO military alliance. The light infantry unit, nicknamed the “Screaming Eagles,” is trained to deploy on any battlefield in the world within hours, ready to fight.

CBS gets an exclusive sneak peak: “The US Army’s 101st Airborne is practicing for war with Russia just miles from Ukraine’s border”

“It’s not just about defending NATO territory,” correspondent @charliecbs reports. “They’re fully prepared to cross over into Ukrainian territory” pic.twitter.com/XE2OfHZV4o

— Michael Tracey (@mtracey) October 22, 2022

The training is described as happening just three miles away from Romania’s border with Ukraine. 

The timing is also hugely significant, coming at a moment the Kremlin has already for months accused Washington of using the Ukraine crisis to wage a proxy war against Russian forces.

“We’re ready to defend every inch of NATO soil,” Brigadier General John Lubas told CBS News. “We bring a unique capability, from our air assault capability… We’re a light infantry force, but again, we bring that mobility with us for our aircraft and air assaults,” he said.

War correspondent Charlie D’Agata observed in capturing the rare footage that “It’s not just about defending NATO territory,” but that “They’re fully prepared to cross over into Ukrainian territory” – he said speaking of the Army airborne forces.

It’s also significant that the Pentagon is not at all taking steps to hide the troop presence so near the active conflict zone in Ukraine; instead, in inviting a CBS crew to ride along in Black Hawk helicopters the US is openly advertising it, while no doubt delivering a strong warning message to Moscow. 

HISTORIC DEPLOYMENT: CBS News has been given exclusive access to the Army’s 101st Airborne Division as they are deployed to Europe for the first time since the last World War. They are now the closest U.S. forces to the fight in Ukraine. pic.twitter.com/61sAvrCeVf

— CBS Evening News (@CBSEveningNews) October 21, 2022

Journalist Glenn Greenwald has observed of the footage making the rounds on Sunday:

It’s always a bad sign when the US military starts embedding the largest media corporations to enable exciting war shots for the evening network news. Biden has done literally everything to make the US a belligerent in the war in Ukraine short of deploying full battalions there.

The Kremlin has long warned it is ready to attack any foreign weapons or troops which enter Ukraine. Already the Russians suspect a long-embedded US intelligence and special forces contingency helping the Ukrainians on the ground. It true, at this point it is probably a very “light” footprint, while the presence of the 101st Airborne just across the border sends a signal that things could escalate dramatically in the blink of an eye.

Authored by John Seiler via The Epoch Times,

In 2020, greenhouse gas emission reductions by California were negated by the CO2 from wildfires.

That’s according to a new study by researchers from UCLA and the University of Chicago, “Up in smoke: California’s greenhouse gas reductions could be wiped out by 2020 wildfires.”

“Wildfire emissions in 2020 essentially negate 18 years of reductions in GHG emissions from other sectors,” the study’s authors concluded.

Yet, comprehensive sensible policies could mitigate the wildfires. These policies include, especially, undergrounding power lines, which often spark onto dry wood, starting conflagrations.

According to the study, “We estimate that California’s wildfire carbon dioxide equivalent (CO2e) emissions from 2020 are approximately two times higher than California’s total greenhouse gas (GHG) emission reductions since 2003. Without considering future vegetation regrowth, CO2e emissions from the 2020 wildfires could be the second most important source in the state above either industry or electrical power generation.”

Their solution: “Our analysis suggests that significant societal benefits could accrue from larger investments in improved forest management and stricter controls on new development in fire-prone areas at the wildland-urban interface.” Those things would help.

But the state has lagged in dealing with its aging electricity infrastructure—a problem made worse, ironically, as more electric vehicles hit the road and need more juice from already overloaded power lines.

When I was state Sen. John Moorlach’s press secretary, 2017-20, one of his priorities was the power lines. In 2016, the year before I joined him, he sponsored Senate Bill 1463. It would have required the California Public Utilities Commission and CalFire to prioritize fire-hazard areas “associated with overhead utility facilities when determining areas which it will require enhanced mitigation measures for wildfire hazards.”

After scrupulous vetting by several committees, it passed unanimously in both houses of the Legislature. Then Gov. Jerry Brown vetoed it. Which made no sense.

In 2018, during another wildfire conflagration, the Daily Caller reported, “As California Burns, Jerry Brown Takes Heat for Vetoing 2016 Wildfire Mitigation Bill.” It quoted Moorlach, “Not addressing wildfires has reversed all the work we’ve done to reduce greenhouse gases. It’s inconsistent.”

Also in 2018, Moorlach introduced a new bill, numbered again Senate Bill 1463. It would have spent $600 million to mitigate wildfires. This time, things turned out better, as another bill, Senate Bill 901, grabbed the idea and included $200 million from cap-and-trade revenues to go toward wildfire mitigation. That bill was authored by state Sen. Bill Dodd (D-Napa), and the money at least was a start.

Flummoxed voters bounced Moorlach in 2020. That was just before the massive, unexpected surpluses of the past two years flowed into the state treasury. What an opportunity to sharply reduce greenhouse gases, not by some utopian edict of banning non-electric cars by 2035, but by actually doing something comprehensive about the spark-prone power lines.

There has been some action. Gov. Gavin Newsom’s summary of the budget enacted in June for fiscal year 2022-23 tallied, “The Budget includes $1.2 billion in additional actions to continue building forest and wildfire resilience statewide.”

Industry also is acting. According to San Diego Gas & Electric, its “Wildfire Mitigation Plan outlines a suite of programs and initiatives that the company will undertake to continue to advance wildfire safety. One of those initiatives is strategic undergrounding of overhead power lines.

“Burying power lines removes the risk of these lines sparking fires during adverse weather events, but more importantly, buried lines can remain energized during Public Safety Power Shutoffs, reducing the impact of power outages to fire prone communities.”

All that also is a start. But given the great emphasis put on reducing CO2 emissions by California politicians, and the immense cost imposed on residents here, shouldn’t this have been the top priority on spending this year’s $100 budget surplus?

According to one estimate, “At a cost of $3 million per mile, undergrounding 81,000 miles of distribution lines would cost $243 billion.” A lot of money. But, say, $50 billion could have been taken from the $100 billion surplus to underground the most vulnerable power lines.

Finally, Proposition 30 on this November’s ballot mainly is about increasing taxes on what supporters actually brand “Greedy Billionaires and CEOs.” Taxes would rise up to $4.5 billion a year to install electric vehicle chargers to benefit Lyft, the initiative’s sponsor. But as bait for voters, it also would spend 20 percent of revenues on a Wildfire Green House Gas Emissions Reduction fund. That could mean up to $900 million a year to reduce wildfires.

As with most issues—homelessness, crime, drought, tax reform, agriculture, energy—the state is taking a haphazard, piecemeal approach to fighting wildfires. The comprehensive approach the state took during its Golden Age of the 1940s-early 1970s—building the state water and schools systems, especially—is something no longer possible. Even as the state enters another season of wildfires, burning down homes and turning Californians into human S’mores.

One week after it started with a historic, “resetting” speech by China’s President, on Sunday – a day after China’s top political meeting of the past five years wrapped up – Xi Jinping unveiled a new leadership team stacked with loyalists as he looks to consolidate his power in a precedent-busting third term.

One day after his predecessor Hu Jintao was unceremoniously escorted out of the 20th Party Congress for reasons still unknown, Xi walked into Beijing’s Great Hall of the People followed by members of the Communist Party’s new Politburo Standing Committee — the pinnacle of Chinese leadership — in descending ranking order.

As Nikkei reports, Shanghai party chief Li Qiang was the first member behind Xi to walk into a room packed with journalists, confirming his second-in-command rank and signaling that he will become the country’s next premier. The pair were followed by anti-corruption chief Zhao Leji, ideology tsar Wang Huning, Beijing party head Cai Qi, top Xi adviser Ding Xuexiang and Guangdong province chief Li Xi. Most have previously worked with the 69-year-old Xi over the years as he shot up the ranks of the party.

Vice Premier Hu Chunhua, a protege of former President Hu Jintao who had been seen as possible contender for premier, appeared to have been demoted after he not only failed to make Xi’s inner circle but was also excluded from the 24-member Politburo.

And for the first time in a quarter century, there will be no women in the Politburo after the retirement of its sole female member Sun Chunlan, a vice premier and China’s top pandemic handler. Surely US women’s rights group will get right on top of that boycotting Chinese goods.

The unveiling of Xi’s cabunet comes after Xi sealed up his bid for a new term at Saturday’s official close of the twice-a-decade National Congress. Analysts had predicted that Xi would surround himself with loyalists in a bid to crush the party factionalism and infighting that marked the tenures of his predecessors Hu Jintao and Jiang Zemin, and they were absolutely correct.

“The appointments of Xi’s associates to the highest positions of power in China indicates that Xi’s vision for China will be rigidly executed in the next decade,” said Valarie Tan, an analyst at the Germany-based Mercator Institute for China Studies. “Those promoted to power have had their political careers closely tied to Xi’s leadership, implying that this is going to be an administration that will not question or challenge Xi’s authority.”

In remarks to Sunday’s briefing, Xi said his administration would be on “high alert” for the challenges ahead. This echoed a speech to the opening of the congress when he elevated security to the top of the agenda, as Beijing navigates a slumping economy and soaring tensions with the U.S. and other Western nations.

“The journey ahead is long and arduous but with determined steps, we will reach our destination,” he said. “We will not be daunted by high winds, choppy waters or even dangerous storms.”

China would “always champion the common values of humanity” as the world grapples with “unprecedented challenges,” he added.

“When all countries pursue the cause of common good, we can live in harmony, engage in cooperation for mutual benefit and join hands to create a brighter future for the world,” he said. “Just as China cannot develop in isolation from the world, the world needs China for its development.”

On Saturday, nearly 2,300 party delegates chose a new Central Committee composed of 205 voting members that was pivotal to the top leadership shuffle. The newly picked committee met for the first time on Sunday behind closed doors to vote on candidates for the Politburo Standing Committee led by Xi as general secretary, and the larger Politburo.

Some of the current leaders were dropped including Premier Li Keqiang, who was scheduled to retire this year, as well as senior official Wang Yang, who had been seen as a contender for Xi’s second-in-command.

While the just-ended congress set out top officials and Xi as head of the party and military, some governmental positions will be confirmed in March at the National People’s Congress, China’s rubber-stamp parliament.

Most notably, Xi will renew his presidency for a third time, after he ditched a two-term limit from China’s constitution in 2018, opening the door for him to rule for life.

On Saturday, party cadres adopted changes to the party constitution that among other things incorporated Xi’s ideologies and economic policies including a focus on boosting domestic growth and reducing inequality.

“The document gives Xi’s ideas and leadership political legitimacy. Since it is a legal document, it can then be used by Xi to provide the legal basis for justifying the use of force to diffuse any tension, take down any opposition within the party-state,” Tan said. “Those who run afoul of those ideas enshrined in the constitution can be officially deemed as in violation of the party.”

In response to the expected outcome, Rep. Michael Waltz (R-Fla.) on Sunday said Chinese President Xi Jinping has “cemented his place as a 21st century emperor of China” after breaking with tradition and securing a third, five-year term to lead the nation.

“He has stacked to the organs of power in China with his loyalists. He has centralized power with himself. He has eliminated term limits,” Waltz told Fox News’ “Sunday Morning Futures” host Mario Bartiromo. “He is dictator for life now, all with a major step towards what he sees as his legacy.”

Waltz, who sits on the House Armed Services Committee, said Xi has “become the most powerful Chinese dictator” since Mao Zedong, the communist dictator who founded the People’s Republic of China (PRC) party and ruled until his death in 1976.

“And that’s returning China to become the global superpower — not a superpower — but the global superpower, in line with ancient Chinese greatness,” Waltz added.

* * *

Below we summarize and excerpt the key points on the now concluded Chinese Congress from the Goldman economics team, which focuses on the new appointments, and the equity market implications (full note available to pro subs in the usual place)

1. Key features of the top leadership (Politburo Standing Committee)

• The number of PSC members remains at seven, as widely expected. There are four new members in the Politburo Standing Committee (PSC): Li Qiang (currently serves as the Party Secretary of Shanghai),  Cai Qi (the primary secretary of the CCP Central Secretariat), Ding Xuexiang (served as director of the General Office of the CCP) and Li Xi (currently Party Secretary of Guangdong), who are all drawn from the previous 19th 25-member politburo (one rung below PSC in party leadership).
• Most of  the new appointees worked with President Xi at earlier stages of their careers (for example Li Qiang and Cai Qi worked with Xi Jinping in Zhejiang and Ding Xuexiang has been working with Xi Jinping since 2007 in Shanghai). Li Keqiang (current Premier of the State Council), Li Zhanshu (current Chairman of the Standing Committee of the National People’s Congress), Wang Yang (current chairman of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC)) and Han Zheng (current primary vice Premier of the State Council) have retired, while Xi Jinping, Wang Huning, and Zhao Leji remain as the Standing Committee members of the PSC.
• Xi is reaffirmed as the party’s general secretary and chairman of the Central Military Commission (CMC). Based on the lineup of the Standing Committee members, we think Xi will in all likelihood also keep his government position as the President of the PRC, and Li Qiang will likely be the Premier of the State Council; but these government-related roles will not be confirmed until the National People’s Congress (NPC) to be held in March next year.
• Li Xi will replace Zhao Leji as the new chief of the party’s anti-corruption body (Central Commission of Disciplinary Inspection, CCDI), a party post that was also officially announced today. The government positions for the rest of the new PSC members will not be formally revealed until the NPC next March. Exhibit 1 compares the members of the 20th PSC with those of the 19th PSC.

2. More broadly on the new Politburo and the Central Committee, and amendments to the Party Constitution:

• The number of the Politburo members declined marginally from 25 to 24. He Lifeng (current head of the NDRC (National Development and Reform Commission) newly joined the Politburo and is widely expected to replace Liu He (a key economic policy advisor to Xi Jinping and the director of Central Finance and Economic Affairs Commission, the Financial Stability and Development Committee under the State Council) and to be in charge of policies related to the economy and the financial market. Other notable senior policymakers related to economic/financial policies include Yi Huiman, who is the 20th Central Committee member and currently serves as the head of the China Securities Regulatory Commission (CSRC). The current head of the China Banking and Insurance Regulatory Commission (CBIRC), Guo Shuqing, is no longer a member of the 20th Central Committee; and the current head of the People’s Bank of China (PBOC), Yi Gang, is no longer an alternate member of the 20th Central Committee; these imply they will retire from their government roles as well.

• Based on our estimates, overall turnover rate of the 20th central committee (relative to the 19th Central Committee) is 66%, slightly higher than the 65% turnover rate of the 19th Central Committee (2017) and notably higher than the 57% rate of the 18th Central Committee (2012).

• Amendments to the Party Constitution: Although the new version of the Party Constitution has not been released as of now, state media including Xinhua News have flagged major amendments. Besides more significant highlights of Xi Jinping’s thoughts, the new Party Constitution will incorporate “modernization with Chinese characteristics”, “dual circulation” strategy, “ensuring both development and security”, “uplifting the fighting spirit and enhancing the ability to fight”, “building a world-class army” and “resolutely opposing and foiling secessionist activities aimed at ‘Taiwan independence’” into the Party Constitution. There will also be continued focus on “high-quality growth” and “common prosperity”. It’s still unclear whether “Two Establishes” (两个确立) and “Two Safeguards” (两个维护) – two political slogans promoted by CCP to reinforce Party leadership under CCP General Secretary Xi Jinping – have been directly added to the Party Constitution, but state media has been emphasizing the importance of these requirements.

3. Policy implications and key upcoming events:

• We do not think the 20th Party Congress (and its first Plenum) would be the occasions for key policy changes, and continue to expect a gradual relaxation of “Dynamic Zero Covid” policy stance to start in Q2 2023. Policy implementation could be more efficient though as personnel-related issues (related to party roles) have been settled.
• Upcoming key policy events related to the economy include the Politburo meeting inn early December in preparation for the Central Economic Work Conference (CEWC), the CEWC itself by late December, and the Two Sessions in March 2023.

Equity market implications from the 20th Party Congress from the GS Portfolio Strategy team:

1. An unprecedented third term for President Xi. On October 23, at the opening day of the First Plenum of the 20th National Party Congress, President Xi was elected as the General Secretary of the CCP and the Chairman of the Central Military Commission for the next 5 years. The appointments deviate from implicit post-Mao Party conventions in at least two respects: a) a de facto 2-term limit for CCP General Secretary and the unwritten “7 up 8 down” retirement age for senior Party leaders; and, b) marking the first time for a top leader in the Party’s history to officially extend his reign for the third term since the Mao Zedong era.

2. Markets historically have liked political changes. Outside of the General Secretary position, 4 and 15 new members have been introduced to the Politburo Standing Committee (PSC) and the Politburo, effectively keeping the total number of PSC members unchanged but 1 less for the Politburo (24). Notable retirees from the Standing Committee are Premier Li Keqiang and Wang Yang, Chairman of the CPPCC, both at the age of 67. While data-points are limited, empirically, Chinese equities have usually performed well shortly after the conclusion of the Congress in the episodes where top leadership transition took place (i.e. changes in the highest and second-highest ranked Party leaders), with the post-Congress market performance positively correlated with the number of member changes at the Politburo. This perhaps reflects market expectation that incoming leaders would prioritize growth over other competing objectives when they took office, and possibly investors’ appreciation of the fact that the (policy-making) power transition mechanism was in place within the Party.

3. Gauging the policy and political focus of the new leaders. By tabulating the recent speeches during the Congress from outgoing and newly elected Politburo and PSC members as per our selected key words under two broad categories— ideology/politics, and economy/markets—we note that incoming leaders could arguably be more focused on ideological and political subjects while the retiring policymakers appear more economy/market-oriented. This orientation may also apply to two key positions that are influential to the capital markets—Premier and Vice Premier/Director of Financial Stability and Development Committee—possibly assumed by Li Qiang (former Party Secretary of Shanghai) and He Lifeng (Minister of the NDRC) respectively based on their current Party rankings. While we recognize this key-word analysis could be subject to selection bias given the nature of the Party Congress (political as opposed to economic) and the specific responsibilities of the Politburo members, the results are by and large consistent with the key messages from President Xi’s opening speech at the Congress last Sunday and the latest amendments to the Party Constitution, which carry a strong flavor of “development with Chinese characteristics” and national security. Government-related positions will be officially unveiled at the National People’s Congress scheduled in March 2023.

4. Elevated equity risk premium (ERP), even accounting for slower growth and higher risks ahead. MSCI China currently trades on 8.9x forward PE, 11.1x ex banks, and 12.5x on a median basis, all at around 1.8 s.d. below historical averages. Earnings yield gaps from median stocks are at 2.3 s.d. and 0.1 s.d. to the inexpensive side for the onshore and offshore markets, and implied volatility and option skew on HSCEI are close to year-to-date highs (in March), all suggesting that significant risk premia has been built into equity prices. From a modeling standpoint, the market is trading at around 15% valuation discounts to what we view as fundamental-driven fair value for Chinese stocks, and we estimate its prevailing valuations may have already priced in roughly 2.5% probability that left tail scenarios (proxied by Russia’s current index PE), possibly related to heightened geopolitical tensions or structural degradation in growth, could materialize assuming market risk premium and corporate profitability are normally distributed in our probability-weighted fair-value model. That said, more clarity on the Zero Covid Policy (ZCP), stabilization of the property market, and de-escalation of cross-strait and US-China tensions are necessary conditions for ERP to moderate, in our view.

5. Moving on from the Congress to (zero) Covid. Investors have been eagerly looking for policy signposts for re-opening during the Congress. This is understandably so as China reopening could be one of the most visible, long-awaited, and powerful upside catalysts for the market aside from the possibility of a (dovish) Fed pivot and/or a cessation of the Russia-Ukraine war, in our view. In fact, on a perfect hindsight basis, our cross-country empirical study from 36 markets since 2020 reveals that equity markets tended to pre-trade the actual implementation of re-opening (as defined by the peak readings of our economists’ Effective Lockdown index during the initial and the Delta waves), gaining 5% 1-month before Covid-related disruptions began to dissipate, with the positive momentum generally lasting for 2-3 months. Benchmarking this trading pattern to our economists’ baseline view that China will probably start to re-open in 2Q23, we’d argue China could start to trade cyclically better in the early part of next year, everything else being equal.

6. Strategies: Sticking with “Plan A” and “Little Giants”, taking advantage of elevated skew in the Offshore market, selectively raising SOEs. With risk assets globally still being challenged by rising rates, sticky inflation, and lurking recession risk, we reiterate our market preference of favoring A shares over Offshore equities given the former’s lower sensitivity to global macro factors, and domestic-oriented liquidity profile. In contrast, ERP could stay elevated for and weigh on Offshore equities in the  short run possibly due to investor concerns over the absence of recognized market-oriented economic reformers in the newly configured PSC, although a combination of elevated option skew (HSCEI), low headline index valuations, and light investor positioning (high short interest ratios) leads us to believe that upside optionality could be an inexpensive hedge to right tail surprises, most likely from improving clarity on the ZCP and re-opening roadmap. Thematically, we believe Chinese Little Giants are well-placed to benefit from strategic policy tailwinds and could be a key source of alpha generation for investors under President Xi’s leadership and development vision. The emphasis on and pursuit of “Common Prosperity” will likely strengthen under the new leadership, boding well for select SOEs that might be deemed as strategically- or socially-important by policymakers. As such, we screen for Buy-rated SOEs (on Conviction List) from our analysts team, and SOEs that are better positioned to generate superior equity returns based on their: 1) R&D intensity and R&D expense growth, and 2) focus on aligning shareholders’ and management’s interests (e.g., have a stock incentive plan), both of which have been key explanatory factors for their outperformance empirically.

More in the full Goldman note available to pro subs.