Joe Biden To Tax The Rich - Market Implications

Okay, hi everyone, it is Friday, 23rd of April, and I thought I'd jump on and get together, um, the usual man in the know on the live stream, senior trader Tim Duggan, live in Dublin as you can see, and then head of trading Piers Curran to have a bit of discussion really on two points. And one is we've had a decline in US equities yesterday, in fact the biggest slide we've seen in US stocks for for 5 weeks, and this came predominantly on the back of an announcement from US President Joe Biden proposing doubling the capital gain tax for the wealthy. So I wanted to get a take on that from both of you. And then also, not to put, you know, Tim's feet too close to the fire, but there was a tweet that went out earlier this week, and Tim was talking about his thoughts about why he feels that we might have seen the top already in US equities for this year. And rightly or wrongly, I just wanted to get the rationale really behind that, but also because I know Will, of a similar, let's say, trading disposition and style to Tim, has also been making some bearish noises. But I wanted to get Piers involved as well, and I definitely just want it to be an open forum of like, where are we at as far as a collective here? Because what I feel is I'm a little bit undecided, to be honest. I do think there's upside. I still feel bullish at this point, but at the moment I'm 2 to 1 down. Um, so I, I, I just want to know, and I think this is a really healthy thing for any new trader, is when we're at, let's say, a juncture for markets to make a decision, let's say, going forward, I always find it's best to talk to other people, right? Like, what do other people think? And bullish and bearish. I just want to hear the rationale, and then hopefully I can formulate a better opinion myself. So I guess, Tim, we'll start, start with you and, and the kind of thoughts that you had earlier in the week. So where did they, they come from?

Oh, I can't, can't— sorry, no pressure. Yeah, you should be able to hear me now. So, uh, okay. I, I wasn't very well on Tuesday morning, but, um, I was well enough to look at the market briefly. I came in, uh, 8 o'clock to watch the open, and it just really— if I share my chart, you'll kind of see, um, if I transition over to this one, um, you'll probably be able to see. Let's see. Oh, this is the VIX. All right, and that does play a part here, but I looked at the S&P And we're at this point here in the SPOOs, and I just thought, you know, hold on, we took a dip back to the 4144 last night, and we should be doing— we should be kind of at this point, we should be kind of cruising on, as which is what we've seen a lot of, right? Uh, you know, a lot of this. And I just— it just, it just felt like, well, we had a gap here on the overnight Sunday to Monday trade and just thought, wow, we're not even really making any decent attempt on getting bid over there. And I don't know, maybe I've just seen too many highs, too much irrational exuberance into these markets, and I've just had enough. Uh, and I just don't believe in the longs anymore. And so sure enough, um, following that, I got straightened up for home to Joe Biden. And he said, don't worry about it, Tim. I've got your back.

It's that Irish connection kicking in again.

It's that green telephone he has on his desk. It's the green one. That gets him through to this one. Right. So he said, Tim, don't forget. Don't worry about it. Triple short leveraged ETF on the SPY. I said, great. So here we are, uh, we came back to that point, pretty much the same area, and here we are. Um, you know, the harmonic pattern of the downtrend, whatever. But if, uh, the, the real reason why I, I transitioned this from a thought to a tweet is, is this, is the VIX, right? And, and I talked about this in a video that was too X-rated, too steamy for Anthony Cheung to publish on Twitter or on YouTube. Anthony Cheung wanted me to fully explain it here. So here it is. And this is the VIX. Now we're only looking at daily bars for about a year, but let's go into max monthly. This is going way back here to 2005. And I remember trading through 2017, 2016, 2017, 2018. And really, we were in a low volatility environment. The top of the VIX was really about 16.5, 17s. I mean, yeah, we had volmageddon early 2018s, which had this self-perpetuating VIX volmageddon portfolio insurance, lots of people liquidating shorts in the VIX. We printed up to 32s. But by and large, if I give you the full chart here, you can see this level 16 spot 48 was highs of 2017. This was really the ceiling of volatility in those years of trading. Look what happened on Tuesday. Actually, hold on, let me tidy this up. Get back to a day. Get back to 1 year, 1 day. Look what happened on Tuesday. We came down, we doji'd, and then we started to rally off of that level. And I just thought, well, resistance turns support, turns resistance, turns support. And I think now this is set to bounce hard off of what was the old ceiling on the VIX. And now it's set to bounce. And sure enough, we are getting— the VIX is from there, we're up— is that correct? 25% on the VIX? Is that right? So this is really my thesis. I don't— yeah, we're up— we're at 25% on the VIX since then.

I guess, Piers, is this a question of timing? I definitely think that we had gone through a period where if actually, if you look at the S&P on the daily chart and you look at the month of April, I mean, at some point, this has got to stop going at that rate. Because it was going pretty vertical at that point. It's almost like, for me, the macro view I've had is that the markets have almost looked to price in perfection going forward. The Fed holding off, COVID being controlled, vaccine rollout, reopening underway, earnings going to be explosive. And then these kind of few things come to fruition. You have a little bit of a global development with COVID People start talking about, OK, what about the impact that that might have then on the longer, bigger picture on demand side? For the subsequent slower pickup in some of these other very high-demand areas for a lot of goods and services. So is this a case of a little bit of a pullback now, but we go higher later? Or what's your take?

First thing to say is that Twitter is a dangerous thing. You know, when you throw tweets out like that, I mean, Tim Tugendhat, that's a call right there, guys. So when was that? You marked the date. What date did you send that tweet? 21st of April, was it? Um, let's see. I, I think that's a very ballsy call. Personally, I don't agree.

Um, it was actually the 20th.

20th of Tuesday, mark the day. Um, I don't agree personally. Um, I think when you're looking at the shorter term, that kind of technical thesis you just put forward there looking at the S&P. Yeah, it looks like— I agree, you know, that we had that pullback midweek and then we, we tried to push higher again and it didn't quite get there. And obviously the Biden tax news came in and dealt the market a blow. But if you look on a longer term, look on a weekly chart, for example, then, you know, we're still at the very top of what looks increasingly more like some kind of exponential rocket ship. And so I think, as Ants just said, April— you know, back end of March, start of April— has been, you know, supersonic, right? And I think this is a little bit of a pullback, and that's healthy on a long-term upward trend. I mean, if we just get into that macro point, the tax— the threatened tax hike— is that the moment? Is that, right, wealthy investors are now going to panic and sell stocks before this doubling of their capital gains tax comes into place. Can they get— sell their stocks, book their profit before the tax hike? You know, is that going to lead to sustained selling? Is that going to lead to wealthy people not investing in stocks anymore? Is this the end of this post-COVID bull run? No, in my opinion. I think that, yes, I mean, firstly, I guess there's a couple of points to say. Firstly, this I think is Biden's, you know, he's stepping out and that's his big kind of grab the headlines. And as Ant was talking to me, if you listen to our podcast today, or no, did we talk about it before the podcast? Anyway, me and Ant was talking about how there's midterm elections coming And it's the perfect electioneering type, headline grabbing, Democratic kind of comment, right, to ramp up those taxes and fine. But there are certain senators, Democratic senators that, right, they're all for tax hikes, but not perhaps not so much on the capital gains side, and certainly not to the degree that Biden's threatened. And so I think this is Biden setting out his first stall. And I think, yes, we will get tax increases. For sure, we need tax increases. I don't care if you're wealthy, you need to pay more tax. This is a fact, and I'm all for that, but, you know, not doing it in too aggressive a way that it's going to kind of implode the ship. But there's certain senators— keep your ear out for Joe Manchin, who's the Virginia senator, and also Kyrsten Sinema, who's the Arizona senator. They're two Democratic senators who are on that kind of the side of the party that are a little a little bit skeptical about tax hikes. So if Biden wants to push this through, he's going to need all these guys on board. And I think those that are on that side of the party will probably in the end push to a watering down of what Biden said earlier this week. That's one thing to say. The other thing then, just say taxes do go up, you know, are wealthy people going to sell stocks? It depends on how much the tax hike is, and maybe Maybe they will, but that doesn't necessarily— two things: that doesn't mean that the economy is going to crash and therefore stock markets have topped and then they're forever going to go down again. But also, I was reading in the FT about one uber-wealthy hedge fund manager crying about this, of course, and he's saying, oh my God, it's the end of investment. Wealthy people now, they're not going to be investing in companies and investing in these new technologies and innovations for growth over the long term. Instead, they're going to consume. They're going to use this money to consume. Well, no, they're not. Wealthy people, they're already consuming all they can. They've got surplus capital. That's why they're investing it. So what are they going to do with this surplus capital? Still, the stock market, even if tax rates are higher, is still probably the best and easiest vehicle for them to grow their capital, that surplus capital that they don't need to spend. So it might trigger a sell-off, but then I was talking to Anthony Cheung, they'll sell off, realize their gain, pay the tax at the lower rate, then they've got their cash, and what do they do? Buy stock. And especially if there's a bit of dip, we'll just buy again. So in my opinion, this whole tax argument doesn't necessarily mean everyone's going to sell and this is the top. Final point before I throw it back. Well, yeah, let me make a final point before I throw it back.

Go for it.

We've just— we're seeing the early phase of the cycle here. So this is the post-recession early phase, okay? And the stock market is a lead indicator to the economy, all right? So the stock market has been pricing in the early phase for, well, at least since November, right? At least when the vaccine kind of thing started to kick out. So the early phase, I'd say, is the easiest phase to make money as an investor. By and large, everything's going up. All right, you can pick and choose, and you can make more return here than here, but basically you're going to make money. Okay, and stocks outperform— it's their best, it's actually their best part of the cycle in terms of upside. What's going to happen, I'd say, from the summer onwards, where we're going to kind of finish that early, you know, recovery phase, and we're going to be into the mid-phase. And for the investor, that's the hardest phase. It's the hardest phase to find alpha because there's less sector divergence, okay? So it's harder to kind of use a sector rotation play, and we're in a bit of a new world because it's post-COVID and stuff's going to change, you know. Is Are we going to change our travel habits? Are we going to change our going to the office habits? Well, yes, but we're not quite sure by how much, right? So I think, I think the second half of this year, you're going to— it's going to be harder for investors to find out performance. But I still think generally that big tidal wave of monetary and fiscal stimulus coupled with huge amounts of cash that consumers are now sat on having spent no money for a year. I still think that, that trio, that catalyst is still going to see the stock market trend higher from this point.

Okay, Tim, you, uh, okay, you were gonna make a point earlier. Okay, yeah, so coming back to one of the key things that— well, you know, well, myself had a quick little momentum traders powwow before this conversation in the room. And something I had discussed on Twitter with people, someone came back to me and they said, "Oh, what, Tim? So people are going to be buying negative yielding bonds?" And I'm thinking, well, no, this whole world of it's either bonds or equities or the post office, No, it's a much broader world now. We have positive yielding crypto assets. We have positive yielding DeFi token space. There's going to be a hell of a lot of startup and innovation coming as we unlock around the world. So that's money into speculative startups. It's just property is huge. These historical low interest rates people are going to want to pile into property wherever and whenever they can. I don't think a prudent investor is going to just plan to commit more capital to something that is going to be subjected to 43.8% capital gains tax at this time. And as Piers was saying, I think they're going to let it come back.

I get capital gains taxed on property though.

You would, but surely it's a safer— like it has a much lower volatility on your principal.

Yeah, that's true. If you want to put crypto in your bucket, that's your volatility.

Well, it's horses for courses. Yeah. Look, I said on Twitter, I'm perfectly happy to eat this tweet. Because I don't get married to any idea about whether the market's going up or down. I just trade markets in the direction that they look like they're going to move at any given time. And I'll change that idea in a matter of seconds if I have to. So maybe you'll be prepping a hat for me to eat soon enough. That's fine. I'll put some sauce on it.

As this, um, as I kicked off this conversation, uh, and again, a, a kind of valuable point to come of this for anyone I think new to markets particularly is that this is a healthy discussion, right? It's good to flesh it out and kind of be stress tested on your view because in a sense you're exercising that view in your strategies and your execution. So it's good to have like a well thought out and have conviction behind your call. And absolutely, it's what makes a market. We don't all have to agree, but I think there's a lot to be said for, for thrashing it out. What I'd love to happen though, if we put this up on YouTube, drop a comment, let us know what you think. You know, what, what does it matter what we think? What do you think?

Absolutely. Let's get their opinions.

Come on. Absolutely.

All right, join us.

Thanks both. See ya. Brilliant. Thanks, guys.