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As we await the opening salvo of the US presidential debates, we take a closer look at the race for the White House and the potential impact on global markets. Will it take the two septuagenarians an episode or so to warm to the task, or will they come out firing? Who knows. What we do know is that US politics is about to get awfully complicated in a tight battle. As Trend Macro points out, the potential for volatility and uncertainty is high given the chances that the outcome of a contentious, and possibly close, race will be decided in the courts. So far, according to Cornerstone Macro, the election has been somewhat overlooked by investors more concerned with the effects of coronavirus pandemic, but that is likely to change and the firm sets out how it believes investors and markets should react to the various possible outcomes. Meanwhile Pennock Idea Hub outlines why Covid-19 has turbo-charged technology disruption and highlights the likely winners and losers within their defined structural disruption framework. As a follow up to last week’s briefing on Tesla’s Battery Day, we highlight the work of battery/EV raw materials specialists, Roskill, who take an in-depth look at Tesla and assesses the chances of its “mind-blowing” ambitions to transform the battery industry and destroy the world’s reliance on fossil fuels. Elsewhere, Viola Risk Advisors explain why the pandemic and new accounting standards for US banks may spell the end of their global dominance.
  1. US constitution US presidential elections TrendMacro

    1. Disputing the election; views from a constitutional expert

    Don Luskin at Trend Macro has long been arguing that the odds of a Trump victory in the US presidential race are higher than many assume, and furthermore those assuming that the winner will be announced on election night might be in for a disappointment. It may turn into election month, or months, as a tight vote pushes the two protagonists to the courts to determine the outcome, and investors need to know how the US voting system works in order to prepare. To that end, Luskin recently held a conference call with US constitutional law expert John Yoo, a Berkley professor and former deputy assistant Attorney General under the George W Bush administration, in order to walk through all the things that could happen in a disputed election. Yoo explains that a close, disputed election, rife with accusations of fraud, is likely to result in litigation for the first time, sparking a protracted process that could hinge on the interpretation of constitutional provisions and federal statutes that have never been reviewed by any court in history. As he explains, the twelfth and twentieth amendments rule the process, but they have never been challenged, while it’s not even clear what constitutes a majority of Electoral College votes. If you’re interested in accessing the full recording of the call, please click the link below to speak with TrendMacro.
  2. US Presidential debate Cornerstone Macro

    2. Investor cheat sheet if the debate changes election perceptions

    Andy Laperriere at Cornerstone Macro says the various US presidential election outcomes are minimally priced into markets because concerns related to the coronavirus and the economy – and the shifting market positioning around those issues – have so far largely out-shadowed the race for the White House. Nevertheless, as the vote approaches, it is increasingly likely to influence investor behaviour, and he says the first presidential debate has the potential to shift expectations concerning who will win the election. With that in mind, Laperriere has summarised his research on the potential impact of various election outcomes on public policy and financial markets, setting out his findings in four useful tables. The first outlines his investment conclusions for the three major election scenarios, while the second assigns odds to various potential policy changes under each scenario. Laperriere also presents his Biden and Trump election portfolios.
  3. Consumers Industry disruption Technology Pennock Idea Hub

    3. Technology-driven disruption – the widening gap between winners and losers

    Barbara Gray of the Pennock Idea Hub is a leading expert on global industry disruption having published several books: “Secrets of the Amazon 2.0”, “Secrets of the Amazon” and “Ubernomics,” based on her extensive research. Instead of analysing companies in silos through a rear-view mirror, she pieces together emerging structural disruption trends across industries, using her proprietary Value Pyramid strategic framework to identify new variables and angles to help investors better look at and value companies. In latest quarterly update of her investment thesis, Gray explains how the coronavirus pandemic has unleashed a “future shock” which effectively has delivered three-year’s worth of digital transformation in just three months. Big tech, she says, is just going to get bigger and the changes to the economy are likely to be significant and long lasting. According to Gray, the home has emerged as the centre of society, and that – combined with the acceleration of the trend towards the digital economy – is likely to affect everything: the healthcare sector – with the rise of tele-medicine; retail – with the explosion of e-commerce; food supply – with one day delivery; entertainment – streaming from home, not to mention DIY, home furnishings and the auto sector. Gray will be giving a series of client presentations this week, and Pennock is offering Substantive readers the opportunity to participate in a call with her. If interested, please click the below link to contact Pennock directly.
  4. Battery materials EVs Tesla Roskill

    4. Assessing Tesla Battery Day; What it means the industry and battery metals

    Roskill are regarded as the premier research provider in the battery and EV raw materials space and have issued a note in the wake of Tesla’s Battery Day, focussing on the company’s “mind blowing” growth projections, technical innovation in battery production and growing interest in the raw material supply chain. Tesla’s ambitions, according to the firm, are vast – the company’s objective is to become the world’s leading battery producer, increasing its current production by about 80 times by 2030 – but they argue that this a worthy ambition and what is necessary if you want to transition the world away from fossil fuels. Roskill outlines how Tesla is leading innovation in cell production and cathode integration, examining the scope for lower production costs. To make electric vehicles truly affordable, says the firm, one of the key hurdles is to accelerate the speed at which $/kWh battery production costs are falling, as the rate of decline has plateaued in recent years. To help deliver these cost-savings, argues Roskill, backwards integration and innovation of the supply chain is crucial, and that is why Tesla announced it would build its own cathode production facility in North America. The firm also looks into concerns surrounding the sourcing of nickel, cobalt, graphite and lithium – the key raw materials in battery production – on the scale necessary to achieve Tesla’s dream.
  5. accounting standards US banks Viola Risk Advisors

    5. How new CECL accounting standards couldn’t come at a worse time for US banks

    Recently implemented and stricter CECL accounting standards for loans and other assets and the economic pressures resulting from coronavirus pandemic have cratered the 10-year upswing in US banks’ dominance of the global banking landscape, according to David Hendler at Viola Risk Advisors. He says US banking dominance had been characterised by their best-in-class “real” profitability and strong capital levels that were both supported by the exceptionally strong US economic environment prior to the Covid-19 outbreak. Now with the public health crisis undermining the US economy’s GDP growth machine and consumer loan portfolios in peril for huge loan losses, Hendler says the 10-year dream has turned into a nightmare, which has only been made worse by the new CECL accounting standards that have taken a backwards-looking accrual accounting standard and made it into a more burdensome forward-looking approach. He examines what banks should do in the current environment, and which ones will torment investors, risk managers and regulators the most. To further understand the challenges facing the sector, Hendler is moderating a panel hosted by the Fixed Income Analysts Society of New York (FIASI.org) on September 30 at 6pm NYC time featuring representatives from Fitch Ratings, Cantor Fitzgerald and MetLife. To view the event, please contact FIASI’s Lauren Nauser, nauser@fiasi.org , while those who cannot attend can get a recording here after the event.