MacroVoices #240 Dr. Pippa Malmgren: U.S. Election Outlook

Episode Summary

Executive Summary: Macro Voices episode 240 centers on the 2020 U.S. election, market resilience, and the macro setup for dollar, gold, oil, bonds, and inflation. Eric Townsend and Kevin Muir debate whether contested election risk is priced in, while Pippa Malmgren argues civil unrest and digital geopolitics are intensifying. Muir then frames a lower-dollar, higher-inflation view and recommends a 5s30s yield-curve steepener.

Main Topics: Election uncertainty and market implications (Priority: 5/5): The hosts and Pippa Malmgren discuss the approaching U.S. election, the high likelihood of contestation, the possibility of civil unrest, and how markets may react to uncertainty versus a clean outcome. Civil unrest, social contract, and digital conflict (Priority: 5/5): Malmgren argues COVID has exposed and amplified existing social fractures, especially around race, inequality, protest, and changing norms, and that unrest is increasingly fought in the data/digital domain. Trump media strategy and post-presidency influence (Priority: 4/5): Malmgren revisits her view that Trump’s long-term objective has been to build his own media platform, potentially more influential than the White House, monetizing attention and political influence. U.S. dollar, inflation, and regime change in macro policy (Priority: 5/5): Townsend and Muir debate the dollar’s next move, with Muir arguing governments can create dollars at will and that COVID has accelerated the shift toward fiscal dominance and inflation. Treasury market and yield-curve steepener trade (Priority: 5/5): Muir says the best expression of the macro thesis is a yield-curve steepener, especially long 5-year vs short 30-year Treasuries, due to pinned front-end rates and rising long-end inflation risk. Crude oil term structure and backwardation setup (Priority: 4/5): Townsend sees oil strength led by the back end of the curve, with the Z1/Z2 spread and a return to backwardation as his preferred trade, conditioned on production declines and technical breakouts. Gold technical setup amid election risk (Priority: 3/5): Townsend remains bullish on gold longer term but expects more consolidation; he maps key technical levels and sees a contested election as a potential catalyst for upside.

Key Arguments: Markets appear increasingly insensitive to bad news, implying strong belief that the Fed will protect risk assets and that the election outcome—not the economy—is the main macro driver. A contested election is the major tail risk; uncertainty over who is president, or delays in transition, would likely be more market-negative than either candidate winning outright. Malmgren argues civil unrest is a rational response to stress from COVID, inequality, and political polarization, and that the next conflict zone is as much digital/data-based as physical. Trump is portrayed as someone likely to build a post-White House media empire that could out-influence traditional political office by maximizing attention and monetization. Muir argues the world has shifted from private-sector credit creation to direct government money creation, making lower dollar and higher inflation more likely. He says QE alone was not inflationary in prior cycles, but QE combined with fiscal spending is different and should eventually steepen the curve. The 5-year Treasury has limited room to rally much further, while the 30-year is vulnerable if inflation expectations rise, making 5s30s a favorable asymmetric trade. Townsend’s oil thesis relies more on time spreads and backwardation than spot price; he views the Z1/Z2 spread as the cleaner signal than front-month flat price. Gold may fall further if there is a clear election result, potentially toward the 200-day moving average, but a contested outcome could break it above resistance around 1937.

Data Points: Macro Voices episode: 240 - Episode number mentioned in the introduction. Recording date: October 8, 2020 - Date the episode was recorded. WTI front-month resistance: 41.72 - Townsend identifies the previous cycle high in front-month crude oil. WTI front-month level at recording: 41.18 - Current front-month crude price noted during the discussion. Crude oil inventory build: 0.5 million barrels - National crude oil build reported for the week. Strategic Petroleum Reserve draw: 1.1 million barrels - Offsetting draw in the SPR. Net crude inventory change: -0.6 million barrels - Net draw after combining crude build and SPR draw. Cushing build: 470,000 barrels - Inventory change at Cushing, Oklahoma. Gasoline draw: 1.4 million barrels - Finished products inventory draw. Distillates draw: 962,000 barrels - Finished products inventory draw. U.S. production increase: 300,000 barrels/day to 11.0 million barrels/day - Weekly EIA production update discussed in the oil segment. Gold price at recording: $1,897 - Townsend cites gold trading just below $1,900. Gold upside breakout level: $1,937 - Townsend says a close above this would confirm upside breakout. Gold support level: $1,800 - Nearby support if gold breaks lower. Gold 200-day moving average: $1,758 - Longer-term downside target if support fails. 10-year Treasury intraday low: ~35 bps - Townsend references an intraday low as possible end of the bond bull market. 5-year Treasury yield: 33 bps - Muir cites the 5-year yield to explain limited downside room. Poll concern: Biden strongly ahead in polls - Discussed as potentially misleading due to demographic and turnout issues. Black vote for Trump: rising substantially - Malmgren says support among middle-class Black mothers over 40 is increasing.

Pivotal Quotes: "the single most important issue in macroeconomics is the U.S. dollar" — Eric Townsend: Townsend emphasizes the centrality of the dollar during the market wrap. "What I'm saying is, as long as we know who wins and it's not contested, either way, we know the outcome." — Pippa Malmgren: On how markets may react to the election if the result is clear. "I think the governments and the central banks is going to create enough dollars to make inflation." — Kevin Muir: On why Muir expects lower dollar and higher inflation.

Implications: Listeners should focus on election-certainty risk, not just who wins. The likely macro regime is lower dollar, firmer inflation, and steeper curves; markets may price a clean result positively but punish prolonged contestation and unrest.