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The Interim Stage Of Capital Markets

|Includes: GLD, IAU, SPDR S&P 500 Trust ETF (SPY)

Interesting dichotomies have for some time resurfaced forming market narrative(s).

Alt right vs MSM (Main Stream Media), populist vs elite, Brexit vs Bremain, Le Pen vs Macron, Rural vs Urban, nationalist vs globalist, central vs coastal, USDJPY, XAUUSD, law & order vs lawlessness, non- vs sanctuary cities, Nunes vs Schiff, and so on. While seemingly uncorrelated topics and areas of concern, there is a common thread holding it all together that is of a paradigm shift to unknown origin, a Kuhnian scientific revolution.

In light of the 45th presidential election, it would seem fit to declare the bull market over, Obama will be associated to the largest equity rerating in modern history, full stop.

The more surprising has been the market reaction in the S&P since the election.

It is safe to assume that the majority of market actors have not listened to Trump's speech at Gettysburg come the wee hours of Nov 8th to quickly assume tax cuts, financial deregulation, reflation, instead of the loss of the status quo. So akin to the question of which scientist first discovered oxygen (was it Priestly in 1774, 1775 or Lavoisier 1776, 1777), revolutions require the acceptance of a new discovery or paradigm and relinquishment of the old, both standing in stark contrast and incompatibility.

As applied to today's market, once the new administration successfully implements 2 or more changes in law/policy (e.g. tax reform, health care reform, immigration reform, infrastructure bill), we can expect the market to absorb the paradigm change. This will also imply an inverse trend to the preceding and the start of the bear market in risk assets. In the mean time markets are in the interim.

"Political revolutions aim to change political institutions in ways that those institutions themselves prohibit. Their success therefore necessitates the partial relinquishment of one set of institutions in favor of another, and in the interim, society is not fully governed by institutions at all." Kuhn, T. (1970) The Structure of Scientific Revolutions, p. 93

SoM is looking at Gold, market protection, idiosyncratic tech ideas favorably.