9 Takeaways from The Macro Tourist on Talking Markets

Kevin Muir dropped by to share how he's hedging a Trump victory, why he likes gold miners over gold, and why there are big opportunities in the Great White North (as long as you're careful).

The MacroTourist

, Kevin Muir, is looking at some “dark side bets” ahead of the US presidential election, he told me yesterday on Talking Markets. This was a fantastic conversation with Canada’s finest* - here are some of they key takeaways in case you couldn’t join us live.

(*More of Canada’s finest coming up with

David Rosenberg

on YouTube FYI)

1. Looking to the Dark Side

Kevin thinks the market is overestimating Donald Trump's chances of winning the presidential election. He suggests considering “dark side bets” by buying put options on the S&P 500 with a November 8 expiry. This trade would profit if the market declines on a potential “blue sweep” victory for the Democrats. He says the market seems too set on a Trump win, that polls are increasingly unreliable, and that means the insurance is underpriced going to be underpriced. “If everyone thinks there's no way [something] is going to happen, that means I can play for that without paying too much for something,” he said.

2. Rally into Year End?

A broadening market rally across various sectors signals a healthier economy than anticipated, Kevin says. “All sorts of things are doing well, and I think the market has finally had to accept that the economy isn’t as bad as everyone thinks,” he said. “Now the real question is how much is priced in. I think it’s getting scarier and scarier in terms of how expensive the marketing is getting, but if we get through this election I could see a situation where we rally into the year end.”

3. Time for Small Caps to Shine?

Small-cap stocks may outperform the “Magnificent 7” tech giants as the market rally broadens, Kevin said. He suggests a rotation out of large-cap tech and into small-cap stocks, especially as we approach year-end. “I know all the reasons why small caps stink, we all do,” he said. “If we see a Santa Claus rally, maybe it’s more of a Santa Claus rotation in terms of the NASDAQ.”

4. Gold Miners Over Gold?

Gold “is no longer trading as a US dollar proxy or a real rate proxy, it is trading as a central bank diversifier,” Kevin says. That doesn’t make him bearish on gold per se, but it does make him a little nervous. And actually, he thinks investors should look at gold miners over gold. “Gold miners, in the past, have stunk,” he said. “[But] gold has risen at such a fast pace that even the gold miners are going to make money, and I think we’re going to have a situation where the earnings finally click in, and everyone will get into the trade.”

5. Look North for Resource Stocks

Kevin is bearish on the Canadian economy and the Canadian dollar, but does not think that means you should short the Canadian stock market. “A lot of our stock market is resource stocks, and if the Looney goes way lower, then all the [resource companies] that are selling in US dollars and all their costs are in Canadian dollars - these guys are going to print money,” he said. “I actually think that one of the greatest trades out there right now is buying Canadian resource stocks.” Kevin mentioned Niko, Eco, or CNQ, and also flagged hedging the currency exposure for non-Canadian investors.

6. White Metals Over Copper

While acknowledging that he completely gets and understands the copper bull story, Kevin says there are more interesting trades around - ones that analysts aren’t publicly calling “the trade of a lifetime!” like copper has been. He suggested looking at ‘white metals” like palladium and platinum, saying: “They're down and you can you can buy below the marginal cost of production.”

7. Tesla, Meh

Is buying Tesla stock a decent play on a potential Trump victory? Kevin thinks not. “I still think over the long run, that the car industry is a terrible industry that’s headed a lot lower, and I wouldn’t be trying to trade Trump winning by buying Tesla,” he said.

8. Bonds - Run like Hell

Decades of declining bond yields have conditioned investors to expect continued gains, but the current environment suggests otherwise, Kevin says. “I contend that we're in the opposite situation now where… the Fed will need to cut less and all of a sudden inflation will come back, and it'll get going and next thing you know that will have higher rates in the future,” he said. Kevin also says that even if the Fed cuts interest rates, the yield curve is likely to steepen, leading to higher long-term rates and losses for bondholders.

9. Don’t Trade Your Opinion

Discussing fiscal spending, which Kevin thinks is going to continue to drive inflation, he said: “We can argue whether fiscal is right or wrong, but I don’t think that’s something we as traders should care about.” He added:

“More fiscal means there's going to be more inflation and the economy is going to be stronger, so we can debate whether we should do it or not, or we can just go out and position our portfolios accordingly.”

To watch the full episode, right this way.

Enjoy,

Maggie

Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and determine if an allocation to oil aligns with your overall financial plan.